Uwe Reinhardt, Ph.D. is one of the nation’s preeminent voices on healthcare economics.
Among his many notorieties, Reinhardt has served on a heap of government commissions and advisory boards, is a frequent contributor to The New York Times Economix Blog, has authored several books, appeared on NPR’s “All Things Considered,” and PBS’ “Frontline,” as well within the pages of several medical journals and publications. His day job is the James Madison Professor of Political Economy at Princeton’s Woodrow Wilson School of Public and International Affairs.
Recently, Reinhardt wrote a piece in the Journal of the American Medical Association (JAMA) about how information technology (IT) could remove the “shroud of secrecy” that exists within private healthcare costs. His argument was that comparative pricing databases would force hospitals to be more transparent and open about procedural costs. This would introduce reference pricing –the cost consumers anticipate paying, or consider reasonable to pay, for a particular good or service – to healthcare in the U.S.
Healthcare Informatics Senior Editor Gabriel Perna recently spoke with Reinhardt on his thoughts about hospital pricing and what role IT plays in reducing those high costs. Below are excerpts from part one of the two-part interview.
Perna: You’ve done a lot on this pricing topic over the years. In 2013, we saw a shift in the public perception of hospital pricing and this transparency movement. The CMS [Centers for Medicare & Medicaid Services] released charge information for the first time ever, TIME magazine had a huge article on this topic from Stephen Brill, and many other media outlets have covered it in depth. Why has this pricing transparency movement started to gain some steam?
Reinhardt: Well, this is how it always goes. Initially, only a few people know about these things and we start writing about it, and eventually people pick-up those papers. The Steve Brill thing came out of the blue on its own. He recently spoke in Washington at a conference about transparency. There was some personal incident that made him curious. A lot of these things happened, and then all of a sudden these articles reinforce each other.
And then finally, people realize there is only so much you can do with utilization control. We’re not actually very heavy users of healthcare in America. People started to compare prices. There was the International Federation of Health Plans. They annually do a survey of prices and it was quite clear we’re paying 2-3 times as much for any healthcare service than any other nation.
It’s at the point now where I tell providers you can’t stop it anymore. I gave a talk recently in New York, called “Barbarians at the Gate.” And I said, “You lived in the secure castle with complete price opacity, no one knew what anything cost, which worked really well for you. But you now have these insurgents at the gate, beating at the door, and they’re even getting help from inside. Pretty soon you’ll be fully transparent.”
Another development I should add is the movement towards high-deductible policies. All of a sudden, people faced [up to] $4,000 deductibles. They were curious why they had to pay this for, say, having a baby. They realized there was no price data. That probably started to help kindle interest in pricing. Now it’s in full bloom.
“You lived in the secure castle with complete price opacity, no one knew what anything cost, which worked really well for you. But you now have these insurgents at the gate, beating at the door, and they’re even getting help from inside. Pretty soon you’ll be fully transparent.”
Perna: Have you ever seen it like this?
Reinhardt: Absolutely not. This is a fever pitch. There was a Robert Wood Johnson Foundation conference [on this topic] for three days in Washington. I was there, it was amazing.
Perna: In your JAMA piece, you offered the opinion that IT can really unveil that shroud of secrecy when it comes to private healthcare costs, and you cite reference pricing in the piece. Explain how this would work?
Reinhardt: With reference pricing, if you take a procedure that’s kind of standard, like a knee replacement, and then you rate all of the hospitals as a payer that you deal with that do the procedure from low price to high price, and that range may be from $20,000 to $100,000. That’s the variant in price. Then you tell the insurer, we’ll give you $30,000, and any of these hospitals will do it for $30,000. But if you go to a hospital that costs $46,000, you pay the extra $16,000. The reference price would be the $30,000. Anyone goes to a more expensive hospital has to eat the entire difference. It’s a very powerful price controlled tool. The minute you introduce it, the high-priced hospitals come down in price because they lose all their business. The reasons these variants could exist was exactly because the prices were hidden.
Perna: Could you compare it to what airlines have done with listing prices online?
Reinhardt: Airlines of course have prices online, and in fact, almost everyone else has prices online, except the healthcare industry. It’s being done in some areas, but you still don’t really find them online. There’s a company, the Healthcare Blue Book, I met the guy who founded it (Healthcare Blue Book provides free online tools designed to enable consumers to understand how much they should pay for healthcare services). He gave a talk on how this happened. It happened to his family. It’s usually someone who works in healthcare, is very familiar with it, somehow gets mal-treated by the system, and then reacts and says, “I don’t want this to happen to other families.” And then creates a small startup. Castlight Health (provider of healthcare prices through online tools) is another.
Perna: So how can IT be this conductor to help bring this pricing transparency to light?
Reinhardt: It can’t be done without IT because the chaos in pricing is so huge. You need big, big databases, from employers that the IT people can milk the data out of on pricing. And then make it available on a website to employees so the employer’s insurance can do reference pricing. The employee then can see the prices every hospital within the market area charges. You can’t do that without cheap health information technology.
It can’t be done without IT because the chaos in pricing is so huge. You need big, big databases, from employers that the IT people can milk the data out of on pricing.
That also was a factor [in the movement’s recent emergence]. Twenty years ago, this would have been too expensive computationally. Now, everyone has in their pocket a huge powerful computer called the iPhone. You can sit in a cab on the iPhone, find out what hospitals charge for knee replacements in your area. That requires everyone has access to computers that is cheap, and software that puts this all together. Now we have all that.
Coming soon, part 2, where Reinhardt talks about the expected backlash that will come from the hospital industry from this movement and what we can expect to happen in 2014.