Pricing transparency could save U.S. healthcare system $36 billion

Healthcare cost variations create $36 billion in annual waste, which could be better controlled with increased pricing transparency, according to a new white paper published by Thomson Reuters.

In the white paper, “Save $36 Billion in U.S. Healthcare Spending Through Price Transparency,” researchers used insurance claims data for Americans with employer-sponsored insurance to analyze variation in prices nationwide for 300 “shoppable” procedures, defined as high-volume procedures that consumers would plan for and schedule in advance, like a mammogram, colonoscopy or MRI.

Key study findings include:

  • Prices in some markets are two-to-three times higher than the median price for the same procedure.
  • By reducing prices for 300 common procedures to their median price nationwide, total employer medical expenses would be reduced by 3.5 percent, or $36 billion annually, for the 108 million Americans under 65 who receive insurance through their employer.
  • A major driver of price variation is site of service; prices vary significantly by care setting and the percentage of services done in the hospital versus an office setting. 

“As the white paper mentions, if the 300 selected non-urgent procedures and treatments were purchased at the median price, the system would save $36 billion annually,” said Raymond Fabius, MD, chief medical officer of Thomson Reuters Healthcare. “Presently both the healthcare consumer and the provider are in the dark about pricing. When the marketplace supports transparency, providers can set their price more rationally and consumers can be better shoppers.” 

The central approaches recommended in the white paper to achieve potential cost savings are benefit designs that incentivize healthcare consumerism, access to provider-specific price and quality information, estimates that summarize all costs associated with a service (hospital, physician and ancillary fees) and calculating out-of-pocket costs using benefit information to personalize.

“Two concepts most worthy of promoting are the need for quality comparisons along with costs, and promoting patient education along with cost and quality comparisons,” said Fabius. “The more well-informed a health consumer can be, the more likely she will select the right care and the right care providers. By starting with an understanding of the medical concern and having quality and cost comparisons, the patient consumer will be best equipped to engage in their care as well.”

“Consumer-driven health plans that require the beneficiaries to have greater out-of-pocket costs to encourage active consumerism are increasingly popular with employers,” he added. “I am concerned that without greater cost and quality transparency these benefit designs will not have nearly the intended consequences. How can healthcare patients be accountable consumers without the information they need?”

Follow Rene Letourneau on Twitter @ReneLetourneau.

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