Price transparency is great, but only a first step

by The Incidental Economist on August 1, 2013 · 1 comment

I’ve lost count of how many of you sent me a link to this piece in the NYT:

The Surgery Center of Oklahoma is an ambulatory surgical center in Oklahoma City owned by its roughly 40 surgeons and anesthesiologists. What makes it different from every other such facility in America is this: If you need an anterior cruciate ligament reconstruction, you will know beforehand — because it’s on their Web site — that it costs $6,990 if you self-pay in advance. If you need a tonsillectomy, that’s $3,600. Repair of a simple closed nasal fracture: $1,900. These prices are all-inclusive.

Keith Smith, the co-founder of the center, said that it had been posting prices for the last 4 of its 16 years. He knew something was happening, he said, when people started coming from Canada. “They could pay $3,740 for arthroscopic surgery of the knee and not have to wait for three years,” he said. Then he began getting patients from elsewhere in the United States and began to find out — “I get 8 or 10 e-mails a week” — that he was having an effect on prices far away. “Patients are holding plane tickets to Oklahoma City and printing out our prices, and leveraging better deals in their local markets.”

Look, I’m all for transparency. I think competition is great. Heck, anything that might bring down the prices is a plus in my book. But I still have a lot of concerns about all of the excitement here.

First of all, let’s recognize that all of the things described in this article are planned procedures with a fair amount of lead time. It won’t work for emergencies. Moreover, always remember that something like 85% of health care spending is on something like 15% of people. Those people aren’t the ones taking advantage of shopping in this manner. That means that few of the really big spenders are going to be able to reduce their bills by taking advantage of these opportunities. Because of that, it will be hard to move the needle on a national scale.

Second, making use of clinics like this requires payment up front. Maybe you can get insurance to reimburse you (if they cover out of network services), but we shouldn’t minimize the fact that many, many people won’t be able to lay out the money required ahead of time. This kind of service is a luxury for those who can afford it. In other words, it will likely benefit those who have more to begin with.

Finally, lots and lots of Americans are on policies that just won’t cover this in the end. Costs in the many thousands of dollars aren’t something they can afford, period. So they won’t benefit from this at all.

That said, I still think transparency is a step in the right direction. Seeing how high prices are in some places compared to others will likely drive public opinion in such a way to call for reform to bring things into a more reasonable range. That would be great for everyone. Transparency can help, but I don’t think it’s the silver bullet some are taking it for.

Aaron

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