Who cares whether price transparency lowers healthcare costs?

January 12th, 2015

Yesterday, The Atlantic ran a piece about price transparency in healthcare, claiming that letting consumers know the cost of things might actually increase healthcare costs.

This follows quite a bit of back-and-forth about price transparency in the consumer press going back at least a month or so, when USA Today ran an op-ed arguing that the lack of transparency was driving up healthcare prices, which the newspaper rather dramatically claimed “are shrouded in secrecy.” So who’s right?

To be honest, I don’t really care.

Don’t get me wrong -- I care about price transparency, and I care about lowering healthcare costs. I’m just tired of how the debate has been framed. Simply put, price transparency is the right thing to do, whether or not it leads to lower costs. I believe people have a fundamental right to know how much a procedure’s going to cost and to be able to factor that information into their decision about who trust with their healthcare. It’s a matter of ethics.

The economic case for price for transparency is a little shakier, as Peter Ubel points out in his Atlantic piece, and by pushing it – by framing transparency only in terms of lowering costs -- transparency advocates allow their opponents to ignore the ethical dimension.

On Twitter (@peterubel), Ubel summarized his piece pretty well: “What works for toasters won’t necessarily work for MRIs.” Basically, he means that when one toaster is about as good as another, people tend to buy the cheaper one, but there are a variety of other factors at play when it comes to shopping for health care services, many of them having to do with insurance and copays. For example, if I’m going to pay $150 no matter what, why should I care how much the insurance company’s being charged?

He goes on to argue that “patients often don’t shop for health care in the kind of rationally defensible way that economic theory expects them to” and floats the idea that some people, when it comes to some products, equate a higher price with higher quality. He writes, “There is reason to worry that price transparency won’t lead consumers to make savvy decisions. It is too difficult for people to know which health-care provider offers the highest quality care.”

First of all, I don’t think he’s giving people enough credit, and second, I think he’s only half-right about the difficulty of determining quality of care.

Coincidentally, yesterday also saw the release of a new report from PricewaterhouseCoopers’ Health Research Institute called “Scoring Healthcare: Navigating customer experience ratings.” According to a news release from PwC, “48 percent of respondents said they have read healthcare reviews…[O]nce consumers read a review, the information proves influential. Among those who have read healthcare reviews, 68% said they have used the information to select a doctor, hospital and to a lesser extent, a health plan, pharmacy and drug or medical device.”

So much for the idea that consumers don’t make thoughtful decisions about their healthcare. They care about quality, and they deserve to know about pricing. Maybe I’m naïve, but I think they can handle the truth.

For more on price transparency, see these earlier posts from Joy and Jill.