Web tools enable price comparison & push consumer-driven healthcare

Insurance companies are begin to comply in earnest with a policy of greater price transparency, something the Bush administration has long been advocating as it pushes "consumer-driven healthcare." From the June 13th WSJ article Patients Get New Tools To Price Health Care:

Aetna Inc., which last year in the Cincinnati area became the first major insurer to reveal rates it negotiates with local physicians, is expanding that program to eight more areas. Other major insurers, including Cigna Corp., Humana Inc. and UnitedHealth Group Inc., are adding or expanding their own online pricing tools. And Medicare early this month posted online1 the ranges of what it pays hospitals for 30 common procedures and treatments, the first in a series of disclosures the agency says it will make. Several state governments and hospital associations, including in Florida, New Hampshire, Utah and New Mexico, are launching Web services that list hospital charges.

The information provided by these new tools comes with caveats, but the services do show that, in principle at least, comparison shopping can make a difference: While prices of simple services in doctors' offices are fairly consistent according to some online data, hospital costs often vary widely. For example, a Web-based pricing tool offered by Humana shows that at hospitals in a Humana network in southeast Wisconsin, a knee replacement ranges from a minimum of $16,900 at one hospital to a maximum of $34,050 at another, reflecting in part discounted rates that the insurer has negotiated with health-care providers.

What's behind the further push into this direction?

The new pricing services are popping up as consumers are being asked to shoulder an ever-greater proportion of their health-care costs. Employer-sponsored and other health plans are shifting more of the cost of health care to consumers by raising co-payments and cutting benefits. That dovetails with efforts by the Bush administration to promote so-called consumer-driven health care, mainly through high-deductible insurance policies paired with health savings accounts that offer financial incentives to shop wisely for care.

The problem for consumers has been finding the prices in order to make the comparisons. Until recently, doctors and hospitals had little incentive to disclose prices, since insurance would generally pick up the tab. When patients do seek cost information, health-care providers can be hard-pressed to explain the often-byzantine pricing systems. And the discounted rates that insurers negotiate with doctors and other providers are held close to the vest for competitive reasons.

There are certain limitations to the insurance companies' push for better price transparency. For one, they have limited price information to their enrollees, and then only in certain test cities. Also, [a]nd while some tools, including Aetna's and Cigna's, are adding information on quality of care, comparative data in that area are still hard to come by. So patients may simply opt for the costlier options in the absence of any other gauge of quality, even though one of the goals of consumer-driven health care is to lower costs.

"It's not like going to Wal-Mart and saying, 'I'm going to buy tuna fish now, it's cheaper,' " says Regina Herzlinger, a Harvard Business School professor who is an advocate of consumer-driven health care. "This is a more complex kind of decision."

An important factor in all this is the Internet. Web technologies allow consumers to see prices without having to call the doctor's office and ask what some consumers themselves may see as pesky questions. And besides, for the insured they have not been in the habit of asking for prices since all they pay is the co-pay (which is beginning to change as the insured are beginning to pay more -- and variable amounts -- for their healthcare. But the web presents its own problem.

The tools are mostly Web-based, so many patients won't have the resources to access them.

And a price listing isn't the end-all-be-all in medicine.

Charles Murray, a human-resources manager at a South Milwaukee, Wis., manufacturing firm, used Humana's hospital-cost tool before his knee replacement in March. The hospital he preferred turned out to be among the least expensive listed. Humana says the tool shows that a knee replacement at that hospital costs $18,150 to $19,650, taking into account discounts the insurer has negotiated with the hospital. When Mr. Murray received the bills, he says, the cost totaled $20,220 (though insurance did cover most of the costs). Costs can fall outside of the range for a variety of reasons, Humana says, for example if a patient stays in the hospital longer than others typically do.

Still the insurance companies press on, imagining having to provide price information readily soon.

Aetna says it didn't expect the program to cause tangible changes in its first year, but that as more consumers have plans with high deductibles, prices will become more important to them. "All of a sudden, they're going to demand the information, and if we're not ready for it, then we'd be very concerned," says Robin Downey, Aetna's head of product development.

And they're not limiting this to just medical care.

UnitedHealth Group early this year added a tool to its consumer Web site that lets enrollees in its dental plans nationwide look up the rates the insurer has negotiated with individual dentists for nearly 600 procedures, plus what they'll have to pay out of pocket. Some insurers, including UnitedHealth and Lumenos, a unit of WellPoint Inc., have online tools that let enrollees look up drug costs at specific pharmacies in their areas.

Perhaps another reason why insurance companies are changing their tune is because governments are beginning to demand it.

On the state level, in the past year and a half a number of bills on price transparency have been introduced in legislatures. Among laws that have passed, South Dakota requires hospitals to report annually their median charges for their 25 most common inpatient services. That information was posted online in early June, at hospitalpricing.sd.gov2. A Minnesota law requires the development of a public Web site on common hospital charges by Oct. 1.

The New Hampshire Hospital Association last month launched a site, www.nhpricepoint.org3, that provides average charges and lengths of stay for a variety of procedures at hospitals in the state. Similar sites are available in Wisconsin and Oregon, and the Utah and New Mexico associations plan to offer similar sites later this year. The Wisconsin site, www.wipricepoint.org4, had about 320,000 page views since it was launched in February 2005, according to Wisconsin's hospital association.

Florida's government late last year launched floridacomparecare.gov5, which provides individual hospitals' average charges and lengths of stay, plus some quality information. Another Florida site, myfloridarx.com6, provides retail prices at individual pharmacies for the 50 most-commonly used prescription drugs in the state.