HCI3 Update from the Field: Prices Are Too Damn High

Submitted by francois.debrantes@hci3.org on Friday, March 1, 2013 - 03:16

Newtown, CT – March 1, 2013

"We've created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract. And we've allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at the Johns Hopkins Bloomberg School of Public Health, says is the obvious and only issue: "All the prices are too damn high."

— Steven Brill, Bitter Pill: Why Medical Prices Are Killing Us.

Many of the policy gurus will read Steven Brill's piece in Time and shrug at the simplicity of the arguments and the lack of nuance needed to deal with an issue as complex as health care costs. Well, they might be partially right, but it's beside the point. Prices in the US are too damn high and we all know it. While the lasting impact of this Time article is difficult to estimate, let's recall the last occasion when health care made a real splash on the magazine's front page. That was when the HMO revolt began. With any luck, this article will mark the start of the price revolt. Because it is revolting that average families are being crushed every day by ever-rising premiums that already consume 20% of their income, while organizations that are supposed to serve those families' interests are instead jacking up prices and monstrously padding reserves and balance sheets. Don't get me wrong, I'm all for companies creating value getting a significant share of that value. However, for the most part, health care organizations aren't delivering much value. In fact, we could argue that they are, instead, destroying value, because the excedent dollars they are leeching from the backs of workers could be used far more purposefully for the economy.

What this means to you – Every year employers and their consultants go through some complex Kabuki dance with health plans and discuss the discounts they're going to negotiate. They walk away triumphant because they've been able to get a slightly greater discount from plan A than plan B. But here's a news flash: a greater discount on a higher price isn't a particularly glorious victory. And prices are going up, have gone up, and will continue to go up until we stop shopping for discounts and start comparison-shopping on the actual price of medical episodes of care. For those that have given up on the effectiveness of the discount game, the solution has been to simply shift more and more costs on consumers, vastly increasing consumer cost-sensitivity. And that can be a really powerful lever if we also arm consumer-patients with robust and timely information on costs of care. Unfortunately, there's an organized paucity of that information, and we can't expect consumers to make real value choices in a completely opaque market in which the information asymmetries are massively stacked against them. And as shown in a recent paper by Beth McGlynn and colleagues, which confirms prior work by Hibbard and Sofaer, barring information on outcomes, consumers will equate higher price with better quality. The sad irony is that we can, collectively, provide consumer-patients with meaningful information on price and quality. We just have to be willing to stand up to those who resist it. And it is up to us because it's not the clowns in Congress that will act on anything. More on what you can do to support the price revolution in The Incentive Cure.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org