We all know the drill. The American healthcare system seriously underperforms when compared to every other industrialized nation. As a result, each year, large numbers of Americans are harmed or die unnecessarily. In fact, since the Institute of Medicine's executive summary to its landmark report To Err is Human was published in the Journal of the American Medical Association in September 1999, additional research has only confirmed its findings. The once shocking estimate that as much as 30% of all healthcare expenditures pay for care with little or no health benefit fails to shock a decade later as experts now project this amount to be 40% or more. Meanwhile, the average cost of health benefits for a family of four has grown to in excess of $14,000 annually.
High healthcare costs create significant suffering for American families, businesses and governments. Other leading nations spend half or less of what we do on healthcare, making it increasingly difficult for American families to retain their standard of living and American businesses to compete in a global economy.
All Americans pay the nation's healthcare bill indirectly by way of health-benefit costs imbedded in the price of nonhealthcare goods, lower wages and higher taxes. They also pay directly through premium contributions and payments for services. Meanwhile, the jobs necessary to offset these expenses are increasingly moving overseas to countries with lower healthcare costs. The outcome is soberly clear: In 2009, one out of every seven Americans lived in poverty (less than $5,500 of income) and 50 million Americans were uninsured, according to the U.S. Census.
Particularly considering its impact and the known waste, how is it that consumers of the largest sector of our economy know so little about price?
Despite consistent calls for price and quality transparency from the business community since the “buy right” movement of the early 1980s, the IOM's urgent call for action more than a decade ago, and the sustained effort of many labor and consumer groups, our nation has yet to achieve meaningful transparency. While measures and methods for assessing quality have advanced slowly, little to no progress has been made in achieving price transparency. As long as price differences remain opaque to patients and their physicians, there is little hope for improving the affordability and efficiency of American healthcare.
Research shows price and quality outcomes of healthcare services and treatments vary significantly, even within institutions and communities. In the business world, removing variation translates to opportunity for greater profit. In healthcare, it isn't this easy. The entity with the best ability to eliminate the variation may not be in line to reap the rewards. Payment reform is critical to creating a system that continually rewards and sustains excellence. However, redesigning payments requires transparency of price, quality and financial relationships.
Price transparency does not mean a public listing of negotiated rates between given providers and health plans. It means providing physicians and patients the information they need to compare differences in value. While certain “commodity-like” services such as an MRI, normal delivery, blood test or a routine office visit may lend themselves to direct price comparisons, most healthcare services are provided within a larger course of treatment. For such services, care organized into episodes would be more useful. Also, price comparisons should be provided in the context of quality comparisons to ensure patients can arrive at informed decisions about healthcare value.
Under the current system, patients and their doctors have neither the incentive nor the information needed to keep cost down. Perhaps more concerning, many patients equate higher price with better care when higher costs may be the result of complications and other dangerous variations.
Realistically though, we must recognize that if experience from other industries holds true, most patients will not check with a value comparison tool before choosing a physician, hospital or treatment. As few as 15% of consumers can shape a market. That's in part because transparent markets tend to drive themselves to lower cost and higher quality across producers and across the continuum of services.
Healthcare payment reforms are desperately needed. They could change the way healthcare is produced and purchased in the U.S. Bundled or fixed prices for services have the potential to overcome the fragmentation and bring providers together to design better care processes and align financial incentives toward improved results. Physicians could be paid for doing the right thing by their patients. Hospitals could be praised and paid for removing waste. Patients could benefit from the coordinated care they have always deserved.
However, without price transparency payment, reforms will remain stalled. Without information on quality and cost differences, the system will remain unable to compensate providers in relation to quality or efficiency. Just as a sum cannot be found without knowing its inputs, a bundled price or global payment cannot exist without an understanding of its parts.
The time to unmask the price and quality differences in healthcare is now. Our nation and its patients depend on our action.
Louise Probst is executive director of the St. Louis Area Business Health Coalition.
