Daugherty: What price transparency means for hospitals—and what to do next

The Daily Briefing's Hanna Jaquith spoke with Alicia Daugherty, practice manager of the Advisory Board's Marketing and Planning Leadership Council, about how hospitals are responding to the national push for price transparency in health care.

Q: Competitors are increasingly pulling back the curtain on prices, lawmakers are pushing for greater transparency measures, and at the same time, consumers are being asked to take responsibility for a greater portion of their health care costs. Are hospitals prepared?

Daugherty: Not exactly. A recent study found that only 16% of surveyed U.S. hospitals were able to provide an estimate for the cost of a hip replacement. Some providers are ahead of the game, and others have been pushed along by state requirements. But in a recent report card on state price transparency laws, only Massachusetts and New Hampshire got an "A".

Q: What are the risks for hospitals here?  

Daugherty: In the short-term, the hidden variability in health care prices is attracting a flood of media attention, and hospitals' inability to provide data isn't doing them any favors. Not only does it lead reporters to use skewed data from one-off phone inquiries or individual bills, rather than average figures, it also makes hospitals look secretive and bureaucratic—not exactly the patient-centered image they want to convey.

In the long term, providers will almost certainly have to be more transparent. Price convergence is a real possibility; however, it's not guaranteed, and prices may not fall.

Q: That sounds surprising—a common argument is that because health care prices are opaque, it easier to keep them high. So if you make prices more transparent, they should fall, right?

Daugherty: Other industries have shown us that transparency doesn't necessarily lead to price wars—competitors may collude, or lower-cost competitors may raise their prices to be on par or just under those of more expensive providers.

  • The era of price transparency? Advisory Board experts outline best practices for managing the increasing demand for price transparency in medicine.

And the health care industry still has a number of distinctive characteristics that limit transparency's price effects—low competition in many markets, complex products, and multiple agents involved in purchasing decisions.

Q: How does health care quality factor into this debate? Shouldn't consumers be prioritizing high-quality care, rather than rock-bottom prices?

Daugherty: I think it's fair to say that the typical consumer doesn't have a good working definition of "value" as it pertains to health care. They've relied on physicians to define that and give a recommendation. Value involves trade-offs between costs and benefits, but most physicians and patients don't talk about them—it's uncomfortable for both parties.

[Yet] as patients get more access to data and become more involved in care decisions, their awareness of trade-offs is growing. They're trying to weigh quality, cost, access, and experience, but it's hardly a refined calculus. 

Provider organizations need to be upfront about costs but also help patients understand the other elements of the value equation. A good example of this is CarePilot: Providers list open appointments for different services—everything from MRIs to acupuncture—but the prices vary depending on the day and time of the appointment. So patients can make their own tradeoffs between price and convenience.

Q: How is cost different from the other factors patients are weighing?

Daugherty: First, it's tangible. As in, "I know how to measure it, and I'm highly attuned to its value, because money is part of every purchase I make." Access is probably the next most tangible, since it's measured by time. But fewer people think about health care quality in the course of a given day, or know how to measure it. 

Second, it's personal. Quality and experience scores are averages across patient cohorts, not predictors of my own outcomes or experience. And I like to assume that the odds will work in my favor. But when I'm quoted a price, I assume that's a good predictor of what I'll have to pay.

And third, it bookends the care experience. At registration, I'm asked for my copayment, and my last interaction is usually the bill arriving in the mail. If that's an unpleasant surprise, I'm probably going to forget how friendly the doctor was.

Q: So what's the Marketing and Planning Leadership Council advising providers—basically, what should hospitals do given what's at stake?

Daugherty: Regardless of whether they begin to post prices, hospitals need to invest more resources in their patient financial counseling departments and be prepared for heavier volumes as the Affordable Care Act's exchanges come online and patients ask more questions up front about the cost of their care.

Hospitals also need to develop collateral that explains care costs and which parts the patient will be responsible for, particularly regarding the ACA's annual Medicare Well-Patient and Well-Woman visits. Oftentimes, providers are delivering additional services that might not be covered under the no-cost ACA's wellness visits, so it's important that patients understand what will and will not be covered.

Finally, providers need to be looking into online tools to help patients estimate costs. That means both adding those service to their websites and developing a strategy for participating in third-party sites.

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