When the price of a colonoscopy ranges from $450 to $10,000, there's room
for plenty of savings. By Bernadine Healy, M.D.
As President Obama said again in his recent address to Congress, an imperative for
health reform is containing runaway health costs. But the elephant in the room that
is a real driver of costs is something few people are talking about: the variable
and hush-hush pricing of medical goods and services, set by the government or negotiated
by insurers and largely kept secret from the patients ultimately responsible for their
Look at a colonoscopy: When paid by Medicare, the fee is roughly $450. Insurance companies
secretly negotiate a maze of different prices, generally two to five times that. But
as the trade group America's Health Insurance Plans recently reported, patients who
have to pay their own bill because they are uninsured, are seeking care outside of
their insurer's network, or their insurer has denied their claim, can face retail
charges as shameless as $10,000. And how can it be that Medicare pays $40,000, prix
fixe, for the same heart operation, by the same doctor, at the same hospital, that
costs patients paying privately $80,000 to $120,000? Consumers' ignorance of what services truly cost blurs the connection between their
rising insurance premiums and prices, setting the stage for those prices to soar ever
higher. Little wonder that the country's total health costs—for public programs like
Medicare and Medicaid, private insurance, and out-of-pocket payments—are twice those
of other developed countries. Making prices transparent so they can be compared and
giving patients the means to shop for insurers that will get them the best deals would
put downward pressure on prices and bring sustainable cost savings.
Instead, Americans are led to think that what's mainly to blame for out-of-control
costs is their own voracious overconsumption. So cutting down on the quantity of medical
services used by the sick and reallocating dollars for wellness and prevention sound
like definite cost savers. But that ignores a few facts. Compared with people in other
developed countries, Americans see doctors less often and take fewer medications.
They also spend the same or fewer number of days in hospitals, and they already lead
the world in expenditures per capita on prevention and public health. Yes, more high-tech
care may be given to the sick in this country, and yes, that contributes to higher
costs. But whether it's low- or high-tech care, what is achingly obvious is that total
costs are a function of prices. Ours are the highest.
As a classic 2003 report in the journal Health Affairs put it simply: "It's the Prices,
Stupid." In their detailed analysis of health spending in 30 developed countries,
leading health economists including Gerard Anderson of Johns Hopkins Bloomberg School
of Public Health and Uwe Reinhardt of Princeton University determined that the greater
cost of care in the United States was due to much higher prices for virtually all
of its medical goods and services.
Our senior citizens must have read that study a few years back when they boarded buses
to Canada to buy prescription drugs for half the prices they would pay here. Who stopped
their burgeoning tea party? The federal government, citing safety concerns, with heavy
pressure from the pharmaceutical interests intent on protecting the higher prices
Americans are effectively forced to pay.
We are just beginning to see snippets of such comparative price information become
more public in other medical areas, prompted no doubt by the growing out-of-pocket
payments besetting insured patients. Just last month, a report initiated by Gov. Tim
Pawlenty provided price and quality information on 100 medical services from centers
throughout Minnesota. Prices were all over the map. The average for colonoscopies
ranged from $325 to $1,354. The price of a simple blood count varied from $13 to $85.
The wide variation for these and the other prices disclosed suggests lots of room
for competition and cost savings. Another area where scrutiny is needed to understand
skyrocketing outpatient bills is that of wildly varying and increasingly common "facility
fees." A cardiac stress test, for example, can vary by thousands of dollars depending
on the size of this tacked-on fee—a charge for the use of a room needed for less than
To turn these surprising revelations into useful information that can guide and reward
patients for getting the best value for their healthcare dollar, prices have to be
widely accessible and easily compared before care is rendered. One way to do this
might be to expand the concept of the proposed health insurance exchange, which currently
would be restricted to the uninsured. Allow for public and private exchanges, and
make them open to all individuals who want to purchase insurance anywhere in the country
at the best price. And make exchanges vehicles for price transparency, where consumers
could get access to comparative and customary pricing information and then hold insurers'
feet to the fire by selecting the company with the best available prices at the places
they want to go.
The power of making medical prices transparent to the public has not been lost on
the political establishment. Indeed, Sens. Charles Grassley and Arlen Specter have
pushed legislation to require price disclosures in the private sector, where secrecy
clauses between hospitals and manufacturers have been shown to double or triple the
cost of medical devices for some patients. Meanwhile, it may surprise the public to
know that the government has gone to great lengths to keep the rock-bottom prices
it demands quiet, including entering into contracts with industry that make the prices
Medicare and Medicaid pay for prescription drugs, say, inviolable trade secrets.
Why? Congress, as laid out in a 2007 letter from the Congressional Budget Office,
recognizes that such disclosures would enable private insurers and their customers
to be more insistent about getting similar pricing deals, making their own small discounts,
and the government's large ones, converge toward an average. While this would lower
costs for people with private insurance, it would make government prices—and costs—a
bit higher. Disclosure has still not happened.
But if health reform is supposed to reduce costs, disclosing prices and enabling and
incentivizing individuals to seek out the best value to serve their needs is a way
to do that as a first step—and before making efforts to restrict or redirect care.
I'd estimate a good 10 percent of total costs could be taken out of the system quickly,
to the benefit of those in both private and public plans.