Transparency of healthcare prices and quality of care: The caboose is at the station waiting…

Aug. 21, 2015 / By Norbert Goldfield, MD, Richard Fuller, MS

…for the engine to pick up steam. In the past ten years, the train carrying healthcare pricing and quality information has been rolling but the caboose is still waiting at the station. Significant improvement is necessary before we can say with confidence that pricing and quality information is sufficiently transparent, accessible and provided in a timely manner. As importantly, ongoing concerns need to be addressed so that those using information provided will be able to interpret it in a meaningful way. It is clear that while most people have difficulty understanding and, more importantly, acting on the healthcare information that is currently available, the situation is getting better¹.

Prices and quality have a direct bearing on decision making and the cost of care at three distinct points in the healthcare system.

First premiums. When a payer or insurer negotiates with a provider, such as a hospital system, over the cost of inclusion in the payer network they negotiate based on the relative costliness of services provided. The results of these negotiations determine the actuarial premium charged to enrollees. Thus, limited networks can return lower premiums but may achieve these reductions through lower quality. It is therefore important for those subsequently purchasing insurance to have a clear understanding of the criteria for a provider or facility to be included or excluded from a network so that they can be confident about the quality of care they are likely to receive. As with most purchases we make, and doubly so for health care, the quality of a product or service is a direct component of price and needs to be clearly communicated.

Second, personal liabilities. Insurance influences consumer decisions by differentiating providers, sites of service or distinct services by different tiers of personal liability. In a recent publication, hospital systems that moved from a non-preferred to a preferred tier were shown to do so largely on the basis of price². Because we know that tiering can sway consumer decisions, it is important that tier selection is based on a rational process and fits within the wider sweep of obtaining value. Tiering decisions based solely on price without substantively considering the relative quality of institutions is counter-productive. It is unclear what the long-term impact of tiering may be, but if payers judge providers purely upon price it is unlikely to result in higher quality.

Third, out-of-network costs. The goal of a network is to keep patients within it. This is particularly true for the rising number of provider plans. Therefore, out-of-network services are priced prohibitively. There is a tension however between restrictive networks that can offer low price with high quality and the likelihood that services may be provided out of network. Most of us do not anticipate a trip to the local emergency department or that we will be diagnosed with an illness beyond the level of care of our usual providers. As networks further narrow we need to have some way to quantify the amount and nature of services that will be delivered out of network.

We know that purchasing healthcare services is more complex than buying cars or even car repairs. We are at the start of the process to generate meaningful price and outcomes information posted in an easy-to-understand manner. While Medicare’s use of star rankings to convey complex information within a simple report is a part of this effort, it is too limited. Part of the problem is that star ratings are based on “black box” analyses of data that neither healthcare professionals nor individual consumers can replicate or validate. Black box approaches to this critical aspect of health reform is antithetical to empowerment.

Over time, the routine availability of outcomes quality (such as complications or readmissions) can help inform our decision making and become an integral component of price for determining value. This is an important step. We are conditioned to believe that prices reflect quality – it is why you pay more for something. A strong reputation based upon name recognition coupled with a high price is usually sufficient for purchasers to infer high quality. What we know from quality reporting efforts is that this is not necessarily the case in health care. We should therefore be looking to regulators such as the federal government (Centers for Medicare and Medicaid Services) or state insurance administration agencies to take the lead in publishing transparent pricing and outcomes information. While they are trying, they are falling short on delivering on the transparency of information. In coming blogs we will review private sector websites that purport to provide pricing information. Sadly, however, until more transparent, replicable information is available, the train’s caboose is stalled at the station.

Richard Fuller, MS, is an economist with 3M Clinical and Economic Research.

Norbert Goldfield, MD, is medical director for 3M Clinical and Economic Research.

Today’s value-based care models require a different kind of quality measure. Learn which will lead to improved patient outcomes.

¹ Wasson J, Coleman EA. Health confidence: an essential measure for patient engagement and better practice. Fam Pract Manag. 2014 Sep-Oct;21(5):8-12; Bardach NS, Hibbard JH, Greaves F, Dudley RA. Sources of traffic and visitors’ preferences regarding online public reports of quality: web analytics and online survey results. J Med Internet Res. 2015 May 1;17(5):

² Frank MB1, Hsu J, Landrum MB, Chernew ME. The Impact of a Tiered Network on Hospital Choice. Health Serv Res. 2015 Mar.