There are many fallacies standing in the way of healthcare price transparency, not the least of which is the suggestion that the principal purpose of price transparency is enabling healthcare consumers (i.e., patients) to “shop around” for services.
The principal purpose of price transparency is not price shopping. It is trust.
I will explain the true need for price transparency in this article. In subsequent articles, I will demystify aspects of our healthcare system that stand in the way of improving it.
The most basic aspect of a healthy, functional marketplace is trust. And building trust is why we need price transparency. It’s about much more than being able to “shop around.” In fact, if we had true price transparency, we wouldn’t have to shop around.
Trust is a major problem in healthcare.
Responding to a healthcare survey conducted by her company, Wendy Salomon, Vice President of Reputation Management and Public Affairs at Nielsen, commented that, “We are in the midst of a health care maelstrom. Consumers see no safe port, no place where their interests are truly protected.”
To understand how transparency builds trust, consider simply going to the grocery store. Do you shop around? Of course you don’t. You walk in, grab the things you’re looking for (and perhaps a few goodies you weren’t), throw them in your cart, and hit the checkout counter.
Sometimes you look at the prices. Sometimes you don’t. But even when you do, you’re just doing a gut check. You almost never actually whip out your phone to see what that avocado costs down the street at the other grocery store in the neighborhood. So, the truth is that while we might think groceries are something we shop around for, the reality is very different.
The same could be said for gasoline. You simply pull into the gas station and “fill up.”
Why? Why don’t we actually shop around as much as the pundits, and even the economists, think we do? The answer is that we trust the system. Said otherwise, the more information we have, the less we need. When prices are transparent, we trust the system, mostly because we trust someone else is watching the prices, whether a consumer website, the media, or even a Ph.D. student working on a dissertation. Transparency means that anyone and everyone could call out an errant pricing situation. Today’s active, outspoken social media users do it every minute of every day, and corrections are made, one way or another.
If you take your car into the auto dealer, you know it’s going to cost significantly more than going to a local garage. So, why do you do it? Because you perceive that the dealer who sold you the car knows your car better than the average local mechanic. When the dealer calls you and says it’s going to be $400 to replace your brakes, do you get online and “shop around” for prices? Most people don’t. Why? Because generally you trust the dealer from whom you ultimately purchased the car, and because the dealer’s prices are transparent. They tell us exactly what they charge, and if you ask, they’ll tell you the price of anything. Much of it is posted in the garage. And everyone pays the same. You don’t pay less because of which auto insurance plan you have.
This is why we need transparency in healthcare. We don’t need to know what an IV is going to cost, or a urinalysis, or a strep test. We need to know that one hospital generally charges 5% more than another, just like we know one supermarket charges 5% more than another. We need to know that there are not extreme outlier charges. We need to know that we’re not at risk of being charged 600%, or 1200%, of what someone else is being charged because there’s an independent physician staffing the ER one night who’s not “in-network,” even though the hospital is. And eventually, we need to know that at any given provider, we’re all being charged the same price for the same service. We can only get there through price transparency.
We need a system we can trust. And that requires complete and total price transparency from providers and insurance carriers alike. Nothing else will do. Because nothing else can be trusted.