Provider Cost Reports Have Little Impact on Consumer Choice

In recent years, many states have published the comparative costs of specific healthcare services to help consumers choose among healthcare providers. Most of these reports are hard to use because they list the charges of hospitals and outpatient facilities, rather than what particular insurance plans pay for those services or what their members pay out of pocket. So it’s not surprising that those reports have had little impact on consumer choice. But since 2007, New Hampshire has been publishing provider-specific, insurer-specific median cost estimates for each service, based on claims data collected from health insurers.

One might think that this useful information would have an impact on consumer behavior and, therefore, on the prices charged by healthcare providers. But a new study from the Center for Studying Health System Change shows that such is not the case. Price variations for a set of 30 outpatient tests and procedures reported by New Hampshire’s HealthCost program have not declined since 2007. Observers cited two reasons: First, competition among providers is very weak in New Hampshire, and second, relatively few consumers are in high-deductible plans that would make them price-conscious enough to heed the published cost reports.

In rural areas, of course, no health plan can exclude a hospital from its network, so insurers must pay more for the hospital’s outpatient services than they would in a competitive market. Even in the more urban areas of the state’s southern region, where there is some hospital competition, different segments of the population prefer different hospitals, so there’s no real ability for the report card to affect prices, the researchers say.

The other fact that jumps out of the study is how much difference there is between the negotiated prices that health plans pay hospital outpatient departments (HOPDs) and freestanding ambulatory surgery centers and other non-hospital facilities. In 2008, the median payment to HOPDs for arthroscopic knee surgery was $2,306, vs. $1,640 for non-hospital providers; for colonoscopy, the prices were $1,314 for HOPDs and $784 for non-hospital providers; and for an MRI of the back, HOPDs received $1,573, while non-hospital providers got just $204, or less than 15 percent as much!

Some of this is undoubtedly because of the superior bargaining power of the hospitals. But hospitals also argue that they have to charge more because they have to support money-losing operations such as trauma and emergency departments, as well as a large number of Medicaid and charity patients. To the extent that that argument is valid, the price differences recorded in this study say a lot about how dysfunctional our healthcare system has become. If hospitals really have to charge that much to care for those who can’t pay or are on Medicaid, which doesn’t cover the cost of providing care, our system is headed for a cliff.