Transparency in health care may seem like an oxymoron, but it is a trend that has become inevitable. Transparency is really the core of consumerism; it is the prerequisite for consumers to make smart, educated choices about the cost and quality of their care. I recently had the pleasure of moderating Crain’s Detroit Health Leadership Summit panel on transparency, and you could really feel the energy and excitement from both the panelists and the audience. We had the perspectives from employers, insurers, hospitals, and physicians, and all agreed that change was both needed and coming. But how did we get here, where transparency is so necessary and lacking?
The push for transparency really starts with rising health care costs. Costs have been rising steadily for decades. In 1970, health care costs were 7% of GDP, but now they have risen to a staggering 18%. That’s $9,000 per person, per year, in health care costs. Catastrophic medical bills are the cause of about 60% of personal bankruptcies. Health care is one of the only industries where growth in costs is a national crisis.
Consumers Have More Skin in the Game
As these costs have increased, more costs have been pushed on consumers, largely in the form of high-deductible health plans, which have grown substantially in just the past few years. Now consumers are paying a lot more of their own money. Part of the rationale behind these plans is that because health care prices regularly vary enormously, consumers who get educated and shop around to find good prices and good quality have the potential to save a vast amount of money. This helps drive down costs. In Michigan, knee arthroscopy prices can cost slightly more than $1,000 to slightly more than $10,000, so smart shopping is key.
This all sounds great, but the big problem is that, in your typical health care exchange between a patient and provider, neither one knows the cost of what is being sold. The buyer (the patient) rarely knows the quality, either. Even the provider might not know the quality of what he or she recommends. There is very little transparency, which can make smart shopping impossible. We do not handle any other retail situation this way, where cost and quality are unknown until after the transaction. That is really kind of crazy when you think about it.
So why is there so little transparency in health care? As you might imagine, there are many reasons; but most of all, the system was built for a time when consumers were shielded from most costs through their insurance. This has changed now, but the system has been slow to catch up. Health care can be a painfully complicated business, and transparency is not the default; it takes a lot of hard work and coordination for transparency to happen. In some cases, there may not be much incentive to encourage clear pricing: Prices may be considered secret or proprietary. Some players in health care may fight transparency, because it is a threat to their business model. Fortunately, most players know that transparency is inevitable.
What’s Next: All-Payer Claims Database
One of the hot trends in transparency right now is All-Payer Claims Databases (APCD). These are relatively new developments, where all medical claims in a state are recorded in a single database maintained by a state government, allowing for easy comparisons across providers and insurers. It is still early to see their full effect, but the transparency implications could be enormous. One study from the University of Chicago found APCD’s reduced costs by 6%. Another analysis, from the Gary and Mary West Health Policy Center, suggests that over the next 10 years, APCDs could reduce costs by $61 billion. Currently, only a few states have these databases, but many more are implementing them. Michigan does not have an APCD but introduced legislation to create a Michigan APCD on the same morning of our summit on transparency. If done right, where data are easily accessible, this could be the biggest advance for transparency in Michigan ever.
There is a long way to go to reach full transparency in health care, and it is going to take motivated work from providers, insurers, and employers. But change is coming, and it is exciting to see.