David Goldhill, founder and CEO of Sesame, explains why price transparency isn't the solution to rising healthcare costs.
Who could possibly be opposed to greater price transparency in health care? As Ken Alltucker writes in USA Today, even routine diagnostic tests can be as much as 10 times higher in one hospital than another. Surely, making certain that consumers know these price differences can help bring prices down?
Unfortunately, no.
Congressional efforts to expand existing price transparency requirements make a mistake common in health care policy: confusing the symptom for the disease. The health care sector doesn’t lack price competition because of lack of transparent prices. Health care lacks transparent prices because there is no price competition.
Compare a hospital to the real world: there’s no legal requirement that Amazon, your corner grocer, your coffee shop, or your dry cleaner have “transparent” prices. They just wouldn’t sell anything if they kept their price hidden – consumers would simply shop elsewhere. The possibility of losing out on consumer dollars incentivizes these businesses to keep prices competitive.
Yet hospitals - in fact, most health care providers - face no such reality. Prices for services at hospitals are not determined by competition for consumer dollars but by intermediaries like Medicare, Medicaid and insurance companies. In other words, prices are defined by what insurers will pay, not by what patients will pay.
But there is an alternative approach that can bring price competition to health care.
Congress can instead mandate that the dominant buyers of health care – health insurers – disclose what they pay for a wide range of services and give their customers a financial incentive to seek lower prices.
Say your insurer pays $1,100 for an MRI. If you knew that price and arranged for one for less money, you should get a credit against your premium for the difference. That’s real and actionable transparency that would drive actual competition.
Insurers, of course, would hate this. It would force them to negotiate lower prices for healthcare services in order to compete with other insurers. But it is the dominant role of third-party payment that makes health care non-competitive, and as consumers are exposed to ever-greater out-of-pocket costs, public policy should be oriented toward letting them benefit from real competition.
We see this at Sesame – all of our customers are price-sensitive, either because they are uninsured or have deductibles so high that they pay for most of their care directly anyway. All services on Sesame are cash-pay only, and while price isn’t the only way our providers compete for customers, it is front and center in every episode of care.
It’s not that complicated: If we want to drive down prices, we need competition. And if we want competition, we need to create proper incentives. For providers, lower prices need to lead to more business. And for consumers, lower prices need to save them – not just their insurer – actual money.
