Lack of Transparency in Health Care Heightens Costs, Retards Innovation

NCPA Study Shows Employers, Insurers and Government Mostly to Blame

DALLAS (March 12, 2007) - While business and government leaders complain about the lack of price and quality information in health care and pursue government-based health reforms to increase access and set prices, a new study from the National Center for Policy Analysis (NCPA) says the complainers are causing the problems they are so vexed about.  Unlike other markets, prices for health care are difficult to obtain and often meaningless when they are disclosed.  The study notes the only area of the health care marketplace where price and quality information is freely available is where patients pay for the services themselves.   

"The primary reason no one knows what doctors and hospitals charge prior to treatment is that they do not compete for patients based on price," said NCPA President John Goodman, who co-authored the study.  "When they don't compete on price, it turns out they don't compete on quality either.  In a very real sense doctors and hospitals are not competing for patients at all."

Since the fees are usually paid by employers and insurance companies, patients have little reason to care about prices and providers have little reason to make that information public, the study notes.  In addition, the lack of competition for patients has a profound effect on the cost and quality of health care, since insurers typically do not pay for many services that would lower overall health care cost and would improve the quality.  As a result, the following innovations are largely absent: 

  • No Integrated Care: Doctors offer fragmented services to diabetics, for example, but no one offers diabetic care as such - taking responsibility for the treatment of a patient's case from beginning to end.
  • No Patient Education: Patients with chronic conditions could manage much of their own care, if someone taught them how.
  • No Telephone and E-Mail Consultations: Potentially, the chronically ill could have more, better and less-costly care through modern communication devices - but few doctors consult by phone, and only a fourth use e-mail at all.
  • No Electronic Medical Records:  Despite studies showing that electronic medical records can reduce costs and improve quality (by reducing errors, for example), only one-in-five physicians stores medical records electronically.

In the markets where patients are paying for services directly, the behavior of providers is radically different.  For example:

  • Cosmetic and LASIK Surgery.  Patients are offered package prices covering all aspects of care.  In both the markets, the real price has gone down at the same time demand has soured and technological improvements are rampant.
  • Medical Tourism.  Cash paying "medical tourists" who travel outside the United States for treatment or surgery often receive a package price that includes all costs of treatment, and often airfare and post-operative hotel accommodations.  Prices are one-third to one-fifth as much as treatment in the U.S. and quality is typically high. 
  • Walk-in Clinics.  Located in drugstores, shopping malls and big-box retailers, walk-in clinics post prices and minimize waiting times.  Staffed by nurse practitioners, they use computer software to follow treatment protocols, store records electronically and even order prescriptions online.  Quality is often higher because the technology encourages best practices, improves care coordination, reduces errors and prevents adverse drug interactions.
  • Internet Medicine.  Services such as provide information on prescription drug prices and possible alternatives. allows patients to compare experiences.  Patients using their own money can also use the Internet to order numerous lab tests on samples collected at convenient locations for fees that are nearly 50 percent less than test ordered by physicians' offices. 

"We are likely to see more of these challenges to traditional health care in the future because patients are increasingly paying more costs out-of-pocket or through a Health Savings Account," said Goodman.  "This consumer-driven health care revolution gives individuals the opportunity to benefit financially from being wise health care consumers."

Sensing this change, some health plans are now offering price and quality information to their policy holders.  And objective, independent third parities often provide price and quality data for a fee.

Despite these changes, the study notes that legal, regulatory and cultural barriers to competition, innovation and transparency remain.  For example:

  • Medical societies and hospital trade associations discourage price competition among their members.
  • Laws in many states restrict the practice of medicine to face-to-face consultation, discouraging the use of the phone, e-mail and other innovative services.
  • Doctors and hospitals are discouraged from sharing information on medical errors and other quality indicators for fear of being sued.

"Transparency will only occur once we fundamentally change the way we pay for health care," said Goodman.  "While some of these changes are occurring, government could speed the transition by removing obstacles to competition and innovation."