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Price Points

January 31, 2008
by Charlene Marietti
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The demand for greater cost accountability challenges payers and care providers to supply enough data for informed decision-making

Will empowering consumers with enough information on cost and quality points be enough to curb runaway healthcare spending? No one really knows. Such a free market approach works well for most tangible goods and services, but there have been few opportunities to test its effectiveness in healthcare. Although the theory is the essence of consumer-directed health plans (CDHP), the data that might entice consumers to “shop” more wisely for healthcare services and providers is still a very shallow pool.

But there have been advances, especially with government leadership and initiatives. Comprising nearly half of the payer market, the feds have a huge financial interest in curbing costs — and they have the largest chunk of cost data. A report released in December by the Department of Health and Human Services' (HHS) Agency for Healthcare Research and Quality showed double-digit growth of hospital care costs alone between 1997 and 2005. And nearly two-thirds of those costs are billed to two government payers — Medicare and Medicaid.

One catalyst aimed at cutting costs is price transparency. It was a core component of President Bush's Executive Order 13410 issued in August 2006, aiming to promote quality and efficiency in federal government-administered or -sponsored healthcare programs. The directives have no teeth — or any funding, for that matter — but they do provide guidelines and direction for federal agencies.

A report released by HHS in August 2007 details its progress in accomplishing the goals of the executive order, including making prices transparent and publicly available. For example, the Centers for Medicare and Medicaid Services continues to improve its price lists for increased groups of select high utilization DRGs (diagnosis-related groups) in hospitals and commonly performed procedures in ambulatory surgical centers, hospital outpatient departments, and physician offices through its Web site. It's far from comprehensive, but it's a good start.

Private payers are following HHS's lead, but it's still too early to assess the impact. A majority of large payers have already begun to invest in and execute some financial transparency initiatives, says Janice Young, program director of Health Industry Insights' Payer IT Strategies program, an IDC company based in Framingham, Mass. Yet, according to a July 2007 RAND/Watson Wyatt study of employers' perceptions of CDHPs, there remains a serious lack of confidence in healthcare payer cost and quality transparency initiatives. Only 5 percent of those surveyed rated their access to physician cost information for CDHPs as good or excellent.

Many care providers are also tackling financial transparency. According to results of the Healthcare Informatics Research Report, “Trends in Healthcare Financial Systems,” one in four providers surveyed report full price transparency within their organization. On the other hand, 44 percent say their institution has no plans to introduce any price transparency. (Read more about provider organizations that are empowering their patients with information on cost and quality in “Pulling Back the Curtains” in the December 2007 issue of Healthcare Informatics.)

The question continues whether or not providing such information can effect change, but it's already accepted that more than facts and data points will be necessary to effect widespread change. “Just handing data to consumers does not bring change,” says Young, “but it's a starting point.”

More information about “Trends in Healthcare Financial Systems” is available from Vendome Group, LLC at or by calling (212)812-8439.