The Price of Care
July 7, 2020
Photo by Leslie Walker
A recent court ruling upheld new federal rules requiring hospitals and insurers to post prices. But will price transparency lower the cost of health care?
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Dan Gorenstein: Today, this is our 50th episode, folks.
We’ve got a special conversation on tap today, and we’ve got lots more stories planned leading up to the election.
But I just wanted to take this moment to thank our funders, our supporters and most of all to you — our listeners — for helping us reach this milestone.
Ok. On with the show.
Margot Sanger-Katz: Every time I would call a health economist and say, what do you think about this price transparency thing, they would say, well, let me tell you about Danish concrete. And like the fifth time that someone just unprovoked mentioned Danish concrete, I thought, oh, like I should find out about the study.
DG: Danish concrete — a favorite study and running joke among health policy wonks — suggests something surprising: more price transparency in health care could lead to higher costs.
But the Trump administration argues, it will upend the industry, finally bringing consumers some relief.
President Donald Trump: More price transparency will mean more competition. And the cost of health care will go way, way down.
DG: Who’s right? No one knows for sure.
But thanks to a court ruling last month upholding new federal rules requiring hospitals and insurers to post prices, we may soon find out.
From the Annenberg Studio at the University of Pennsylvania, I’m Dan Gorenstein and this is Tradeoffs.
DG: Today, we are joined by one of the most respected writers in the field.
MSK: My name is Margot Sanger-Katz. I’m a reporter at The New York Times. I write about health care policy
DG: Full disclosure, Margot and I have known each other for years. We met when she worked at the Concord Monitor and I was with New Hampshire Public Radio.
DG: Let’s talk about the lack of transparency and just how opaque healthcare prices actually are in the United States. How big of a problem is this?
MSK: I think it’s a pretty big problem. It’s almost impossible in health care to find out what the cost of any service is before you have it. I had an experience a few years ago where I hurt my ankle. I had an Achilles tendon injury.
So I want to find out, like, what does it cost for my to get my ankle checked out? And I call a physical therapist and I say, “Hi, I need to come in for an initial consultation, like, what’s the price?” And they said to me, “Oh, we can’t tell you that.” And I said, “Well, I really need to know. I have to pay 20% of this price. You know, I might go to a different physical therapist if you can’t help me.” And they said, “Well, let me talk to my manager.” Anyway the manager comes back and like 10 minutes later, she says, “Well, it’ll cost somewhere between $150 and $400.” And this is replicated throughout the health care system.
DG: For people like Margot, on the hook for a percent of the total bill, or in a high deductible plan, not knowing the price can force some people into a tough dilemma.
Skip out on care and risk your physical health or get treated and jeopardize your financial well being.
Enter the Trump administration’s proposal to publish their prices, which in theory allows people like you, Margot, with your Achilles to shop around, right?
MSK: Absolutely. The Trump administration basically said this is a crazy system.
Trump: For decades hospitals, insurance companies, lobbyists and special interests have hidden prices from consumers, so they could drive up costs for you and you had know idea why it was happening; you’d get bills that were unbelievable and you had no idea why.
MSK: It just feels kind of outrageous to certain people in the Trump administration and, in fact, to President Trump himself, that this stuff is secret. It just feels kind of unjust, like I’m buying this really expensive thing. I want to know what it costs. You go to the grocery store, you buy a jar of ketchup, you know what a jar of ketchup costs. And if one grocery store is charging you five times as much as another grocery store, like you’re going to buy the cheaper ketchup because you think it’s basically the same.
DG: So let’s get into the evidence around price transparency.
Research shows many of us don’t shop for health care like ketchup.
Instead we make choices based on word-of-mouth or do what our doctors tell us to.
Now, maybe employers would end up being better shoppers, making it easier to exclude expensive doctors and hospitals from their networks.
But overall, not a lot to write home about. And there’s reason to think price transparency could completely backfire, which gets us to an arcane paper that looked at the Danish concrete market — a topic near and dear to your heart, Margot.
MSK: In Denmark in the 1990s, they had a system that was similar to the way that insurance negotiates with hospitals, where the prices that were negotiated, the discounts that were negotiated between construction firms and concrete firms were secret. And the government thought that they could make these transactions more transparent and that would help bring down the price of concrete. And what happened was, instead of that, lowering prices actually ended up raising the price of concrete by like 25% over just less than a year.
DG: How did that happen?
Manufacturers didn’t pick up the phone and start colluding — that’s illegal. Instead, it was more subtle, right?
MSK: They call it tacit collusion where they just kind of see what everyone else is doing and they dip their toe into a little bit of a higher price. And if nothing bad happens in the market, then they all kind of hold hands and raise their prices together. So the folks that believe in the Danish concrete theory of the case think that in a lot of markets, the United States, where there’s only two or three hospitals that are serving the employees and that people in that area, that maybe if they saw what everyone else was getting paid, they would all just raise their prices instead of lower them.
DG: While some economists think the Danish concrete study is a pretty good predictor, others disagree.
So, Margot, what’s the deal with the t-shirt that you’re wearing?
MSK: I’m wearing a very special t-shirt that I got from the Senate Health, Education, Labor and Pensions Committee, which says that U.S. health care is not like Danish cement.
DG: Oh, my God. So you’re wearing this great t-shirt.
Why did serious health policy people like make a sort of funny t-shirt about this? Because there’s a big idea here.
MSK: Yeah, there is. So the answer to this may be too nerdy for you, tell me. But the committee wanted to pass a law that would require this price transparency, even before the Trump administration tried to do this with the regulation.
DG: That bill was sent to economists at the Congressional Budget Office who determined the measure would increase federal health spending.
MSK: And because that is the view of the Congressional Budget Office, the Senate Health Committee has not tried to pass that legislation because they don’t want to deal with the costliness of it. And so this t-shirt is in some ways like a lobbying campaign for the nerds and economists at the Congressional Budget Office is trying to tell them that, no, they are wrong about this really important thing and they should change their view so that Congress can pass a law on price transparency.
DG: Unbelievable. Is this one of your most prized possession parts?
MSK: Of course! Nothing brings me as much joy as this t-shirt does. In fact, actually I was joking that I wear it all the time, but I don’t wear it that often because I’m trying to preserve it for special occasions.
DG: One of the things I’ve always enjoyed most about your reporting, Margot, is that you’re really a stickler for evidence. What’s the best evidence out there to suggest that the Trump administration is right, that price transparency will lead to better shopping?
MSK: So I think the fair answer to your question is there is almost no evidence for that proposition at all. I’ll come back to the one sort of best case that we have. But I want to just be fair to the Trump administration in saying that part of the reason why there is no evidence for this is that it’s actually a really radical idea and no one else has really tried it before in a major way.
OK, so here’s like the best evidence that exists right now is that the state of New Hampshire, where both of us used to be reporters, they require price transparency for sort of a limited set of things. An ambulance ride to your local hospital, X-ray, mammogram screening. They have a really great website, really well designed. You tell it what insurance you have and it tells you all the prices. That’s been in effect for a couple of years. And so there was a study that looked at what happened in New Hampshire compared to Massachusetts, a state that’s next door where researchers can look at health care prices, but individuals cannot.
And what they found is that having this price transparency lowered the prices by like maybe like 2%.
DG: What’s interesting about that study is that we’ve seen a lot of innovations in health care where people were hoping for home runs, and frankly they’re lucky to get on base. And anything that gets you on base actually is, in fact, a little bit of progress.
MSK: Sure, I mean, the U.S. health care system is super expensive. But I think when you hear folks in the Trump administration talk about it like it’s this revolutionary policy.
Trump: So I signed, as you know, an executive order, historic. We’re requiring price transparency.
MSK: President Trump is fond of saying, “This is bigger than health care,” which I think he means this is bigger than Obamacare.
Trump: Some people say say bigger than health care itself. This is something that’s going to be very important.
MSK: And he gave a speech where he said, you know, basically like this is their Obamacare. This administration is going to be price transparency and it’s going to be all these huge differences in the health care system.
Trump: This is bigger than anything we’ve done in this particular realm.
MSK: And again, you know, we don’t know.
DG: Given last month’s legal victory, the price transparency rule is still on track to take effect January 1, the American Hospital Association — a plaintiff in the case — plans to appeal.
Hospitals and insurers both remain opposed — something that stands out to Margot.
MSK: You would think if it’s going to raise prices, then the insurance companies would hate it, hospitals would love it. If it’s going to lower prices, than you would think that the hospitals would hate it, but the insurance companies would love it. I think the fact that both of them hate it is a sign, first of all, that they just have been working in the secret world for a long time and they’re scared of change. But I think it also is a sign that we actually don’t know who is going to be better off, what will happen to these negotiations going forward. And so they both kind of want to preserve the status quo rather than wander into this new era in which they may be disadvantaged.
DG: For as much as Margot likes to write about data — citing research, no matter how obscure — the debate over price transparency is taking us into uncharted territory.
And as a reporter, that is refreshing.
MSK: And I think on that front, the fact that we have a little bit of evidence from New Hampshire suggests it’s not going to blow up the whole health care system. Like, that’s probably encouraging, but I don’t know. I mean, again, like for me as a journalist who writes about health care issues all the time, it’s kind of exciting to have a policy that we don’t know the answer about, that we’re really going to find out something completely new.
DG: Margot. Thank you very much for talking to us.
MSK: Oh my goodness. Thank you so much for having me on. I love the podcast.
DG: Thanks, Margot. That means a lot to me.
I’m Dan Gorenstein, this Tradeoffs.
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Select News, Analyses, Resources:
Hospitals Sued to Keep Prices Secret. They Lost. (Sarah Kliff and Margot Sanger-Katz; New York Times; 06/23/2020)
Hospitals Sue Trump to Keep Negotiated Prices Secret (Reed Abelson; New York Times; 12/04/2019)
Why Transparency on Medical Prices Could Actually Make Them Go Higher (Margot Sanger-Katz; New York Times; 06/24/2019)
Characterizing Health Plan Price Estimator Tools: Findings From a National Survey (Aparna Higgins, Nicole Brainard, German Veselovskiy; The American Journal of Managed Care; 02/16/2016)
Price Transparency in Health Care Has Been Disappointing, but It Doesn’t Have to Be (Gilbert Benavidez and Austin Frakt; JAMA; 10/01/2019)
Margot Sanger-Katz, health policy reporter for The New York Times
The Tradeoffs theme song was composed by Ty Citerman, with additional music from Lobo Loco, art of Escapism, Blue Dot Sessions, and Otto Brandenburg.
This episode was produced by Victoria Stern and Sabrina Emms, and it was mixed by Andrew Parrella.
Additional thanks to:
The Tradeoffs Advisory Board…
…and our stellar staff!