Richard L. Clarke, FHFMA, DHA

Politicians, policy wonks, economists, and consumer advocacy groups are beating the drum of price transparency in health care.

But achieving meaningful transparency is not just a matter of replacing the walls of the business office with glass.

In a consumer-directed healthcare system, consumers have more financial stake in their care decisions. And to make an informed decision, consumers must have understandable and comparable information on quality and price.

For most products and services, price information is fairly easy to communicate. Retailers advertise their prices, and through experience, word of mouth, and independent sources, consumers can judge the quality of the products and services they purchase. They can make a value assessment (that is, the relationship of price to quality) using readily available information.

In health care, the model breaks down because understandable, comparable quality information is not readily available. And pricing is a mystery even to those of us who work in the field.

Some states have mandated that the price of certain procedures or diagnosis codes be published to facilitate consumer decision-making. This approach, however, ignores the important impact of third-party payment, deductibles, and co-insurance on the final bill. What consumers want and need to know is the amount they will eventually pay for the services they receive.

So price transparency is not so much about the underlying charges for a service or episode of care as it is about the total payment expected from the consumer after all other payments, adjustments, and discounts are applied. For some items that are not covered by insurance or discounts, this amount does reflect the underlying charge (although bundled pricing for common procedures and services is becoming more common). But for most services, the amount of payment depends on the services consumed in the care of the patient, and third-party payments, adjustments, and discounts.

Leading provider organizations are beginning to offer true price transparency by providing the consumer with an estimate of the final amount of payment expected from an episode of care. These providers estimate the total charges given the nature of the procedure, diagnosis, and patient medical condition, less the estimated insurance coverage and adjustments for that particular service or procedure. The estimate is often guaranteed within a range of charges unless the patient's condition requires extraordinary care.

This type of price transparency provides consumers with the information needed to make an informed care decision. As consumerism continues to evolve within health services, the demand for providers to offer this type of price transparency will increase. Developing the people, processes, and technology to meet this demand is a key strategy in preparing for consumer-directed health care. Unfortunately, it's a lot harder than constructing glass walls.

Publication Date: Saturday, April 01, 2006

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