<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:27590.wais]
WHAT'S THE COST?: PROPOSALS TO
PROVIDE CONSUMERS WITH BETTER
INFORMATION ABOUT HEALTHCARE
SERVICE COSTS
_____________________________________________________________________
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND
COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
_______
MARCH 15, 2006
_______
Serial No. 109-70
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
________
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COMMITTEE ON ENERGY AND COMMERCE
Joe Barton, Texas, Chairman
Ralph M. Hall, Texas John D. Dingell, Michigan
Michael Bilirakis, Florida Ranking Member
Vice Chairman Henry A. Waxman, California
Fred Upton, Michigan Edward J. Markey, Massachusetts
Cliff Stearns, Florida Rick Boucher, Virginia
Paul E. Gillmor, Ohio Edolphus Towns, New York
Nathan Deal, Georgia Frank Pallone, Jr., New Jersey
Ed Whitfield, Kentucky Sherrod Brown, Ohio
Charlie Norwood, Georgia Bart Gordon, Tennessee
Barbara Cubin, Wyoming Bobby L. Rush, Illinois
John Shimkus, Illinois Anna G. Eshoo, California
Heather Wilson, New Mexico Bart Stupak, Michigan
John B. Shadegg, Arizona Eliot L. Engel, New York
Charles W. "Chip" Pickering, Mississippi Albert R. Wynn, Maryland
Vice Chairman Gene Green, Texas
Vito Fossella, New York Ted Strickland, Ohio
Roy Blunt, Missouri Diana DeGette, Colorado
Steve Buyer, Indiana Lois Capps, California
George Radanovich, California Mike Doyle, Pennsylvania
Charles F. Bass, New Hampshire Tom Allen, Maine
Joseph R. Pitts, Pennsylvania Jim Davis, Florida
Mary Bono, California Jan Schakowsky, Illinois
Greg Walden, Oregon Hilda L. Solis, California
Lee Terry, Nebraska Charles A. Gonzalez, Texas
Mike Ferguson, New Jersey Jay Inslee, Washington
Mike Rogers, Michigan Tammy Baldwin, Wisconsin
C.L. "Butch" Otter, Idaho Mike Ross, Arkansas
Sue Myrick, North Carolina
John Sullivan, Oklahoma
Tim Murphy, Pennsylvania
Michael C. Burgess, Texas
Marsha Blackburn, Tennessee
Bud Albright, Staff Director
David Cavicke, General Counsel
Reid P. F. Stuntz, Minority Staff Director and Chief Counsel
_______
SUBCOMMITTEE ON HEALTH
Nathan Deal, Georgia, Chairman
Ralph M. Hall, Texas Sherrod Brown, Ohio
Michael Bilirakis, Florida Ranking Member
Fred Upton, Michigan Henry A. Waxman, California
Paul E. Gillmor, Ohio Edolphus Towns, New York
Charlie Norwood, Georgia Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming Bart Gordon, Tennessee
John Shimkus, Illinois Bobby L. Rush, Illinois
John B. Shadegg, Arizona Anna G. Eshoo, California
Charles W. "Chip" Pickering, Mississippi Gene Green, Texas
Steve Buyer, Indiana Ted Strickland, Ohio
Joseph R. Pitts, Pennsylvania Diana DeGette, Colorado
Mary Bono, California Lois Capps, California
Mike Ferguson, New Jersey Tom Allen, Maine
Mike Rogers, Michigan Jim Davis, Florida
Sue Myrick, North Carolina Tammy Baldwin, Wisconsin
Michael C. Burgess, Texas John D. Dingell, Michigan
Joe Barton, Texas (Ex Officio)
(Ex Officio)
CONTENTS
Page
Testimony of:
Lipinski, Hon. Daniel, Member, U.S. House of Representatives...23
Gingrich, Hon. Newt, Former Speaker of the House, Founder,
Center for Health Transformation.............................30
Gedwed, William, Chairman, President and CEO, UICI...........35
Ginsburg, Paul B.,President, Center for Studying Health
System Change..............................................41
MacDonald, Dr. David, President, Liberty Health Group......48
Collins, Dr. Sara R., Senior Program Officer, Future of
Health Insurance, The Commonwealth Fund....................54
Goodman, Dr. John, President and CEO, National Center for
Policy Analysis..........................................93
Anderson, Dr. Gerard F., Johns Hopkins Bloomberg School
of Public Health, Health Policy and Management...........99
Additional material submitted for the record:
Inglis, Bob, prepared statement of........................129
WHAT'S THE COST?: PROPOSALS TO PROVIDE CONSUMERS WITH BETTER
INFORMATION ABOUT HEALTHCARE SERVICE COSTS
________
WEDNESDAY, MARCH 15, 2006
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to call, at 10:03 a.m., in Room 2123
of the Rayburn House Office Building, Hon. Nathan Deal (chairman)
presiding.
Members present: Representatives Bilirakis, Shimkus, Pitts,
Bono, Burgess, Barton (ex officio), Brown, Waxman, Pallone,
Green, Capps, Allen, Baldwin, Dingell (ex officio), and Deal.
Staff present: Chuck Clapton, Chief Counsel for Health;
Melissa Bartlett, Counsel; Ryan Long, Counsel; Nandan
Kenkeremath, Counsel; Bill O'Brien, Legislative Analyst;
David Rosenfeld, Counsel; Brandon Clark, Policy Coordinator;
Chad Grant, Legislative Clerk; John Ford, Minority Counsel;
Chris Knauer, Minority Investigator; Purvee Kempf, Minority
Counsel; Amy Hall, Minority Professional Staff Member;
Bridgett Taylor, Minority Professional Staff Member; Jessica
McNiece, Minority Research Assistant; and Jonathan Brater,
Minority Staff Assistant.
Mr. Deal. We will welcome our guests to our members of our
distinguished panel this morning and some are not here and will be
joining us hopefully before the opening statements are concluded.
I recognize myself at this time for an opening statement.
Certainly, I think all of us are concerned with the
subject that is the text for the hearing today and that is
how to best increase the level of transparency in our health
care delivery system. We all know that in order for markets
to function properly, consumers must have information about
the goods and services they are purchasing, and the health
care market is no exception to that rule. Each year,
Americans spend over $2 trillion on their health care, which
accounts for 16 percent of our annual gross domestic product.
Despite the unmountable importance of these purchasing
decisions, it is virtually impossible for the average American
consumer to find any quality or pricing information about
health care providers. This situation is unacceptable and I
hope will soon change.
American consumers have the right to choose their health
care providers and these consumers deserve to know pricing
and quality information about these providers so that they
can make the right decisions. No one purchases a car without
first gathering information on the prices and quality of the
different available models. Why should health care be any
different? If one hospital charges several thousand dollars
more for the same procedure, shouldn't the consumer have
access to this information? If I am paying for it, out of
my own pocket, I would like to know that. If one surgeon
is significantly more successful at performing a certain
procedure than another surgeon, shouldn't the consumer have
access to this information as well? If it is a member of
your family or if it is you, I think all of us would agree
we would like to know that.
At a recent visit to one of the largest hospitals in my
congressional district, the administrator stated that one of
their biggest concerns was that 90 percent of their self pay
patients, which are mainly patients without health insurance,
never paid for any of the services they received. Well, in
some ways that is not surprising given the fact that we
really know that these people are asked to pay some two to
four times as much as those patients with similar procedures
who have health insurance. It simply doesn't make any sense
to charge people that cannot afford health insurance or choose
to pay for some procedures out of pocket much more for the
same procedure. The uninsured deserve to know what prices
they are going to pay. I believe that if these patients had
access to meaningful and understandable pricing and quality
information, providers would no longer be able to get away
with this kind of injustice. As we have seen in so many
other areas, empowered consumers increase the level of
quality when driving out inefficiencies and waste. It is
my hope that we can do the same thing in health care.
Again, I want to welcome our witnesses and at this time, I
would recognize my friend from California, Mr. Waxman, for
an opening statement.
[The prepared statement of Hon. Nathan Deal follows:]
Prepared Statement of the Hon. Nathan Deal, Chairman, Subcommittee
on Health
The Committee will come to order, and the Chair recognizes himself
for an opening statement.
I am proud to say that we have a very distinguished and expert
panel of witnesses appearing before us today that will help us
explore how to best increase the level of transparency in our
healthcare delivery system.
We all know that in order for markets to function properly,
consumers must have information about the goods and services
that they are purchasing, and the healthcare market is no
exception to this rule.
Each year, Americans spend over $2 trillion on their healthcare,
which accounts for 16% of our annual Gross Domestic Product.
Despite the undeniable importance of these purchasing decisions,
it is virtually impossible for the average American consumer to
find any quality or pricing information about healthcare providers.
This situation is unacceptable and must change.
American consumers have the right to choose their healthcare
providers, and these consumers deserve to know pricing and quality
information about these providers so that they can make the right
decision.
No one purchases a car without first gathering information on the
prices and quality of the different available models.
Why should healthcare be any different?
If one hospital charges several thousand dollars more for the same
procedure, shouldn't the consumer have access to this information?
If I'm paying for it out of my own pocket, I know I would like to
know.
If one surgeon is significantly more successful at performing a
certain procedure than another surgeon, shouldn't the consumer have
access to this information?
If it's my son or daughter having this procedure done, I know I
would like to know
At a recent visit to one of the largest hospitals in my district,
an administrator stated that one of their biggest concerns was that
90% of their "self-pay" patients, which are mainly patients without
health insurance, never paid for the services they received.
Of course, this isn't too surprising given the fact that self-pay
patients are often forced to pay between 2 and 4 times more for the
same procedure than a patient with health insurance.
It simply doesn't make any sense to charge people that cannot
afford health insurance or choose to pay for some procedures
out-of-pocket so much more for the same procedure.
The uninsured deserve to know what prices they are going to pay, and
I believe that if these patients had access to meaningful and
understandable pricing and quality information, providers would no
longer be able to get away with this injustice.
As we have seen in so many other areas, empowered consumers increased
the level of quality while driving out inefficiencies and waste.
And it is my hope that we can do the same thing for healthcare.
Again, I welcome our witnesses and thank them for their participation.
I now recognize my friend from Ohio, Mr. Brown, for five minutes for
his opening statement.
Mr. Waxman. Mr. Chairman, since Mr. Brown may yet arrive
would you give me the three minutes rather than five minutes?
Mr. Deal. Certainly.
Mr. Waxman. This hearing is a worthwhile one to have.
Transparency in prices is good. In some cases, particularly
in the area of drug prices, it can be a benefit to the
consumer. But no one should think that the topic we are
addressing today comes to grips with the serious issues facing
our health care system. Transparency in prices doesn't
provide health insurance coverage for the nearly 46 million
Americans that are uninsured in this country today.
Transparency in prices is no substitute for real coverage.
Transparency in prices doesn't give the individual the ability
to negotiate in any effective way. Individuals need the
negotiating power of a group to secure good prices. Employer
sponsored group health insurance can negotiate meaningful
discounts, individuals cannot.
And transparency in prices does not make them lower. We only
need to look at the recent reports of the pricing policy of
Genentech for its cancer drug Avastan. Why the $100,000 price
and dramatic increase this year? Because a manufacturer
decided it could get away with it. That is the reason, pure
and simple. So transparency of price is not going to help
that woman with breast cancer or the man dying of
lung cancer. This is the kind of cost that won't be
effectively addressed unless someone who has strong
negotiating power enters the picture.
It is ironic that this Republican Congress turned its back on
giving the Secretary of HHS the authority to use the
negotiating power of 40 million Medicare beneficiaries to get
lower drug prices. And it is equally ironic that the actual
deals and rebates that the private insurance plans are
negotiating with the drug companies are not made available to
the public. Instead, we get a list of prices that can be
changed by the plans at any point.
So that just points out several concerns that we have got to
keep in mind when we hear of the value of transparency in
prices. It is no substitute for real negotiation. What
benefit it can provide is limited. It only helps if it is
accurate, does not change, and is in useable form. It does not
help if the information is so voluminous and confusing that
the average person cannot use it. It does not help if it is
not related in a meaningful way to quality measures. And it
certainly does not help if it is really an excuse to justify
putting more of the burden of the costs of the health care
system on the individual. High deductible health plans are
exactly the wrong answer when people need affordable coverage.
Putting the individual out there on his own to negotiate
better deals from the health care system is exactly contrary
to what works.
So I welcome transparency in prices so long as we all
understand that is an approach that offers some slight
advantage at the margin but it should never be confused with
an answer to the real problems of the high costs of health
care and of the millions of Americans who are uninsured or
underinsured in America today.
Mr. Deal. I thank the gentleman.
Mr. Bilirakis is recognized for an opening statement.
Mr. Bilirakis. Thank you, Mr. Chairman.
How much does it cost? That is the question we ask almost
daily. Why? Because we are smart consumers and want to know
that we are getting the most bang for our hard earned bucks.
This often does not apply, however, when talking about health
care costs. Too many consumers have become oblivious as to
how much our health care actually costs. We may know that
we have to pay a co-pay to visit the doctor or go to the
hospital but we do not know how much the tests they run or
surgeons they provide actually cost, or who really pays for
them. In many cases, it is not because we do not want to
know, it is because pricing information is difficult to find
or not available at all. I hope that is beginning to change.
We will hear from our former colleague and House Speaker Newt
Gingrich in a few moments about how health savings accounts
in his words have unleashed the value driven American
consumer on the efficient health care market. I agree with
Speaker Gingrich when he recently wrote that every American
has their right to know price and quality information before
making their health care purchases. I am pleased that
Florida, led by Governor Jeb Bush, has been a national leader
when it comes to increasing transparency in health care
pricing. My State has established a website at
Floridacomparecare.com which allows Floridians to research
prices for various medical procedures at State hospitals and
compare hospital to hospital patient outcomes in the State.
Florida's Attorney General Charlie Crist, and the State's
Agency for Health Care Administration, created a website at
Myfloridarx.com to help consumers shop for the lowest prices
in the area for prescription drugs. This prescription drug
website provides pricing information on the 50 most commonly
used prescription drugs in Florida.
Mr. Chairman, I am eager to hear today's witness and believe
giving consumers better information about their health care
costs can improve health care quality and lower prices. I
look forward to working with you, Mr. Chairman, and members
of the committee as we determine how to better educate
consumers about their health care choices and the increased
transparency in health care costs.
Thank you, Mr. Chairman.
Mr. Deal. I thank the gentleman.
Mr. Pallone is recognized.
Mr. Pallone. Thank you, Mr. Chairman.
According to my Republican colleagues if consumers have a
greater financial stake in their health care and have access
to better pricing information, they will be magically
transformed into a Nation of health care bargain hunters that
will help bring runaway health care costs under control. And
I have to tell you, Mr. Chairman, I just do not buy it. I do
not think it works that way. I made up a little chart over
here on the left which I am going to use during questions
which basically tries to point out that, you know, if you
think about what the Republicans said, they said, okay, I
am going to open up the Sunday paper, I am going to look at
an ad like that, you know, buy two stents get free same day
installation best buy and somehow, you know, it is as simple
as saying two stents for the price of one in order to figure
out how you are going to save costs. And I just do not buy
it. Again, I am going to talk about that later during
questions.
But first of all, our Nation is nowhere near providing
patients with the pricing and quality information they need
or in the context that they can easily understand. I
recently heard someone liken shopping for health care to
putting together a thousand piece jigsaw puzzle and it is
just that complicated. And providing public access to a
hospital's charge master or price list I do not think
changes that.
The second thing is who is going to want to buy a bargain
basement pacemaker or get a mammogram done cheaply? When
it comes to their health, people do not want, they want the
best possible care available, not the cheapest care. A man
who just had a heart attack is not going to shop around
before he goes to the emergency room. Similarly, a woman
who has a lump in her breast is not going to wait so she
can search for the least costly biopsy. These people want
to be treated for their illnesses as soon as possible.
Even if consumers had access to pricing information and
they were able to understand it and use it to shop around
for low cost health care, consumer directed health plans
would still do nothing to reign in out of control health
care costs. That is because they do not address what is
really driving health care spending; providing care for
the elderly and people with chronic conditions. What my
Republican colleagues suggest we force these people to
clip coupons and shop around for their care. Just ask
all the seniors that had to shop for a Medicare
prescription drug plan how they would feel about doing
that every time they needed to see a doctor. It would
be chaos.
Now let us be honest about what is going on here. The
truth of the matter is that consumer driven health plans
are not about empowering consumers to take control over
the health care nor is it about lowering prices. It is
about shifting more health care costs onto the backs of
those who were the most sick and the least able to
afford it. And I do not think we should be fooled. The
Republicans in this hearing today and their rhetoric, I
think are trying to sell the American people a lemon.
And this idea of this brave new world of consumer
directed health care envisioned by my colleagues, I just
do not think exists. It is not going to really result
in any price reductions.
Thank you, Mr. Chairman.
Mr. Deal. I thank the gentleman.
We are pleased to have the Chairman of the full committee,
Mr. Barton and I recognize him at this time for an
opening statement.
Chairman Barton. Thank you, Mr. Chairman.
I appreciate our panelists being here this morning. I am
looking forward to hearing your testimony regarding the
transparency in our health care market.
Unfortunately, the term health care market is an oxymoron
in this country. Instead of a marketplace, we have a
system that prevents patients from seeing how much their
health care services actually cost. The health care
system hides prices and it blurs quality and it is most
perverse. The system treats the poorest like they were
the richest and charges them the very most.
I can tell you personally that the moments during which
a patient is not interested in learning the price of a
health care procedure. I had a heart attack on December
the 15th. When I was on the gurney in the emergency room
at George Washington Hospital, I was not real interested
in what the cost was. I was interested in what the
quality was. As it turned out, what they billed Blue
Cross Blue Shield was over $75,000. I think it was worth
every penny of it but I do not know personally how much
they actually paid, but I think it was worth every penny
of it. It is a true statement though that if I had asked
while I was in the emergency room what it was going to
cost for these lifesaving procedures, nobody could have
told me that was actually providing the treatment. The
emergency room staff could not have told me, the doctor
who provided the surgery procedure could not have told
me, and quite frankly the hospital administrator could
not have told me. And that is why health care costs are
different from virtually from every other economic
activity in our life.
Most of us would never agree to let a mechanic repair our
car or have a plumber fix a leaky faucet without first
receiving at least an estimate of what those expected
costs would be. At the same time as I have just pointed
out, we routinely seek treatment for vital health care
services with no information about the comparative costs
or the quality. And the power of the system is such that
we never even think to ask.
I cannot think of another sector of our economy where
consumers have less to say about it or have less say. By
limiting patient's access to comparative information, we
restrict competition and cripple the ability of market
forces to make health care more affordable. Not
surprisingly, spending on health care has soared in this
country, but does anybody here feel like the quality of
the care has improved at the same rate as its cost? We
deserve a better health care system which breaks through
the conspiracy of silence regarding health care prices and
quality. Too often patients are charged amounts that
really do not accurately reflect real cost and rarely reflect
the rate that providers are paid by private health insurers.
These list charges should be shown the light of day to
highlight their impact on unsuspecting consumers.
Uninsured individuals are sometimes charged the full amount
of these charges while insured individual can still be
effected by them if they go out of network or if your
insure base is negotiated rates off of the list price. The
Oversight and Investigations Subcommittee of this committee
has done great work on this issue, and I would like to thank
Congressman Whitfield and Congressman Greenwood, the former
Subcommittee Chairman, for helping to bring to light some of
the problems that we are talking about today.
We know that transparency in pricing does drive down the
cost everywhere else in our economy. We have seen how
better access to prices has allowed customers to receive
lower prices for airline tickets, cars, and now even homes
in some of the markets around our country. Price
transparency forces sellers to compete and allows purchasers
to negotiate better deals and save them more money. With
increased transparency, consumers could examine pricing
information. For example, to see that an arthroscopic
surgery procedure must cost $5,000 at one facility in
Florida, while the same procedure in another facility in
the same town is listed at $12,000. Rather than trying
to regulate or restrict variations, consumers could simply
be given the ability to see the differences and spend their
health care dollars as they think they should. Maybe the
$13,000 procedure is worth it. Maybe it features the
world's best surgeon. Who knows, but maybe it does not.
If the patient does not see the value in spending the
extra money, he or she should have the choice on spending
less.
Some providers and insurance are already working towards
greater transparency. We are going to hear from some of
them today about what they are doing to show their
enrollees the cost that they will pay at each provider in
their area. These negotiated rates that insurers could
make transparent which would be most helpful to patients
who want to know what they will pay out of their own
pocket for a specific procedure.
I want to applaud Congressman Lipinski who is here to
testify today and another Congressman who is not here,
Congressman Pete Sessions of Texas for their work on
legislation that would provide consumers with better
information about the cost and quality of their health
care services.
Mr. Chairman, thank you again and I look forward to the
hearing.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of the Hon. Joe Barton, Chairman, Committee
on Energy and Commerce
Good morning. I'd like to welcome the distinguished witnesses
we have before the Committee today, especially former Speaker
of the House Newt Gingrich and my two fellow Texans on the
panel. I am looking forward to the hearing today regarding
transparency in the health care market.
Unfortunately, the term "health care market" is an oxymoron in
this country. Instead of a marketplace, we have a system that
prevents patients from seeing how much their healthcare
services actually costs. The health care system hides prices
and blurs quality. At its most perverse, the system treats
the poorest like they were the richest and charges them the
very most.
Now, I can tell you that there are moments during which a
patient is just not very interested in learning the price of a
health care procedure. When you need it to survive, issues of
cost do not come to mind. But it is also true that if you
asked, nobody could tell you. That's how health care is
different from virtually every other economic activity in our
lives. Most of us would never agree to let a mechanic repair
our car or have a plumber fix a leaky faucet without first
receiving at least an estimate of what the expected costs
would be. At the same time, we routinely are expected to
blindly seek treatment for vital health care services, with
no information about the comparative cost or quality of these
services. And the power of the system is such that we never
even think to ask, even when the circumstance does not involve
an emergency.
I cannot think of another sector of our economy where consumers
have less say. By limiting patients' access to comparative
information about prices and quality, we restrict competition
and cripple the ability of market forces to make health care
more affordable. Not surprisingly, our national spending on
health care has soared, but does anybody here feel like the
quality of their care has improved at the same rate as its
cost?
We deserve a better health care system, which breaks through
the conspiracy of silence regarding health care prices and
quality. Too often, patients are charged amounts that do not
accurately measure real costs and rarely reflect the rates
these providers are paid by private health insurers. These
list charges should be shown the light of day, to highlight
their impact on unsuspecting consumers. Uninsured
individuals are sometimes charged the full amount of these
charges, while insured individuals can still be affected by
them if they go out of network or if their insurer bases
their negotiated rates off of the list price.
Our Oversight and Investigations Subcommittee has done great
work on this issue. I want to applaud Chairman Whitfield
and former Congressman Jim Greenwood for helping bring to
light the great problems caused by a lack of transparency
in hospital pricing.
We already know that transparency in pricing drives down the
cost everywhere else in our economic lives. We have seen how
better access to prices has allowed customers to receive much
lower prices for airline tickets, cars and now even homes in
some markets. Price transparency forces sellers to compete
and allows purchasers to negotiate better deals that save
them more money.
With increased transparency, consumers could examine pricing
information and, for example, see that an arthroscopic surgery
procedure would cost $5,204 at one facility in Florida, while
this same surgery in another facility in the same town is
listed at $12,926. Rather than trying to regulate or restrict
these variations, consumers could simply be given the ability
to see these differences and spend their health care dollars
accordingly. Maybe the $13,000 procedure features the world's
best surgeon and mints on your pillow every evening, but
maybe it doesn't. If the patient does not see value in
spending the extra $7,000, he should have the choice of s
pending less. That's how competition works, and it seems to
work everywhere but the hospital.
Some providers and insurers are already working towards greater
transparency. I know we are going to hear from one health
plan today about what they are doing to show their enrollees
the costs they will pay at each provider in their area. In
many cases, it is these negotiated rates that insurers could
make transparent, which would be most helpful to patients who
just want to know what they will pay out of their own pocket
for a specific procedure or office visit. I also want to
applaud Congressmen Dan Lipinski and my fellow Texan, Pete
Sessions for their work on legislation that would provide
consumers with better information about the cost and quality of
their healthcare services.
I've said it many times, but free markets work, and it's
something I think the health care sector needs badly. Nobody's
interested in turning the hospital into the health care
supermarket, but when you're charged $50 for a mucus recovery
system that turns out to be a box of Kleenex, something's wrong.
Greater transparency is important, both to control the growth of
costs and eliminate inefficiencies, but also to get patients to
take an interest in the cost-effectiveness of their care.
Thank you Chairman Deal for holding this important hearing
today, and I look forward to hearing from our witnesses on this
subject.
Mr. Deal. I thank the gentleman.
I know recognize the Ranking Member of the Subcommittee
on Health, Mr. Brown, for an opening statement.
Mr. Brown. Thank you, Mr. Chairman.
Thanks to our witnesses for joining us today. I commend
our guests and colleagues, Mr. Lipinski and Mr. Emanuel
and other members of both sides of the isle for their
efforts to increase the information available to
patients. Patients should pay a fair price for health
care and that accurate information on price quality and
effectiveness can in fact be empowering. I agree that
no one least of all the uninsured should pay inflated
prices for hospital care or any other health care.
There is an article in Monday's Congressional Quarterly
about a letter our colleague Bill Thomas, sent to Health
and Human Services Inspector General chastising that
office for failing to calculate "an excessive level of
charges" for hospitals and medical equipment suppliers.
The goal Mr. Thomas described is to establish a standard
price for each hospital service and piece of medical
equipment. And providers who charge more than that price
will be excluded from participation in Medicare and other
programs. He called that scheme a powerful economic
incentive, I call it price controls. Mr. Thomas went
on to say that absent such a benchmark pricing system
of "a broad transparent pricing initiative that
concludes hospitals will fail before it starts." I am
not questioning his logic or his goal, I am questioning
that it is right to set prices for hospitals and wrong
to negotiate prices for prescription drugs. Somehow it
is okay to send small medical suppliers into bankruptcy
unless they reduce their prices, but it is un-American
to question why U.S. drug prices are two to five times
higher than prices in other rich countries.
The pharmacies in our country could safely import
medicine from these countries which would stimulate price
competition. The Federal government could negotiate for
reasonable drug prices forcing drug makers to strike
harder bargains with other countries instead of gouging
U.S. consumers. We can pass Mr. Emanuel's legislation
and shed some light on the nebulous link between the
price that drug makers charge and the true cost of their
products. But the Bush Administration and Republican
leaders in Congress do not take kindly to initiatives
that take aim at the brand name drug industry, nor do
they have any interest in going after the insurance
companies. According to Health Affairs, 20 percent of
health care costs are associated with insurance,
administrative, and daily functions. Maybe if we had
transparency for insurers we could get those costs under
control.
There is one thing you can say about the current crop of
Republican leaders whether in Congress or in the White
House. You can say that they are loyal to their friends,
particularly the ones with deep pockets. They are all
for posting hospital prices and encouraging consumers
to comparison shop. They are all for keeping hospitals
and other providers out of Medicare unless they agree
to the government price, but they will not hold the
drug makers accountable for treating U.S. consumers,
U.S. businesses, and the U.S. Government like a piggy
bank. Why the double standard? My guess has something
to do with political ties and dollar signs.
The two health care sectors are largely responsible for
the dramatic increase in health care costs; hospital
services, prescription drugs. We should not treat one
like a sinner and the other like a saint. One more
thought on transparent, accurate information is good,
but all the information in the world will not shrink a
$5,000 deductible. Price competition is good but the
best price in the world will not transform health
savings accounts into a pro-consumer initiative. HSAs
are tethered to high deductible insurance. High
deductible coverage shifts major costs onto consumers.
If you have to spend $2,000 up front, your insurer is
probably pocketing your premium and paying out nothing.
Evidence shows that for many people, having a high
deductible policy is the same as having no insurance at
all. People on these policies have similar problems
accessing and delaying care as those without insurance.
I was visiting a plant near my district yesterday where
people who work there 25 years are making $14 an hour
and they have a $2,000 deductible health insurance
plan. They all agree, we just never go to the doctor
or hospital unless we are just deathly ill, of course.
There is a link to these poorly conceived policies and
increased consumer medical debt. Whether your
deductible is in your pocket or in your HSA, it is
still your money, it is still replacing dollars that
used to be paid by insurance. Transparency is good,
so is real insurance.
Thank you, Mr. Chairman.
Mr. Deal. I thank the gentleman.
I recognize Mr. Shimkus at this time for an opening
statement.
Mr. Shimkus. Thank you, Mr. Chairman.
And just for the benefit of our panelists, I will not
go into the big debate and rebut, but I would just say
that transparency is important; competition, individual
choices, whether it is a full line of insurance of
associated health plans or health savings accounts. I
mean the more choices the better in getting the consumer
involved.
By the way, I am taking this time to welcome my Illinois
colleagues. First as was mentioned earlier, Mr. Lipinski
has a bill along with a similar bill by Pete Sessions,
that would require the disclosure of hospital and
ambulatory surgery care center pricing. And obviously,
I am interested in hearing how he proposes that helps
in this price disclosure debate and I am glad that he is
here. I am assuming he will be joined by my other
Illinois colleague, Mr. Emanuel, and I am sure he is going
to thank us for the Deficit Reduction Act and the fact
that we have included the price disclosure on A&P prices
which he has requested and which is part of his bill, so
I think he will come thanking the Republican Congress and
the Deficit Reduction Act, and I look forward to hearing
his testimony.
With that, Mr. Chairman, I yield back my time.
Mr. Deal. I thank the gentleman.
Ms. Capps is recognized for an opening statement.
Ms. Capps. I thank you, Mr. Chairman and thank you for
holding this hearing today, for each of our witnesses for
being here especially our colleagues in Congress.
I can tell even before we get to your testimony that there
is a difference in this room between those who believe that
health care is simply a commodity that can be bought and
sold, and those of us who believe it is an essential service
with the goals of quality and access.
I wish we were here to discuss other ways to expand health
coverage to the growing number of uninsured in our country.
But when it comes to health care, transparency of cost, as
big as it is, will not necessarily result in patients
receiving the best quality of care. And ensuring that
patients receive the best quality of care has to be our
primary objective. Making costs more transparent so that
Medicare, Medicaid, the VA, and insurance companies can
negotiate more appropriate rates of reimbursement makes
sense, however, encouraging individuals to participate
in health savings accounts and determining their
obtainment of health care based primarily on prices could
be a disaster for patients' health. We can recall the
study conducted by Employee Benefit and Research Institute
which found that individuals participating in HSAs who
earned under $50,000 per year are more likely to avoid or
delay necessary medical procedures. If low-income people
are forced to bear greater cost sharing and they cannot
afford it, we can expect to see people foregoing
inexpensive primary care, ending up in the hospital with
expensive care once the condition has worsened. This will
perpetuate a vicious cycle whereby patients will be left
picking up the tab for expensive emergency and acute care
because they were encouraged to spend less in the first
place.
Individuals are less likely to consider costs in emergency
situations that require high priced care. When emergencies
arise, a patient's only concern should be accessing care as
quickly as possible. Every American deserves to know that
he or she can get the health care services they may require.
Promoting plans that may discourage preventive and primary
care are leaving low-income and sicker patients to pay
higher costs. It will not result in the best possible
quality care for our country. It is unrealistic to conduct
health care that way. It is also unrealistic to compare
choosing your health care provider like you choose a car or
television set. When lives are at stake, there is no time
for price shopping. And if someone is incapacitated, they
certainly do not have a choice in the matter. But instead
of worrying about worst case scenarios, let us try to prevent
them by reducing the number of uninsured with the goal being
that everyone have access to primary and preventative care.
I yield back the balance of my time.
Mr. Deal. I thank the gentlelady.
I recognize Dr. Burgess for an opening statement.
Mr. Burgess. Thank you, Mr. Chairman. And I too want to
thank you for convening this panel today. We are very
fortunate today in that we have two Texans on the panel,
Dr. Goodman who is the Patron Saint of Patient Power, the
book that he wrote many years ago, and Mr. Gedwed from
my backyard down in North Richland Hills, Texas, who
I will speak a
little bit more of later on.
I came to Congress having owned a medical savings account
for five years before I arrived here. I am a believer in
medical savings accounts. When patients would ask me, gee,
doctor, you always complain about HMOs and insurance
companies, what would you recommend, and I never hesitated,
I said, I would get a medical savings account. I made it
available for every physician and non-physician staff member
in my office. At that time, we numbered about 45. Only
about five of us took it, but those of us who took it over
the years saw the dollars in that account grow and it made
me a believer in the private ownership of Social Security
accounts when we had that discussion up here last year.
The number one things that drives me on every piece of
legislation that I look at and every piece of legislation
that I have hoped for that deals with health care or whether
or not I cosponsor a bill has to do with affordability. We
were told back in medical school that there are three things
people look for in health care; affordability, access, and
quality. And you can only have two at a time. Taking that
to heart, I am only going to focus on affordability during my
congressional tenure however long that is because I believe
that the American medical system does provide quality care
and I trust it to continue to do so and I believe we will
increase access by increasing affordability.
The uninsured are not uninsured by choice, they are
uninsured because they cannot afford the $9,500 insurance
premium that we require them to pay because of the all the
mandates that we put on health insurance. We need to take
a minute and think about the phenomena known as specialty
hospitals. Specialty hospitals have a mechanism at their
disposal for reducing the cost of care by increasing
competition, increasing the quality of care through
communities, but we do have to be careful about not running
out the community hospital while the specialty hospitals
increase.
We also have to recognize that there is a dark side to
transparency in the health care market. Opacity exists not
because people like opacity, but because it brings value to
the system. And as long as we require the cross subsidization
of our Medicare and Medicaid programs, how is the private
sector going to make up that difference? There is going to be
a need for opacity in the system so we need to look at that.
Our Chairman brought up the issue about the mechanic and you
do not go to the mechanic and leave your car without knowing
what it is going to cost. But I would also submit to you the
Government would never go to the mechanic shop and say since
it is up on the rack anyway, we will pay for the brake job but
the muffler and changing the transmission fluid are bundled in
and those are just included in the cost of the brake job. We
see this every day in the Medicare system in this country.
We do want to be careful not to disrupt what is already there
and working and again, Mr. Gedwed, from my neck of the woods
has a very valuable product that is proprietary, but he has
assembled that product from public data that is readily
available. I understand he has data on my practice
performance. I hope it is satisfactory. I look forward to
learning that today. I look forward to hearing the rest of
our panel members.
Thank you, Mr. Chairman, I will yield back.
Mr. Deal. I thank the gentleman.
We are pleased to have the Ranking Member of the full
committee with us and I will recognize Mr. Dingell at this
time for an opening statement.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy and
I thank you for holding this hearing on price transparency.
I want to welcome my two colleagues, Mr. Lipinski and
Mr. Emanuel, thank you for being here.
I want to comment about this matter of disclosing prices. It
is a good thing, particularly if it is extended to prices on
pharmaceuticals and for health insurance companies. I have
less hope of that happening than I do for other things. The
hope is that the consumers will know how much their health
care costs then they will then be able to shop around for
the best deal and therefore reduce the overall cost of
health care; a wonderful hope.
That is the market. How medical care is currently
administered and delivered, there is no guarantee that
it will bring down health care costs. It has never been
so as it is now administered, and if that process continues
as it is, it probably never will, unless extraordinary
changes are made. This is a gross misconception. Health
care does not work like a trip to the grocery store or to
buy a sink. You do not always know what items you need or
even what items are available. And more often than not,
someone else such as your physician is by necessity
selecting the items that go into your shopping cart and
also addressing the question of prices.
Transparency is not enough. In addition to prices,
consumers must know about quality. Today's health care
systems are a long way from having the infrastructure to
support reasonable assessments and reasonable comparisons
of quality. We need to encourage collaboration to promote
the development of quality measures and studies of the
comparative effectiveness of different medicines and
treatments. Then we need to figure out how best to
communicate this often complex information to those who are
frightened and off times uninformed people who are in a
state of a little desperation.
Of course the question we should ask is why now are we
seeking to turn people out on their own in the health care
market? Is an individual really going to be able to
negotiating anywhere near as good a discount as an entity
negotiated on behalf of tens of thousands of individuals?
If an individual can, why are my Republican colleagues so
intent on harnessing the power of the group to get better
discounts through association health plans?
Finally, a central tenet of this consumer driven philosophy
is shifting more financial responsibility onto families,
passing the buck for the hospital bed down the line through
high deductible health care plans. American families are
already burdened by out of pocket medical expenses.
Sometimes they are terrifying in size and scope. More than
one in five people with chronic conditions live in
families with problems paying their medical bills. And
research shows that the medical bill problems are more common
amongst those in insurance with higher deductibles. Asking
people to pay more does not necessarily produce better
outcomes. It can, and frequently does, produce vastly worse.
In fact, it has been shown to have a negative effect on care,
most significantly for those who are of low-income or
chronically ill. The end result is people skipping or
delaying care. And the one remarkable thing about this is
it results in much more costly treatment later and much
larger costs to all concerned.
To conclude, more price transparency in the American health
care system is a good thing but we should not delude
ourselves into thinking it is a panacea for our Nation's
health care costs or for the problems of the uninsured.
I would note, speaking on the subject of transparency, that
I have been having many meetings with my constituents
lately on these kinds of subjects. I have been asked not
once about price transparency. Many have asked me about
the continuing and serious problems of the selection and
other matters of Medicare Part D drug benefits. People
are confused. People are outraged. People feel that they
cannot come to a sensible or workable conclusion and that
there is no place that they can get that kind of information.
So I hope my friends in the Majority will find time in the
coming weeks to allow the Democrats to have the additional
round of hearings on Part D that we are entitled to under
the rules of the House which we have requested.
I thank you, Mr. Chairman.
Mr. Deal. I thank the gentleman.
Ms. Bono is recognized for an opening statement.
Ms. Bono. Thank you, Mr. Chairman.
I just would like to thank our panelists and waive my
opening statement.
[The prepared statement of Hon. Mary Bono follows:]
Prepared Statement of the Hon. Mary Bono, A Representative in
Congress from the State of California
Chairman Deal and Ranking Member Brown, I would like to take this
opportunity to thank you for allowing a hearing on this important
issue. It is critical that we evaluate how to increase transparency
in our healthcare market. Improved transparency will improve the
costs and quality of healthcare services.
A recent Wall Street Journal article pointed out that it is difficult
to enlist consumers in the effort to reduce healthcare costs if they
don't know what those costs are. Simply put, informed consumers
make the best decisions and informed consumers need information.
The public has a right to know price and quality information when
making decisions and what decision could be more important than
choosing life sustaining and life saving medical services?
The healthcare industry should be centered on the consumer. Consumers
rely on pricing and quality information to make intelligent and
cost-effective decisions.
There are an estimated 45 million uninsured Americans, seven million
of which reside in my home state of California. The uninsured are
frequently victims of outrageous price gouging and, even worse, are
generally unaware of the extreme prices that they will be forced to
pay in the coming weeks. This is not right and it is simply not fair.
I believe that increased transparency has an important role to play
in creating a more level playing field for those who seek medical
services. I also believe that it is an important step in establishing
and maintaining a healthcare system that is cost-effective, efficient
and accessible.
I look forward to hearing from our witnesses today as to what their
policy recommendations are and how we can continue to move towards
such a system.
Thank you Mr. Chairman and I yield back the remainder of my time.
Mr. Deal. I thank the gentlelady.
Mr. Allen is recognized for an opening statement.
Mr. Allen. Thank you, Mr. Chairman.
I appreciate the importance of this hearing of providing
consumers with better information about their health care
costs. I think based on the conversation we have had
already it is pretty clear that the information about quality
is probably more important to a great many people.
I do question the underlying assumption of this hearing which
is that if patients can easily obtain the price of different
health care services they will then shop around for the least
expensive care. Chairman Barton made it quite clear that
when he had his heart attack that was not foremost in his
mind and it is not likely to be foremost in the minds of
others who have a serious health condition.
It is important that we deal with this system in all of its
complexity. We mentioned a couple of things. We know that
the health care costs are driven largely by people who have
two or more chronic conditions and the treatment of that,
those conditions, can be very expensive. We know that the
increase in health care costs is driven largely by developing
technologies and we know that compared to other countries,
our system is much more expensive because of the
administrative costs that come with a complicated private
insurance system that is much more complicated and much more
expensive than other countries have. But within the system
itself there are also complexities.
Uma Rinehart has laid out I believe a compelling argument
that if you combine HSAs with high deductible health plans,
that shifts costs within the system or it shifts the burden
within the system, within the health care system.
Particularly it shifts costs from wealthier people to poorer
people and it shifts costs from healthier people to sicker
people. And that is something that is, that is a direction
that consumer driven health care will take us--HSAs we saw
just recently articles saying that 2 million people so far
have taken out HSAs in this country but only 1 million have
put any money into them. And the bottom line is if you are
relatively wealthy in this society, you can set up an HSA,
you can put money into that kind of account, and as
Dr. Burgess said and others I will admit it works for
people. But it does not work for people who cannot afford
health insurance today. And it does not reduce the overall
cost of the system.
One closing comment, when I first ran for Congress, I went
to the head of the main medical center and he said well
think of the health care system as being 14 percent of our
GDP, a giant pool of money and every player in the system
is getting a certain amount of money out of that pool and
now he said just you try to change it. And that is the
complexity. That is the difficulty. We ought to be
looking at those things that will reduce system costs,
not simply shift the cost of health care within the system
to those who can least afford it and to those who are the
sickest.
I yield back the balance of my time.
Mr. Deal. I thank the gentleman.
Ms. Baldwin is recognized at this time for an opening
statement.
Ms. Baldwin. Thank you, Mr. Chairman and I thank the
witnesses.
Like my colleagues, I support increased price transparency.
And I think that price transparency efforts we are
discussing today should go hand in hand with increased
reporting of quality measures. We certainly do not want
to encourage people to simply seek out the cheapest health
care if that means sacrificing quality to do so.
In my home State of Wisconsin there has been a number of
exciting efforts on both the price and quality reporting
front. The Wisconsin Hospital Association has been a
leader in this effort. They have developed two systems;
one that reports on quality and the other that reports
on charges and this information is now available on line.
The Wisconsin Collaborative for Healthcare Quality has
initiated a similar system that goes one step further.
It combines both quality and pricing data in the same
reporting system so consumers can look on one chart to
see where a given hospital would fall on both the quality
and price spectrum.
In order to truly educate consumers, we need to ensure
that they are able to access the full picture. Consumers
need to know about where they can get the best health care
at the most affordable price. And in many aspects, the
health care prices must be a part of this, including
prescription drug prices. So our efforts regarding
increased transparency must focus on both of these pieces.
But I do think it is important to keep in mind that
increased health care transparency has limitations as many
of my colleagues have pointed out. Knowing that a certain
procedure costs $500 in one setting and $625 in another
does little to help a family that has no health insurance
and no spare resources to pay the price. Comparison
shopping only works if you have the financial comfort to
afford the purchase and the time and ability to investigate
the options.
Similarly, I am concerned that proposal is such as health
savings accounts which rely heavily on increased price
transparency would predominately benefit the healthy and
the wealthy in our society. Having a health savings
account is not going to help a family who cannot afford to
put money into their account. Instead, HSAs will only
serve to accelerate the erosion of our already crumbling
health care system by causing more employers to switch
from comprehensive health care coverage to high deductible
HSAs, weakening the risk pooling system that we have and
making comprehensive health care coverage even harder to
obtain in our country.
Thank you, Mr. Chairman.
Mr. Deal. I thank the gentlelady.
Mr. Green is recognized for an opening statement.
Mr. Green. Thank you, Mr. Chairman.
I would like to welcome my colleagues on both sides of the
aisle. And I support like all we have heard the efforts
to provide additional transparency in the health
care system to allow consumers and medical professionals
and policymakers the insight into the cost of health care.
But it is clearly the Administration's push for pricing
transparency as part of the larger effort to promote
health savings accounts and I would hope we can support
price transparency without supporting health savings
accounts. Now that health savings accounts are not part
of the problem, the solution to deal with the lack of
health care coverage, but I do not think it covers
anywhere near the number of people that they think it
would be. Because similarly not only with the increased
health care costs but also the burden for negotiating
their health care with the provider.
And I know, like our Chairman and all of us, when we go
to a physician or a hospital specifically on an emergency
basis instead of being able to say by the way I am
going to save $50 by going to this one instead of that
other one. And I believe pricing information should be
available, but this information alone will not help
consumers make better decisions. Consumers also need
information about the quality of the care, the delivered
products. And I know there has been an effort and I see
that at least on the hospital side. So maybe we need to
see both consumer information on pricing and also the
quality as it is rated, otherwise consumers are likely to
use the cheapest health care which may or may not always
be the best. It is also practical to expect consumers
to shop around. As I said for example, a pregnant woman
has months maybe to make a decision about who is going to
provide her maternity care and can take into account
the many factors but a parent with a child that needs
an emergency surgery may not be able to. Getting the
child the health care quickly is the most important
factor in the parent's decision process.
The pricing transparency as part of the consumer directed
health care is supposed to lower health care costs. We
must also ask ourselves lowered at what price? If a
50-year-old with an HSA and a high deductible health plan
knows the cost of a colostomy yet forgoes the procedure
because of those cost implications, is that consumer
really getting better health care? No, in fact, I think
that is what we have seen from HSAs. People will
postpone some of the easier things until they actually
have to go and have the catastrophic and get to that
$5,000 amount.
So that, Mr. Chairman, again, I think we can support
price transparency and better consumer information
without necessarily signing on to HSAs panacea for our
health care crisis.
Thank you.
Mr. Deal. I thank the gentleman.
Mr. Pitts is recognized for an opening statement. I
thank the gentleman.
Well we will proceed. I believe we have covered everyone's
opening statements here. We will proceed with our very
distinguished members of our panel. We are pleased to have
two of our colleagues who are here to testify and I will
recognize these two gentlemen first, and then we will proceed
after that to recognize the other remaining members of the
panel. First of all, we are pleased to have Mr. Daniel
Lipinski who is here, a Member of our current congressional
delegation from Illinois and his colleague also, Mr. Rahm
Emanuel from Illinois is here as well. We will begin with
you two gentlemen and Mr. Lipinski I will recognize you
first for five minutes.
STATEMENTS OF HON. DANIEL LIPINSKI, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ILLINOIS; AND HON. RAHM EMANUEL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Lipinski. Mr. Chairman, I would like to thank you and Ranking
Member Brown who looks a lot like Mr. Pallone right now, and all the
members of the Health Subcommittee for giving me the opportunity to
speak about H.R. 3139, the Hospital Price Reporting and Disclosure
Act, which I introduced last year with Representative Bob Inglis of
South Carolina.
As health care costs continue to rise, families are
struggling more and more to figure out how to pay for the
medical bills. This problem is made worse by the fact that
there is no way to know how much you are going to be charged
when you check into the hospital for care. Lack of
information prevents families from making well-informed
cost-effective choices. That is why I introduced this
bipartisan bill to require every hospital to give Americans
clear, concise information about what they charge for common
procedures and medications.
Many of us would never consider getting our car repaired
without first getting an estimate. Well this is exactly
what we do when we go into a hospital for health care.
Two years ago, I was involved in a serious bike accident, a
bicycle not a motorbike that has been sometimes reported.
But in the sense that I broke my hip which was certainly the
biggest shock but as anyone who has gone into a hospital has
had happen to them, I got a second shock when I got the bill.
Just to give you one small example, I was charged $5 for
this tiny packet of ointment. When you go to any pharmacy
and get the same thing 32 times the size for $7. Now this
and the other costs charged to me on the itemized bill lead
me to the question why can't we know what hospitals charge
before we get admitted to the hospital. At that point, I
do what most people do. I do a Google search to see if
anyone else was working on this problem. I found that
California had just recently required hospitals to
disclose all the prices that they charge. That is the
hospital's charge master. Now this disclosure revealed a
big disparity between hospitals and what they charge for
the same procedures. And actually one hospital cost $120
for the same chest X-ray another hospital costs $1,500.
At one hospital they would give you a Tylenol capsule for
free another hospital would charge you $7 for the same
capsule.
So last year, I introduced the Hospital Price Recording
and Disclosure Act, to make information available for all
hospitals across the country and give all Americans the
ability to make informed choices about where they seek
medical care. This bill would require hospitals to report
twice a year to the Secretary of Health and Human
Services the average and median price that they charged
over the last six months for the 25 most commonly performed
in-patient procedures, 25 most common out-patient
procedures, and the 50 most used medications. These prices
would then be posted on a user friendly website where
Americans could easily access them. This type of
information would be simpler for the average person to
understand than if the entire dense charge master list
was provided.
Numerous States besides California have also taken recent
action on this issue. My home State of Illinois has
passed legislation to require disclosure of prices for
both in-patient and out-patient procedures. Florida,
Georgia, Ohio, and South Dakota have all passed similar
legislation. Wisconsin, as Representative Baldwin's
talked about, has this type of information available on
a public easy access website and I highly recommend
that website. At least two more States right now are
currently talking about this as they have legislation
pending on hospital price disclosure. On a national
level, it was initially reported that the Administration
has discussed the proposal to have HHS implement and
oversee a voluntary program that publicizes the prices
health care providers charge for their services. All
of these are a good start. I believe Congress should
act to make price disclosure mandatory on a national
level.
Obviously price is not the only factor that a family
should take into account when making health care
choices. Quality information is also critical and I
am happy that the Centers for Medicare and Medicaid
Services are making some of this quality information
available now, but much more is needed. We must
always remember though that when seeking medical care
the advice of professionals will always be essential
in making health care choices. But these are not
reasons to oppose making hospital price information
available. Price information is especially critical
to 46 million uninsured Americans. A recent report
on 60 Minutes demonstrated the high impact that
undisclosed hospital prices have on uninsured
Americans. While you work to get coverage for the
uninsured which is something that is very critical,
we should give them the information that will help
them to make more cost-effective health care choices.
This issue is not Democratic or Republican. We no
t only have bipartisan support for this bill in the
House, but a companion bill was introduced in the
Senate by Democrat Dick Durbin and Republicans
Jim DeMint and John Cornyn. President Bush has also
stated his support for price transparency. When I
am home in Illinois and I talk about this bill, they
call it one thing, common sense. We expect to have
price information for every other purchase that we
make, why do we not have this information available
when we go into the hospital? Because when it comes
to health care, information is good for you.
I would like to thank the Chairman for this
opportunity to testify and I look forward to working
on this issue in the future with the committee.
Thank you.
[The prepared statement of Hon. Daniel Lipinski
follows:]
Prepared Statement of the Hon. Daniel Lipinski, A Representative
in Congress from the State of Illinois
Mr. Chairman:
I would like to thank you, Ranking Member Brown, and all the
members of the Health Subcommittee, for allowing me the
opportunity to speak about healthcare price transparency,
specifically, H.R. 3139, the Hospital Price Reporting and
Disclosure Act, which I introduced with Representative Bob
Inglis of South Carolina.
As healthcare costs continue to rise, families are struggling
more and more to figure out how to pay their medical bills.
This problem is made worse by the fact that there is no way to
know how much you will be charged when you go to a particular
hospital for care. Lack of information prevents families from
making well-informed, cost-effective choices. This is why I
have introduced the Hospital Price Reporting and Disclosure
Act, a bipartisan effort to require every hospital to give
consumers clear, concise information about what they charge for
common procedures and medications.
Most of us would never consider getting our car repaired without
first receiving an estimate of the charges, but this is exactly
what we do when we need to go to a hospital for treatment.
Two summers ago I was involved in a serious bicycle accident.
Breaking my hip was certainly the most serious shock, but like
anyone else who has experienced time in a hospital, I was hit
with a second shock when I received the bill. Just to give you
one example, a tiny single-use packet of ointment was billed to
me at almost five dollars. If you walk down the street to any
pharmacy you can get a tube 32 times the size for about seven
dollars. This led me to ask the question, "Why can't we know
what hospitals charge before we are admitted?" At that point
I did what most people would do, conduct a Google search to
see if anyone else was asking this question. I found that the
state of California had just recently required hospitals to
disclose their entire price list - their "charge master."
This disclosure revealed that there was a great disparity
between California hospitals in what they charge for common
procedures and medications. One hospital charged $120 for a
chest x-ray while another charged more than $1500. And while
a Tylenol capsule was free at one hospital another charged
over 7 dollars for the same medicine.
So last year I introduced The Hospital Price Reporting and
Disclosure Act to make price information available for all
hospitals across the country, and give all Americans the
ability to make informed choices about where they seek medical
care. This bill would require hospitals to report twice a
year to the Secretary of Health and Human Services (HHS) the
price they charge for the twenty-five most commonly performed
inpatient procedures, the twenty-five most common outpatient
procedures, and the fifty most frequently administered
medications. These prices would then be posted on a
user-friendly web site so that Americans could easily access
this information. Our bill does not require the disclosure
of the entire charge master because the experience of
Californians has suggested that the size and complexity of
these lists make it difficult for the average person to
find helpful information.
Numerous states besides California have also taken recent
action on this issue. My home state of Illinois has passed
legislation that provides for disclosure of prices charged
by hospitals for both in-patient and out-patient procedures,
and states like Wisconsin and Oregon already have this kind
of information available to the public on easy to access
websites. I highly recommend the Wisconsin website
(http://wipricepoint.org) to see how well this can be done.
Obviously price is not the only factor that families should
take into account when making health care choices. Quality
information is also critical, and I am happy that the
Centers for Medicare and Medicaid Services (CMS) is beginning
to make some quality measures available; more is certainly
needed. And the advice of health care professionals will
always be essential when making care decisions. But these
are not reasons to oppose making price information available.
Price information is especially critical to the 46 million
uninsured Americans. The recent report on 60 Minutes
demonstrated the high impact that undisclosed hospital
prices have on uninsured Americans. While we work to get
coverage for the uninsured, we should give them information
that will help in their health care choices. We expect to
have price information for every other purchase that we make,
why shouldn't we have the same when it comes to health care?
This is not a Democratic or a Republican bill. We not only
have bipartisan support in the House, but Senators Dick
Durbin, Jim Demint, and John Cornyn introduced a companion
bill in the Senate. President Bush has also stated his
support for price transparency and it's been reported that
the Administration has discussed a proposal to have the
Department of Health and Human Services implement and oversee
a voluntary program that would publicize the prices healthcare
providers charge for their services. But when I'm home in
Illinois talking to my constituents, they call this bill one
thing - common sense. Because when it comes to health care,
information is good for you.
I would like to thank the Chairman for the opportunity to
speak on my legislation, and I look forward to hearing the
testimony of the other witnesses.
Mr. Deal. I thank the gentleman.
Mr. Emanuel, you are recognized for five minutes for
your presentation.
Mr. Emanuel. Thank you, Mr. Chairman. Thank you for this
hearing.
In the concept of transparency, I not only advocate
for legislation as I have done on the prescription
drug pricing and Medicaid Fraud Prevention Act--I also
practice it. If you go to my website, you can see a
Costco in Chicago pricing for ten of the most common
drugs used by seniors and Costco in Toronto. Now the
Costco in Toronto, and we update it every month, on
average is $1,200 cheaper for those same ten drugs,
same dosage, than they are at the Costco in Chicago.
And I want everybody in the Chicago area to know and
that is why I instituted it. And remember it is
Costco which is a price competitive shopping area. It
is the same ten drugs so we are comparing the same
drugs that seniors most commonly use--blood thinners,
arthritis, blood pressure, all types of medication.
And so I believe in the notion of transparency is
making people better shoppers and getting price
competition.
That is also why I wrote a letter to the Secretary of
Health and Human Services asking them originally when
they put up on their website the pricing Medicare.gov
that they include the prices in Europe which they--I
know it is going to come as a shock to you, they did
not do but for everybody to know then about the
competition and what pricing was. That is why I
believe in re-importation as a concept of allowing
people access and allowing competition and choice to
exist in the market and you can have price competition.
And I practice that at our office so people in Chicago,
the old Costco in Chicago and Costco in Toronto.
Toronto is an hour away and $1,200 cheaper for Chicago.
Now I introduced this legislation, which my colleague
from Illinois, Congressman Shimkus said some of the
stuff was implemented in the budget reconciliation
but not all of it. Today, Medicaid covers about a
third of the budget, a third of the cost of the
budgets for our State governments. And we all know
they are going on a fast track to about half the State
budgets. And one of the biggest price points in there,
if not the biggest, one of the driving factors is the
cost of prescription drugs. And that is what we are
paying now. I think about a third of the States right
now pay more for Medicaid than they do for access to
higher education. And in short order that is what we
need for every State. That is going to happen. And
prescription drugs and the price of prescription drugs
is one of the driving factors there.
So we introduced this to give both competition and
also as a way to fight fraud. Now what we did last
year was halfway but not the full effort. And what we
have to do is get all of the information, all of the
transparency there, not just the average manufacturing
price or the second, how you compute the average
manufacturing price. Without that information, all
that information we will never know. And in fact, in
2004, Schering-Plough settled with the Government for
$345 million on the issue of pricing and Medicaid.
There were also in 2003 Bayer, I think the exact price
was $257 million and GlaxoSmithKline for $86 million.
So in fact, fraud to taxpayers exists as it relates
to pricing prescription drugs through Medicaid and the
payments.
Lastly, we have to get the best prices out there. So
although we have done certain things, we have to finish
the job as it relates to transparency, otherwise
taxpayers are going to continue to be paying for bills
they should not be paying and paying money they should
not be paying and we cannot have a position where
Medicaid is going to go from a third of our State budgets
up to half of our State budgets. And all this information
would make our State governments and therefore our
taxpayers better buyers of prescription drugs. We now
know there is a problem up there. That is why we settled
these cases in the last two years and made millions of
dollars. But how you compute the average manufacturing
price and the best prices is essential because right now
we are playing hide the ball with the prescription drug
companies and that is wrong. Now we know there is a
problem here and we cannot do halfhearted efforts to get
all the pricing and all the information. We would not
have addressed it in the budget reconciliation unless we
thought it was a problem and yet fraud is being committed
on taxpayers, and on Medicaid, and on the consumers and
yet we are not doing what we should be doing. And all
we are asking for is the type of information to be
available. And as Secretary Michael Leavitt said just
yesterday, people deserve to know, they have a right to
know the quality of care they are receiving and its cost.
And unless you know how you compute the average
manufacturing price and unless you know what the best
prices are available, we are never going to get the best
costs for our taxpayers and for the people who use
Medicaid, the most vulnerable in our society. And these
costs are rising.
And I know I am out of time so I want to thank you very
much for holding this hearing and hope that rather than
doing half of it as we did last year, we finish the job
this year when it comes to full transparency.
Mr. Deal. I want to thank both gentlemen for being with
us and would invite you to join us on the dais if you
would choose to do so.
Mr. Emanuel. I am on my way to a Medicare event on the
issue of pricing.
Mr. Deal. Thank you for being here.
And Mr. Lipinski you have the same invitation to join us
if you would like or I understand you have other schedules
like most of us do. But thank you both for being here.
Mr. Lipinski. Thank you.
Mr. Deal. It is my pleasure now to introduce the remaining
members of the panel and they are certainly distinguished
individuals. First of all my former colleague from Georgia
and our Former Speaker of the House of Representatives,
the Honorable Newt Gingrich, we are pleased to have you
with us today. Mr. William Gedwed who is the Chairman and
President and CEO of UICI from New Richland Hills, Texas
that I believe Mr. Burgess referred to earlier in his
statement; Mr. Paul Ginsburg who is President of the Center
for Studying Health System Change, pleased to have you as
well. Dr. David MacDonald, President of Liberty Health
Group from Charlottesville, Virginia; Dr. Sara Collins,
Senior Program Officer, Future of Health Insurance of the
Commonwealth Fund from New York; Dr. John Goodman, President
and CEO of the National Center for Policy Analysis from
Dallas, Texas; and Dr. Gerard Anderson, Johns Hopkins
Bloomberg School of Public Health and Health Policy and
Management from Baltimore. Certainly a distinguished group
and Speaker Gingrich we will start with you.
STATEMENTS OF THE HON. NEWT GINGRICH, FORMER SPEAKER OF THE HOUSE,
FOUNDER, CENTER FOR HEALTH TRANSFORMATION; WILLIAM GEDWED, CHAIRMAN,
PRESIDENT & CEO, UICI; PAUL B. GINSBURG, PRESIDENT, CENTER FOR
STUDYING HEALTH SYSTEM CHANGE; DR. DAVID MACDONALD, PRESIDENT,
LIBERTY HEALTH GROUP; DR. SARA R. COLLINS, SENIOR PROGRAM OFFICER,
FUTURE HEALTH INSURANCE, THE COMMONWEALTH FUND; DR. JOHN GOODMAN,
PRESIDENT & CEO, NATIONAL CENTER FOR POLICY ANALYSIS; AND
DR. GERARD F. ANDERSON, JOHNS HOPKINS BLOOMBERG SCHOOL OF PUBLIC
HEALTH, HEALTH POLICY AND MANAGEMENT
Mr. Gingrich. Thank you, Mr. Chairman.
I very much appreciate this hearing and the focus on the
public's right to know, to use Secretary Leavitt's language,
I might point out to the committee that 93 percent of the
country at least in one recent poll, said people should have
the right to know price and quality information before they
make decisions on health care.
I would also point out that in terms of fraud, there is
dramatically less fraud in a place like McDonald's or UPS
or FedEx than there is in Medicaid because you have a
direct relationship between the buyer and the seller. If
UPS or FedEx does not pick up your package, you do not
pay them. And if they do not deliver the package, you
call because you know what is going on. The New York Times
reported that in Medicaid in New York State there is an
estimated $4.4 billion a year in fraud, just in New York
alone. And I think that is because the current system is
inherently impossible. You cannot have a third party
payment model in which for example in New York they had
one dentist who applied for 982 procedures per day and got
paid. The system is just simply hopeless.
And so I want to start with, and Congressman Allen made a
point about, the complexity of the system and that is
exactly why the Austrian School of Economics emphasizes
markets. Because the Austrian School looked at the fact
that if you hold all the decisions, and actually the
original story was they looked at the pricing of fish in
a pre-refrigerated world in Vienna and the fact that the
price dropped every 15 minutes all day and that different
people would come to buy fish at different times of the
day as a function of how wealthy they were or what they
were going to use the fish for. And their conclusion was
that just in trying to price fish, the bureaucracy was
hopeless because it could never keep up with the changing
pattern of values and opportunities. Now you apply this
to 15 or 18 percent of the economy and it is hopeless.
I mean, I said this years ago and got in trouble but
I am going to repeat it. The Centers for Medicaid and
Medicare Services is inherently a Soviet style command
bureaucracy. It has 44,000 thousand pages of regulations.
It is impossible. And if the Congress had simply found
the fraud in New York State, you would solve all of your
five year budget number without affecting anybody who
was delivering honest health care. But you cannot find
it inside the current model. George Rowe wrote the
perfect article in describing Gorbachev's crisis. And
this says something that Von Misis and Hayek wrote about
70 and 100 years ago. He said Gorbachev was a true
communist and he wanted to have Perestroika and Glasnost
to have an open, innovative communist. And he said you
are either for markets or you are for bureaucracy. But
to try to be for half and half is like asking the
citizens of your country for half of them to drive on
the right side of the road and half of them to drive on
the left side. It is not possible.
And that is the muddle we are in right now. We pretend
we want a market oriented system. We have a Medicare
system, a Medicaid system, a veteran system, a tri-care
system that are in fact command bureaucracies. We have
private corporations that go out and buy huge quantities
of health insurance by a human resources department that
is a bureaucracy. And then we wonder why you get all
these problems. Let me give you a few examples. The
current system is a hopeless mess. I would argue if
you go to a market oriented system with real information,
you will both get better care and lower costs, in fact,
enough lower cost that I believe you could get to
100 percent insurance coverage with a savings. That is
how big I think the waste and fraud is in the current
system. And it is not the government one is better. The
Florida Medicaid system, only 16 percent of the children
get dental screenings, only 4 percent of the women get
mammograms. Government delivered health care has not
proven in this country to be a better system. Look at
the Indian Health Service as an example.
I think that Congresswoman Baldwin was right; you ought
to be looking at both quality and price. I think that
is exactly right. We will not have a 300 million payer
system with the savings out of the--by getting a better
system. But let me give you a couple quick examples.
Those who oppose the right to choose by citizens refer
to emergencies and a $50 savings. Both are erroneous.
Less than 1 percent of all the decisions in health care
are a function of emergencies. More than 99 percent
are decisions about which you can make rational
decisions.
Second, the savings are radically greater than $50.
The Henry Ford Health System in Detroit went through a
model of putting the information about drugs on a PDA
so that doctors knew price as well as drug choice. The
first year on a million dollar investment they saved
$3.5 million because doctors moved to less expensive
drugs. You cannot put the congressional budget off.
It is a score there which is another issue. You should
have an accurate scoring caucus because nobody at this
CBO can score marketplace behavior. In fact, they do
not believe in it, they are a bureaucracy. And so the
Henry Ford System invested $1 million and the first
year saved $3.5 million and saved three hours per nurse
per week of time not spent talking to pharmacists.
The second example, I would urge this committee to go
to myfloridarx.gov which Governor Jeb Bush developed
with great leadership from Alan Levine, the Commissioner
of Health. They put in real pricing for the State of
Florida. You put in your zip code, you put in the drug
you want to buy, in one instance which was in my
testimony which I have submitted for the record, in one
instance for the same drug in a 2 mile area you can pay
as much as $202 and as little as $131. So in that one
transaction, we pass the $50 number that was mentioned
earlier by one of your colleagues.
We believe that a Travelocity model which Med Impact
has developed for us, that if you would force Medicare
to move to a Travelocity model of real time pricing for
real time choice, we think you would take 40 percent
out of the cost of drugs, and it would be cheaper than
Canada because theoretically the bigger markets should
be less expensive. It is an anomaly of the current
structure that the American market is expensive.
Finally, I recommend you go to floridacomparecare.gov
which is another thing that Governor Bush has put up
where you can look at the number of times a hospital
performs a procedure, the price of the procedure, and
the quality. And it turns out, by the way, consistently
the best hospitals are cheaper. This is not like buying
a car or jewelry. In health care, better systems have
fewer mistakes, fewer infections, greater accuracy, move
patients back home faster, and as a result your choice
is a hospital that does 300 procedures a year or two.
Always pick the 300 procedures because they actually
know what they are doing, whereas the guy doing two is
thrilled that he has another chance to experiment.
So these are real cases.
Lastly, I want to encourage this committee to look at
something we have run across at the Center for Health
Transformation that I am absolutely amazed at. There
are some medical device companies that now require
hospitals to sign contracts that they will not, they
cannot tell the patient or the doctor what the device
costs. Now this is turning the price of the medical
device into a trade secret in a way which is insane.
I use that word deliberately. How can you talk about
a free market? How can you talk about any kind of
transactions and say that the price is secret? And
I would urge this committee first of all to hold
hearings on this which we have been checking on and
find to be absolutely correct and we can submit
contract language to you that has $65 billion a year
in sales. And I would suggest to you that you
ultimately want to move towards legislation that says
any medical device that is going to be sold to any
aspect of the Federal government which normally
includes Federal employee health benefit plans,
Tri-care, Veterans' Administration, Indian Health
Service, Medicaid, and Medicare, the price ought to
be public. These are commodities. They may be
scientifically based commodities, they may be
sophisticated commodities, but they are commodities.
If you walked into a store and said I would like to
buy a TV set and they said well, we can show you four
options but by the way we are not allowed to tell you
the price. You would think they were crazy. And for
medical device companies to be so arrogant as to think
that they can keep their price a secret by contract,
I think is a violation of everything that we are
trying to accomplish in transparency, and I would
urge you to look into that particular area as a
particularly egregious example of an unjustifiable
secrecy in the health system.
And I appreciate the chance to testify.
[The prepared statement of Hon. Newt Gingrich follows:]
Prepared Statement of the Hon. Newt Gingrich, Former Speaker of
the House, Founder, Center for Health Transformation
Chairman Deal, Ranking Member Brown, and members of the
subcommittee:
I appreciate the opportunity to testify today about how giving
health consumers access to price and quality information for
medical services will help us build a 21st Century Intelligent
Health System that saves lives and saves money for all
Americans.
If healthcare in America is to transcend the challenges of the
future, America must build this 21st Century Intelligent
Health System. Building such a system will require fundamental
changes of the health system we know today, but they are
changes that are absolutely necessary.
To get there, ensuring that every American has the right-to-know
price and quality information about health and healthcare
products and services is absolutely critical.
Let me describe a 21st Century Intelligent Health System. In a
21st Century Intelligent Health System, every American will be
covered by insurance, have access to the care that they need
when they need it, own their health records, and will be
empowered to make responsible decisions about their own health
and healthcare because they will have the right-to-know the
price and quality of health products and services before
making purchasing decisions.
In a 21st Century Intelligent Health System, the focus will be
on prevention and wellness. Innovation will be rapid, and the
dissemination of health knowledge will be in real time and
available to all Americans. Reimbursement for health care
will be a function of quality outcomes, not a function of
volume.
We are right at the edge of moving forward toward a 21st Century
Intelligent Health System centered on the individual. This system
I am describing is a wholesale departure from the bureaucratic,
third party payer model that has dominated our healthcare
financing for the last forty years. The new model promises
better health outcomes at lower cost.
In order to be successful in this transition, healthcare
consumers must have complete and total access to information
about their healthcare providers and the products and services
they provide. Yet lack of price and quality information about
various healthcare services may cripple this much-needed
transformation before it can ever get off the ground.
Americans are accustomed to leading their lives empowered with
the responsibility and knowledge to determine what is best for
them. Outside of healthcare, we live in the world of Expedia,
Travelocity, CraigsList and Consumer Reports. Within minutes,
any citizen can find price, cost, and performance data on an
infinite number of products and services. This transparent
system puts the consumer squarely at the center of the
market-and as a result, consumers have more choices of greater
quality at lower cost.
Healthcare is the only area of America's economy where the
consumer and the provider have no idea what the goods and
services they trade cost. Think about that for a minute.
Patients and doctors truly do not know the cost of even a
standard office visit, not to mention myriad of complicated
procedures delivered in an emergency room.
Sometimes there is a very determined effort to keep the
prices of medical products and services hidden and/or
deliberately vague.
Not surprisingly, this has the intended effect of keeping
prices artificially high for consumers because there are
no natural market forces to create downward cost pressures.
If healthcare were a real market we would see more choices
of higher quality coupled with falling prices.
There is no other sector of our economy with as little
information about price and quality as in the $2 trillion
healthcare industry. American consumers can find all types
of cost and quality information about cars, computers, homes
and vacation destinations. It is even common these days for
potential buyers and owners to have lengthy online
discussions about the pros and cons of, and alternatives to,
every make and model.
But this type of rich consumer information is sorely lacking
when it comes to something as important as choosing a
physician or a hospital. More important than the lack of
available information about prices is the stunning absence of
quality data in the hands of patients. Few Americans could
tell you which of the five hospitals nearest to them has
the best outcomes for cancer care, or obstetrics, or
orthopedic surgery. Significantly, they would have trouble
even getting this information if their health or their life
depended on it. This is wrong and it must change.
Individuals are at the mercy of an antiquated system
that has not kept pace with the technological
advancement, transparency, and modernization that
nearly every other industry has embraced. The
information age has left healthcare behind, and the
consequences are tragic: medical errors continue to
kill thousands; costs continue to rise faster than
inflation; the number of uninsured continues to
climb; and consumers still remain at the edges of
the system. We can change this. But in order to
do so, informed and proactive consumers must be at
the center of the healthcare system.
The American people clearly want this to change. In one
survey, 93 percent of Americans believe they have the
right-to-know price and quality information about their
healthcare providers.
It's hard to find any issue that garners the support of more
Americans. By comparison, "only" 91 percent of Americans
support keeping the words "under God" in the Pledge of
Allegiance.
January 1, 2004, will be looked back upon as the "big bang"
in healthcare policy. It was on this date that health
savings accounts (HSAs) became available to all Americans
who buy private health insurance. This was the most
significant improvement in healthcare financing in two
generations because it began to unleash the value-driven
American consumer on the inefficient healthcare market.
The most comprehensive, real world survey of HSAs was
released last week by the trade group America's Health
Insurance Plans. It showed that nearly 3.2 million Americans
own HSAs as of January, 2006. The U.S. Treasury Department
estimates that there will be 14 million Americans with
HSAs by 2010, less than four years from now.
We should extend the opportunity to own HSAs to those on
Medicaid and Medicare, and allow them to enjoy the
advantages of having more control over their healthcare
dollars and the opportunity to build wealth by staying
healthy.
Owners of HSA-health insurance plans are starting to ask
their doctors a long-overdue question: "How much does it
cost?" That question, so commonplace everywhere else in
the economy, has been almost unheard of, until now, in the
doctor's office. As the number of these plans grows, it
will create greater and greater pressure for accurate
information about prices and more and better information
about quality of health services. In a world of Google,
Ebay, Edmunds.com, Travelocity, and Craigslist, where
detailed information is available on nearly everyone and
everything, it is indefensible that healthcare lags
behind.
U.S. News and World Report, for example, is looked to as
the best rater of colleges and universities. Today,
some private sector companies are also beginning to
provide much more health information to rate healthcare
services. Websites like Subimo and HealthGrades offer
subscription services where paying customers can gain
access to information about quality. Insurers like Aetna
and Humana are in the early stages of providing their
enrollees with details about hospital outcome data. Not
all hospital administrators are enthralled with these
rating systems, but up until now they have failed to
develop a nationally agreed upon set of standards whereby
hospitals would rank themselves. They may never agree,
but because this information is so valuable to consumers,
we must ensure that it is not kept from them.
Government at the federal, state, and even county level
can play a critical role in addressing the dearth of
price and quality information available to consumers of
healthcare.
Secretary Leavitt and CMS Administrator Mark McClellan
deserve considerable credit for pursuing more transparency
with hospitalcompare.hhs.gov, which allows patients, family
members, and physicians to get quality measures on how often
hospitals provide the recommended care to get the best
results for most patients. Available on the site is the
standard recommended care that an adult should get if being
treated for a heart attack, pneumonia, and other complications.
The Administration is also moving ahead with additional
transparency measures. Over the course of the next several weeks
the Medicare website will begin to display the prices it pays
hospital and physicians. Additionally, the Office of Personnel
Management is exploring the possibility of requiring plans
participating in the Federal Employee Health Benefit Program
to make public the reimbursement rates they pay to providers.
The State of Florida now has two websites FloridaCompareCare.com
and MyFloridarx.com that display hospital price and outcome
data, and prescription drug prices respectively. These websites
cost less than $200,000 per year to operate. They are cheap and
highly effective. Every state in America should follow Florida's
lead and make this critical information available to all citizens.
An article from this past Sunday's South Florida Sun-Sentinel
reports about the real life impact of the new web site
MyFloridaRx.gov. I recommend this story by health writer
Bob LaMendola to anyone wanting to learn about the tremendous
price discrepancies in price for the same medicine in the same
neighborhood. At Morrison's RX pharmacy in the city of
Plantation, for example, 30 Nexium pills sell for $202. Two
miles away at the Costco in Davie, the exact same pills cost
$131. Visitors to MyFloridaRx can get the "usual and customary"
prices for the 50 most common prescribed drugs in the state.
In an additional example, a month's supply of albuterol for
asthma inhalers can cost as little at $6.16 at Sam's Club in
South Florida. The average cost around the region is $21.
Green's pharmacy in Palm Beach sells the identical product for
$43 and it retails for $88 in Broward County at ProScript in
Davie. This is the kind of information that is critical to
asthmatics, particularly if they are uninsured, own a HSA, or
don't have a co-pay and therefore have to pay for prescription
drugs out of their own pockets. Now, they have an objective
online tool to help them compare prices and save money.
At the Center for Health Transformation2 we have developed a
model of drug purchasing called Pilot Rx modeled on Travelocity.
We believe that this model could take between 20 - 40 percent
out of the cost of prescription drugs by offering real-time
online prices to patients. Each individual's plan would reimburse
for 100 percent of the cost of the lowest cost generic drug in a
therapeutic class. From that point on up, the patient would be
responsible for paying the difference. This visibility of
prices, we believe, would crash costs significantly.
FloridaCompareCare.gov is the other Florida website that is
proving itself of significant value to patients and potential
patients. This very user-friendly site allows visitors to search
for a wide range of price and outcome data for all hospitals and
ambulatory surgery centers in the state. Visitors can retrieve
the risk-adjusted number of hospitalizations, average length of
stays, charges, and readmission, infection, complication, and
mortality rates for every facility in the state. Certainly this
is data you would want and deserve if you or a loved one needed
an operation.
Florida officials are also shining the light on the
underperformance of the traditional Medicaid fee-for-service
system. It turns out that only half of the children in standard
fee-for-service are getting well child check ups. Only
16 percent of children are getting preventive dental screenings.
Only 4 percent of women are getting mammograms. The highest
death rates from breast cancer are among African-American women.
50 percent of Florida Medicaid beneficiaries are either black
or Hispanic. These populations are two to three times more likely
to suffer from asthma, diabetes, heart disease, and infant
mortality. These figures are troubling to be sure. But they need
to be out in the open before we can begin discussing how to
close these unacceptable gaps in health outcomes.
Florida's innovative new Medicaid waiver includes important
innovations in information transparency. It will include
participation from a range of health plans that will receive
risk-adjusted premiums per enrollee. HMOs, Minority Physician
Network, or a hospital-based Provider Service Network will have
their performance monitored by the state. The state will be
measuring plans in a range of areas including: percentage of
kids getting well child check ups, percentage of kids getting
dental screenings, and the percentage of kids getting the proper
vaccinations. Consumer satisfaction will also be measured. Most
importantly, these measurements will be made available for all
to see.
It is the nature of a science and technology based
entrepreneurial free market to provide more choices of higher
quality at lower cost.
Americans deserve exactly this but are not getting it from our
current health system. A major reason for this is the lack of
reliable, useful information about price and quality of health
and healthcare products and services. We can and must do better
in order to create a 21st Century Intelligent Health System that
will save lives and save money.
Mr. Deal. I thank you.
Mr. Gedwed, we will recognize you next.
I will say to all of you, we have made your testimony
that you have submitted in advance a part of the record
so you can feel free just to take excerpts from it if
you would choose to do so.
Mr. Gedwed?
Mr. Gedwed. Thank you, Mr. Chairman and members.
On behalf of the 2,700 employees of UICI, it is a
pleasure to offer--
Mr. Deal. Would you turn on the microphone so we can
hear you?
Mr. Gedwed. Thank you.
It is a pleasure to offer comments today on price
transparency in the health care industry. UICI, a New
York Stock Exchange company based in North Richland
Hills, Texas, is a leader in providing affordable health
care coverage to individuals, small businesses, and the
self-employed. For more than 20 years, UICI has focused
on delivering innovative products and services to help
our customers in 44 States better manage their health
care needs.
As you know, most insured Americans receive their health
care coverage through an employer sponsored plan. That
coverage is costly, averaging just under $11,000 per
year. Out of that, the employee typically is responsible
for paying about 25 percent. In short, most Americans
receive coverage that is highly subsidized by the
employer. It should be noted, however, that the number
of Americans receiving coverage from these employer
subsidized health programs is declining as costs continue
to rise. And even to make it clearer that at UICI, our
customers live in very different circumstances. We serve
the guy who owns the independent muffler shop on the
corner, the entrepreneur with a start-up firm, and the
single mom waiting tables. But most of our 1.2 million
customers, if UICI was not there with affordable health
insurance coverage, chances are they would have no
insurance at all.
But a concept of consumerism has recently entered into the
health care debate. Our members have always had to be
smart consumers. When you have to pay 100 percent of the
cost of health care coverage, you have to be a smart
consumer. Health care decisions are some of the most
important and potentially costly choices Americans face.
Often these health care decisions are made without the
benefit of knowing ahead of time the true cost and/or
quality of that service. In fact, based on recent
research, customers are likely to spend more time
researching the purchase of a car or a computer than
evaluating a doctor or hospital. Our company has
changed that for our customers.
Through our HealthMarket division, we have pioneered
benefit and price transparency. HealthMarkets award-
winning web-based tools which took more than four years
and over $100 million to build and perfect. We provide
our members with unparallelled power to manage their
health care spending. We believe consumers should have
at least as much information about health care cost and
quality as they do about cars or computers. When the
cost of health care coverage represents nearly 10 percent
of our customer's annual income, it is our responsibility
to ensure they have all the information necessary to make
informed decisions.
While many of our competitors are today just beginning to
introduce limited forms of price transparency, we already
have invented true transparency into every facet of our
business. Our members have access to detailed information
on approximately two-thirds of the Nation's medical
providers located in all 50 States. That means more than
430,000 medical professionals, 4,000 hospitals and medical
centers, and 26,000 other resources such as labs, MRI
centers, medical equipment providers, and home health
care providers. Our members benefit from price
transparency on more than 20,000 procedures or services
from the cost of a routine office visit to a consultation
by a specialist. Most important to our customers, all
this information is available in advance of an office
visit or procedure.
Now how do we provide this information to our customers?
Our company aggregates information from provider networks
in a wide variety of services and then we share it with
our members in an easy to use format. We use a green,
yellow, red pricing structure to inform consumers on the
cost of a provider relative to their benefits. In short,
we match the level of their plan benefits that we offer
them with expected costs so our customers can seek
medical care and not incur any out-of-pocket expense if
they so choose. We provide the wealth of information
over a range of channels, like the Internet, mail, and
telephone access. In addition, when customers need help,
trained nurses are available to guide them through the
health care decisions.
And I am pleased to tell you our tools can be applied to
help State and Federal agencies better manage their
Medicare and Medicaid costs. In fact, today UICI is
engaged in conversations with several State agencies
about using our tools.
Be at rest that I look forward to a day when all
Americans will have access to health care HealthMarkets
customers have today.
Thank you very much.
[The prepared statement of William Gedwed follows:]
Prepared Statement of William Gedwed, Chairman, President and
CEO, UICI
On behalf of the more than 2,700 employees of UICI, I am honored
to submit these remarks regarding price transparency in the
health care industry. In particular, I'm here to emphasize our
strong support for further actions the 109th Congress may
consider taking to empower consumers to make better informed
choices about health care.
UICI is a leader in providing affordable health care coverage
to individuals, small businesses and the self-employed. For
most of our 1.2 million customers, if UICI was not there to
deliver, chances are they would not have insurance at all.
The word consumerism has recently appeared on the Health Care
horizon. but for our company, it has long been a way of life -
reflecting the special needs of our customers. Unlike most
Americans who receive health care from their employer and pay
only a fraction of the true costs of that coverage, our
customers pay 100 percent of theirs.
For this reason, UICI for more than 20 years has focused on
developing innovative products and services to help our
customers better manage their health care.
Health care decisions are some of the most important, costly
choices people face.
And yet, Americans often make them without any real way to
evaluate the cost and/or quality of medical service providers.
Often these health care decisions are made without the benefit
of knowing - ahead of time - this valuable information.
In fact, consumers are far more likely to use the Internet
to research a car or computer than a doctor or hospital,
according to recent research, including a survey our company
commissioned last year. It is our position that one reason
consumers don't use the Internet to research health care is
it's simply not available to most Americans.
We believe that's wrong. Consumers should have at least as
much information about health care cost and quality as they
do about cars or computers. When the cost of health care
represents nearly 10 percent of our customers' annual income,
it's our responsibility to ensure they have all the
information necessary to make informed decisions.
It is for this reason our company acquired HealthMarket in
2004. We saw great potential in HealthMarket's technology
and innovative products, which pioneered the category of
consumer-guided insurance.
The crown jewel of HealthMarket is its award-winning
web-based tools, which provide cost and benefit transparency.
These innovative tools took more than four years and over
$100 million to build and perfect. Armed with these resources,
our members enjoy unparalleled power to manage their health
care spending.
While many of our competitors are today just beginning to
introduce limited forms of price transparency, we already
have embedded true transparency into every facet of our
business. As a result of our commitment to our customers:
Our members have access to detailed information on
approximately two-thirds of the nation's medical providers
located in all 50 states -- that means more than 430,000
medical professionals, 4,000 hospitals and medical centers,
and 26,000 other resources such as labs, MRI centers, medical
equipment providers and home health care centers.
Our members benefit from price transparency not for just
25 or 30 procedures like some of our competitors provide,
but for virtually every procedure and supply code imaginable -
more than 20,000 procedures or services in all, from the cost
of a routine office visit to a specialist consultation to
knee surgery.
Our members have access to health plans that utilize price
transparency in more than a dozen states, with another five
states currently pending.
Our members have access to data that is updated monthly,
putting at their fingertips the most comprehensive, up-to-date
price information available in the marketplace.
Our members use our site to look up participating physicians
and hospitals anywhere in the country and compare cost
information.
Many of our customers are surprised to learn that excellent,
board-certified doctors may charge vastly different prices
for the same medical procedure.
Here's how our website works.
The first screen provides a quick overview of providers'
charges. A unique "thermometer scale" allows members to
visually scan the list of providers and quickly determine who
charges a lot or a little compared with the rest of the market.
A doctor "In the Green" is less expensive than a doctor
colored red. A doctor who is "In the Green" will not likely
require any out of pocket payments from the consumer, after
the deductible and co-insurance.
The low-cost physicians are listed first, with the high-cost
physicians last. A physician can move up in the ranking by
bringing charges into line with the rest of the market.
that means providers compete, and they have an incentive to
keep costs in check.
If members wants more detail, they can click to the next
screen. This provides costs for each specific service a doctor
or hospital provides. As I mentioned, we have cost data on
more than 20,000 services or procedures, organized by their
CPT code. For those without computer access, this information
is also available over the telephone.
Most importantly, cost information is available to enrollees
in advance of an office visit or procedure so that they may
take this information into account when making healthcare
decisions.
But not knowing the cost of services is just one major problem
wih managed-care health plans. Two others are:
1. Enrollees lack any sense of ownership over the money
they spend.
2. Information on quality, outcomes, and training of
physicians and hospital staff is often hard to find.
Now, a word of caution. Some insurance companies seem to use
the Consumer Directed term as little more than a marketing
buzzword meaning "low benefits / low cost."
A plan that truly puts the consumer in the driver's seat must
do several things:
The plan must offer price transparency, as discussed.
Members need a reason to care about price - a sense of
ownership over the money they spend.
Members need access to quality and outcomes information.
When insurance companies set up the co-pay as the only
responsibility an enrollee has, it's no wonder the enrollee
doesn't care what the overall charges are.
At HealthMarket, our consumer plans give enrollees a sense
of ownership through several innovative structural designs:
-- The MAC, or Maximum Allowable Charge, is the foundation
of all HealthMarket Consumer Guided plans.
The MAC is the maximum fee the plan pays for a given
service. It is set for each covered service, with a large
portion of contracted providers within a given area at or
below the MAC. It is set locally, based on provider
contracts. If the member goes to a provider who charges
more than the MAC, the member is responsible for paying the
difference out of his or her own pocket.
Providers who charge below the MAC and are depicted as "In
the Green" on the member's website.
Market forces point the way to those physicians who charge
reasonable rates in relation to their experience, location,
and qualifications.
-- The StartWell Account is available in many plan designs
and presents an excellent example of how to create a sense
of ownership over spending.
On day one of coverage, enrollees take ownership of a
spending account for many routine, preventive, and diagnostic
care services (options range from $500 to $1,250). If the
member ends the year with a positive balance, he or she is
entitled to roll over all or a portion of that balance on
renewal of the policy, which is added to the next year's
replenished beginning balance. If the fund is depleted,
routine services remain covered, but are subject to
deductibles and coinsurance.
The StartWell Account is applied to services such as check-ups,
mammograms, allergy testing, and lab tests - all with no
deductible, coinsurance, or co-payment. This plan design is
actually richer than most co-pay plans, but with the critical
difference that the enrollee now has his or her first
experience in caring about the cost of care.
Our members receive a rich benefit for preventative, diagnostic
care - but also have a strong incentive to spend money only
when needed - and to take cost into account when choosing a
provider.
Many CDHP companies today use Health Savings Accounts (HSAs)
to create a sense of ownership over healthcare spending.
These accounts set up a personal financial asset that
enrollees can spend as they see fit.
This is an excellent way to encourage consumerism since
enrollees now have a personal stake in their spending. What
is important - and often lacking - is that the insurance
company must give enrollees the tools and information they
need to be able to spend their own money wisely. This means
knowing the costs before buying services. The best HSA plan,
without cost information, is only half the puzzle. It's a
superficial solution that leaves enrollees frustrated and
unable to spend their own money wisely.
In addition to cost transparency, a consumer guided plan
must provide access to provider quality and outcomes
information.
We believe that to focus only on the money and not on
quality would be to miss the whole point of health care.
We provide our members with access to best-in-class quality
data from Subimo.
Our partnership with Subimo gives our members information
on doctor backgrounds - such as board certification,
medical school, and years in practice.
It offers information on hospitals such as adherence to
patient safety standards, volume of procedures, and
clinical outcomes.
Our website even allows enrollees to offer feedback on
physicians, so that once results are made available, one
enrollee will be able to benefit from the feedback of
another, just as eBay or Amazon.com users can read what
other users have said about various sellers.
All this information is made available to enrollees before
they make what may be life-altering healthcare decisions.
The goal is to provide the most information for the best
decision possible.
Our members also receive access to detailed sources of
health information such as in-depth health libraries.
These enable enrollees to research symptoms, conditions,
and treatments; determine a physician's hospital-admitting
privileges; and even compare hospital survival rates for
various procedures.
As much as a Consumer-guided plan tries to make life easier
for members, health care consumerism can be complicated.
Therefore, it is imperative to provide members with
outstanding education and support. Without this component,
plans may frustrate customers who understand the importance
of making wise spending decisions and who know that the
information is out there somewhere - but just don't know
how to navigate the system to get it.
The otherwise glowing McKinsey & Company June 2005 report
found an "Achilles' heel" in many consumer plans: 80 percent
did not provide sufficient information on the prices doctors
charge. Less than half of the consumers studied reported
that they were at least as satisfied with their consumer-
driven plan as they had been with their previous plan. "The
long-term success of CDHPs will be highly dependent not
only on whether consumers receive appropriately transparent
information to help them make decisions, but also on whether
the information can be easily obtained," the report concluded.
We offer an unparalleled array of support services that help
to make them savvy users of the consumer tools described above.
Following are just a few examples.
Our Consumer-Guided members are asked to participate in A
"Verification Call" upon joining the plan. This call allows
a customer service representative to describe in detail how
the plan works and how the member can use the online and
telephonic support tools to their advantage.
Another source of education about the plan are our
personal assistants. In addition to handling
traditional health insurance questions, these
representatives are trained to discuss the critical
issues faced by healthcare consumers: how to compare
costs among various providers; how to use online
self-service tools; and how to manage financial accounts,
such as the StartWell Account.
The Personal Assistant program allows enrollees access
to a toll-free number staffed by professionals who act
as a concierge service. Some of the actions they take
on behalf of enrollees and their family members include
Getting medical records transferred
Arranging for transportation
Discussing bills or unexpected charges with the provider
Finding home-care or adult daycare programs for an enrollee's
elderly parent
Setting up appointments to see specialists
Putting the enrollee in touch with our 24/7 Nurse Line.
In Conclusion...
Consumer guided plans should be evaluated based on whether they
provide:
-- price and quality transparency
-- a sense of ownership over health dollars spent
-- and adequate customer support.
The nation did not arrive at its current consumer-unfriendly
system overnight, so unleashing the power of consumerism in
America will take time. We at HealthMarket look forward to a day
when most Americans become strong health care consumers. We look
forward to a future that offers top-notch health care without
skyrocketing costs that have come under the current system of
managed care.
At HealthMarket, we believe in a future where all health plans
sold in America will be of the consumer-guided variety - serving
consumers who are able to manage their healthcare decisions as
well as they do their vacation-planning or refrigerator
inventory.
We are building this future now, because consumerism in health
care is an idea whose time has come.
Mr. Deal. Thank you.
Dr. Ginsburg.
Mr. Ginsburg. Thank you, Mr. Chairman, members of the subcommittee.
I am President of the Center for Studying Health System
Change which is an independent, non-partisan, health policy
research organization funded principally by the Robert Wood
Johnson Foundation and affiliated with Mathematica Policy
Research. Its mission is to provide policymakers with
objective and timely research on developments in health care
financing and delivery and their impacts on people.
With funding from the California HealthCare Foundation, HSC
has conducted research on shopping for price in medical
services. The research has covered the overall potential of
the approach to improve value, and the experience in
self-paying markets such as LASIK, and working papers on
these two studies are available on request.
My statement makes three key points. First, fostering
price
shopping does have the potential to contain costs. Some
people will use higher value providers and many providers
will feel market pressure to increase the value of their
services. But some are overselling the potential of price
shopping to solve our health care problems. For one thing,
many services are too complex or too urgent for effective
shopping and those patients responsible for the bulk of
dollars spent in health care are beyond the reach of
patient financial incentives in typical benefit structures.
The second point is that health plans play a key role in
consumer price shopping but some advocates have been
ignoring this role. Health plans have long been consumers
most powerful asset through their substantial discounts
negotiated with providers. As benefit structures change
to put more emphasis on price shopping, a lot of innovation
and tools to increase plan value are starting to go on like
my colleague mentioned from his company. Some of these
innovations are high performance networks providing
incentives for patients to use providers with higher value
data on the right of costs of different providers.
Insurers basically have the potential to employ their
formidable data and analysis resources to translate the
complexity of health care pricing into something usable
by consumers. Forcing disclosure of contracts between
health plans and providers especially hospitals will have
unintended effects of raising prices. It is well known
in anti-trust circles that in concentrated markets,
posting of price information leads to higher prices. It
can do this either by facilitating collusion among sellers
or buyers and also by leading to smaller market share
gains for those who are willing to offer discounts. My
testimony describes a well intention attempt at disclose
that misfired.
Third, consumers experience in self-pay markets, such as
LASIK, have been romanticized. We studied LASIK, dental
crowns, in utero fertilization, and cosmetic surgery.
We found serious price shopping only in the market for
LASIK. There has been a decline in price for LASIK over
time but consumer protection has been a problem and the
FCC and State Attorney's General have been involved for
a number of years. Some of the issues are misleading
advertising. For example, the commercials for $299 per
eye are very misleading because very few people are
eligible for that price. In fact, only 3 percent of
LASIK procedures cost less than $1,000. Second,
misrepresentation of what services are included in the
price is also a consumer protection issue. And one
implication of the LASIK experience is the degree to
which the presence of insurers actually prevents some
of the consumer protection issues that we found.
In conclusion, increased price transparency is
generally a good thing but it will not solve all the
problems of the health care system, not even the
problem of decreasing affordability of health care.
And we must proceed with caution and selectivity
providing information truly useful to consumers and
not inadvertently increasing the power of entities
in concentrated markets.
Thank you very much.
[The prepared statement of Paul B. Ginsburg follows:]
Prepared Statement of Paul B. Ginsburg, President, Center
for Studying Health System Change
Mr. Chairman, Representative Brown and members of the
Subcommittee, thank you for the invitation to testify about
providing consumers with better information about the cost of
health care services. My name is Paul B. Ginsburg, and I am
an economist and president of the Center for Studying Health
System Change (HSC). HSC is an independent, nonpartisan
health policy research organization funded principally by The
Robert Wood Johnson Foundation and affiliated with
Mathematica Policy Research.
HSC's main research tool is the Community Tracking Study,
which consists of national surveys of households and
physicians in 60 nationally representatives communities
across the country and intensive site visits to 12 of these
communities. We also monitor secondary data and general
health system trends. Our goal is to provide members of
Congress and other policy makers with objective and timely
research on developments in health care markets and their
impacts on people. Our various research and communication
activities may be found on our Web site at www.hschange.org.
With funding from the California HealthCare Foundation,
HSC has conducted research on consumer price shopping for
health services, focusing both on self-pay services, such
as LASIK, and analyzing the issue of price transparency
for medical services that tend to be insured.\1\
My testimony today will make three points:
Fostering consumer price shopping for health services
does have potential for containing costs without sacrificing
quality-but some are overselling the magnitude of this
potential.
For most consumers who are insured, their health plan has
long been their most powerful asset in shopping for lower
prices, and insurers have the potential to become even more
effective agents as they develop more sophisticated benefit
structures and information tools to support consumers in
choosing effective treatments from higher-quality, lower-cost
providers.
Consumers' experiences with markets for self-pay services,
such as LASIK, have been romanticized and do not offer much
encouragement as a model of effective shopping for health
care services without either a large role for insurers or
regulation.
BACKGROUND
I perceive the current policy interest in price transparency
as essentially a second stage of the evolution of consumer-
driven health care. The first stage was financial incentives
for consumers in the form of greater cost sharing-high
deductibles and greater coinsurance. Now, we are focusing on
the tools needed by consumers to make effective decisions on
reducing the costs of their care. As insurers compete
vigorously to sell consumer-driven products, they seek to
differentiate their products on the basis of the tools
offered to consumers to compare price and quality across
providers. Policy makers are interested in government's
role in fostering greater cost-consciousness and a more
favorable environment for consumers to make informed
choices about health care services.
Traditionally, health insurance has either removed or
sharply diluted consumer incentives to consider price in
choosing a provider or treatment strategy. It is difficult
for consumers to get price and quality information from
providers, who have to date shown little interest in
competing for patients on this basis. Likewise, there
is little information available to help patients examine
the effectiveness of treatment alternatives. The lack of
quality information understandably makes consumers reluctant
to choose a provider on the basis of a lower price. It is
one thing to wind up with a low-quality provider when price
is not an issue but another to get there as a result of
opting for a lower price. Similarly, lack of information
on effectiveness of treatment alternatives makes consumers
more reluctant to consider price in the choice of treatment.
Unfortunately, much of the recent policy discussion about
price transparency downplays the complexity of decisions
about medical care and the dependence of consumers on
physicians for guidance about what services are appropriate.
It also ignores the role of managed care plans as agents
for consumers and purchasers in shopping for lower prices.
Well-intentioned but ill-conceived policies to force
extensive disclosure of contracts between managed care
plans and providers may backfire by leading to higher
prices.
POTENTIAL FOR MORE EFFECTIVE PRICE SHOPPING
If you define effective shopping as obtaining better value
for money spent, then consumers do have the potential to be
more effective shoppers for health care services. There
are direct and indirect benefits of choosing providers
that offer better value. The direct benefits are simply
the cost savings, for example, of choosing the lower-cost
of two providers of comparable quality.
But the indirect benefits are potentially more important.
If enough consumers become active in comparing price and
quality, this will lead to market pressure on providers
to improve their performance on both cost and quality
dimensions. Providers that measure up poorly on the value
dimension will lose market share and will be motivated to
revamp their operations to remain viable. Our market
economy offers many examples of competitors responding to
loss of market share by making difficult changes and
regaining their edge, and examples are starting to appear
in health care as well. The gains from providers improving
their operations will accrue broadly to the health care
system.
But we need to be realistic about the magnitudes of
potential gains from more effective shopping by consumers.
For one thing, a large portion of medical care may be
beyond the reach of patient financial incentives. Most
patients who are hospitalized will not be subject to the
financial incentives of either a consumer-driven health
plan or a more traditional plan with extensive patient
cost sharing. They will have exceeded their annual
deductible and often the maximum on out-of-pocket
spending. Recall that in any year, 10 percent of people
account for 70 percent of health spending, and most of
them will not be subject to financial incentives to
economize.
When services are covered by health insurance, the value
of price information to consumers depends a great deal on
the type of benefit structure. For example, if the
consumer has to pay $15 for a physician visit or $100 per
day in the hospital, then information on the price for
these services is not relevant. If the consumer pays
20 percent of the bill, price information is more relevant,
but still the consumer gets only 20 percent of any savings
from using lower-priced providers. And the savings to the
consumer end once limits on out-of-pocket spending are
reached.
In addition to those with the largest expenses not being
subject to financial incentives, much care does not lend
itself to effective shopping. Many patients' health care
needs are too urgent to price shop. Some illnesses are so
complex that significant diagnostic resources are needed
before determining treatment alternatives. By this time,
the patient is unlikely to consider shopping for a different
provider.
Some of these constraints could be addressed by consumers'
committing themselves, either formally or informally, to
providers. Many consumers have chosen a primary care
physician as their initial point of contact for medical
problems that may arise. Patients served by a multi-
specialty group practice informally commit themselves to
this group of specialists-and the hospitals that they
practice in-as well. So shopping has been done in advance
and can be applied to new medical problems that require
urgent care. This is a key concept behind the high-
performance networks that are being developed by some
large insurers.
Even when services are good candidates for shopping by
consumers, comparison of prices is not easy. Much
treatment is customized. For example, an elective
rhinoplasty, more commonly known as a nose reconstruction,
is not a commodity, and a plastic surgeon cannot provide
an estimate without examining the patient. Often a
medical treatment involves an uncertain number of services
by a number of separate providers, but few bundled prices
are available in the marketplace today. As mentioned
above, limitations in useful comparative quality data make
patients reluctant to choose a provider based on lower
price.
Shifting from choosing a provider to choosing treatment
strategies, the absence of neutral financial incentives for
providers is a serious problem. The most typical situation
today is one where the provider gets paid on a fee-for-
service basis, so the incentive is to recommend more
services, especially those that have higher unit profitability.\2\
Increasingly, physicians have an ownership interest in services,
such as imaging, beyond their usual professional services,
creating an additional conflict between physicians' interests
and those of their patients.
SELF-PAY MARKETS
Many have pointed to markets for medical services that are not
covered by insurance to show the potential of consumer price
shopping. Since these services are not medically necessary-the
basis for not being covered by insurance-they should be prime
candidates for more effective consumer price shopping. HSC has
studied markets for LASIK, in-vitro fertilization (IVF), dental
crowns and cosmetic surgery by interviewing providers,
consultants and regulators in these fields. Our findings are
not as encouraging as one hears from advocates of consumerism.
LASIK has the greatest potential for effective price shopping
because it is elective, non-urgent, and consumers can get
somewhat useful price information over the telephone. Prices
have indeed fallen over time. But consumer protection problems
have tarnished this market, with both the Federal Trade
Commission and some state attorneys general intervening to curb
deceptive advertising and poorly communicated bundling practices.
Many of us have seen LASIK advertisements for prices of $299 per
eye, but in fact only a tiny proportion of consumers seeking the
LASIK procedure meet the clinical qualifications for those prices.
Indeed, only 3 percent of LASIK procedures cost less than $1,000
per eye, and the average price is about $2,000. I can only
wonder about the extent to which policy advocates have themselves
been deceived by these advertisements and inadvertently perceived
a sharper decline in prices than has been the case.
For the other procedures that we studied, we found little
evidence of consumer price shopping. For dental crowns and IVF
services, many consumers are unwilling to shop because they
perceive an urgent need for the procedure, and other consumers
are discouraged from shopping by the time and expense of visiting
multiple providers to get estimates. In cosmetic surgery, a
limited amount of shopping does occur, facilitated by free screening
exams offered by some surgeons. However, quality rather than
price is the key concern to most consumers in this market; in the
absence of reliable quality information, most consumers rely on
word-of-mouth recommendation as a proxy for quality, instead of
shopping on price.
ROLE OF INSURERS IN PRICE SHOPPING
Much of the policy discussion about price transparency has neglected
the important role that insurers play as agents for consumers and
purchasers of health insurance in obtaining favorable prices from
providers. Even though managed care plans have lost some clout in
negotiating with providers in recent years, they still obtain
sharply discounted prices from contracted providers. Indeed, in my
experience as a consumer, I often find that the discounts obtained
for the PPO network for routine physician, laboratory and imaging
services are worth more to me than the payments by the insurer.
Insurers are in a strong position to further support their enrollees
who have significant financial incentives, especially those in
consumer-driven products. Insurers have the ability to analyze
complex data and present it to consumers as simple choices. For
example, they can analyze data on costs and quality of care in a
specialty and then offer their enrollees an incentive to choose
providers in the high-performance network. Insurers also have the
potential to innovate in benefit design to further support effective
shopping by consumers, such as increasing cost sharing for services
that are more discretionary and reducing cost sharing for services
that research shows are highly effective.
Insurers certainly are motivated to support effective price shopping
by their enrollees. Employers who are moving cautiously to offer
consumer-driven plans want to choose products that offer useful tools
to inform enrollees about provider price and quality. When
enrollees become more sensitive to price differences among providers,
this increases health plan bargaining power with providers.
Negotiating lower rates further improves a health plan's competitive
position. One thing that insurers could do that they are not doing
today is to assist enrollees in making choices between network
providers and those outside of the network by providing data on
likely out-of-pocket costs for using non-network providers.
The Administration has recently been pushing hospitals and physicians
to provide more information on prices to the public. If this is
limited to prices paid by those who are not insured or those who are
insured but are opting to use a non-network provider, additional
price information for the public is likely to be a positive. But if
hospitals and insurers are precluded from continuing their current
practice of keeping their contracts confidential, this could damage
the interests of those who pay for services, especially hospital
care.\3\
Antitrust authorities throughout the world have recognized that
posting of contracted prices tends to lead to higher prices. In
highly concentrated markets, posting of prices facilitates collusion.
Even in the absence of collusion, posting would mean that a hospital
offering an extra discount to an insurer would gain less market share
because their competitors would seek to match it. Of course, this
works on both the buying and selling side of the market, but if
hospitals tend to be more concentrated than insurers, disclosure will
raise rather than lower prices.
The experience in Denmark, where the government, in a misguided
attempt to foster more competition in a concentrated market, posted
contracted prices in the ready-mix concrete industry is instructive.
Within six months of this policy change, prices increased by 15-20
percent, despite falling input prices.\4\ Drawing on this and other
experience, the Federal Trade Commission in 2004 testified in the
California Legislature against Assembly Bill 1960, which would have
required the disclosure of certain price information from contracts
between pharmacy benefits managers (PBMs) and pharmaceutical
manufacturers.\5\
Some health plans are now experimenting with ways to communicate
to their enrollees the fact that certain hospitals have particularly
high or low negotiated fees, without violating their agreements to
hospitals and their desire to maintain the confidentiality of their
price negotiations. For example, Blue Cross of California, which
tends to rely heavily on coinsurance in its benefit structures,
has been posting ratings of the costliness of hospitals for PPO
enrollees. It follows the approach of Zagat guides to restaurants,
where "$" is assigned to the lowest cost hospitals and "$$$$" is
assigned to the highest cost hospitals. This approach not only
maintains the confidentiality of contracts with hospitals, but it
also engages the formidable actuarial resources of the plan to
simplify complex and voluminous hospital data for consumers.
Humana Inc. has presented hospital price information to some of
its Milwaukee enrollees that maintains confidentiality by using
ranges and combining hospital costs with physician costs. I expect
that insurers will come up with more innovative ways to present
price information to enrollees.
CONCLUSION
The need for consumers to compare prices of providers and treatment
alternatives is increasing and has the potential to improve the
value equation in health care. But we need to be realistic about
the magnitude of the potential for improvement from making consumers
more effective shoppers for health care. Whatever the gains from
increased shopping activity, rising health care costs will,
nevertheless, price more consumers out of the market for health
insurance and burden governments struggling to pay for health care
from a revenue base that is not growing as fast as their financing
commitment. For those who have health insurance, their health plan
will be a key agent in facilitating their obtaining better value.
Government needs to take care not to interfere with this
relationship and should focus instead on the needs of those
without insurance.
Mr. Deal. Thank you.
Dr. MacDonald?
Dr. MacDonald. Thank you very much, Mr. Chairman and Ranking
Member Brown.
I am Dan MacDonald. I am a family physician. And I would
like to share some thoughts from the front line. I have
listened with interest to some opinions. They have been
very interesting opinions of people that are not even
involved in the situation.
One is the situation of health care delivery, how does it
impact the uninsured? I would like to share a few thoughts
with you. As a family doctor, I started posting my prices
in 1997 and I did that because I could not stay alive with
the reimbursement from insurance carriers. I had people
come in and see me that did not have insurance. For
example, one guy came in and he needed to have his hernia
repaired. He is a construction guy, had no insurance,
and he came in. So what did I do? I called the local
hospital. I found out that the bill was going to be
$10,000 plus. Actually I did a price comparison on my own
back in '97 which was very hard. I found out it was actually
$15,000. So this guy did not have that. What can we do?
I called a surgeon that I know, a very good surgeon,
anesthesia, told him the situation. We got everything done
for $1,800. The guy could easily pay $1,800. He could not
even fathom paying $15,000. As a result, an old man on the
work site came to see me. He said, I have a hernia, too.
I put off getting care because I do not have insurance but
I can afford $1,800. Can you set up the same deal? So we
did it.
I am here to talk about practical application, not theory.
I am not in politics. I appreciate the tennis games that
happen in politics, but let me tell you from the streets
it hurts. How does transparency hurt the uninsured or the
lack of transparency? I included in my briefing a recent
example in California. Somebody asked me to help them
with their hospital bill. He was uninsured, hospitalized,
did not plan on it, certainly did not plan on the bill
that he got. And if you look at the briefing that I did,
I summarized Tri-Care pricing. It is the only reference
point I could get, the hospital would not give me any
prices, they would not deal with me, it was very tough.
I took the bill that they gave him and if you look at
the comparison that this uninsured person was expected to
pay just in two areas they expected to pay ten times what
they are accepting from insurance carriers. This is the
reality of what the lack of transparency is doing.
Am I a fan of HSAs? I love the application. The concept
is a great, but the application is not so great for this
reason. There is no real transparency when you are passing
dollars in those health care HSAs. For those that are in
favor of HSAs, I applaud you, it is a good deal. If you
are not including transparency on what the thing costs, you
are in la-la land if you think it is going to control costs
over time. It just is not. We have to have transparency on
the insurance end. We have to have transparency on the
pharmacy end.
In my little world, and I remind you, I am going to remind
you I am only a family doc, okay? But in my world a
pharmacy, here is what happens. The drug is not that
expensive when it hits the streets. What do I mean by the
streets? When it comes out of the pharmacy, the production
line, it is approved, and then it goes through the pipeline.
There are so many little people that are taking off money
and rebates. There are so many funny things happening, we
have to address that issue. One small company we helped in
Spokane was able to save $55,000 just on the pharmacy
rebates. How about lab cost? Well in my world costs, if
you go through the insurance world, a typical panel of
chemistry lipid, thyroid, and CBC will cost about $400 to
$500. How do I know? I just had it done. Six months ago
I had it done, and I thought that is crazy. There has got
to be a better way. While through a lot of other venues
were able to get that same group of tests for $89. So we
are able to bring down costs for the surgery, we are able
to bring down costs of pharmacy when you get all the
middle people out. We are able to bring down costs of
out-patient costs when there is real transparency.
I am here today to ask this committee for help. The
hospital is a big deal. They are some very powerful folks
and without your help transparency at the hospital level
is almost impossible. I appreciate one side of this room
saying that they are in favor of hospital pricing but let
us not just focus on hospitals. I applaud you. Let us
have transparency on everything. The uninsured are
uninsured for a reason. I believe we might have 250
million over-insured and 42 million underinsured. I
believe the market will drive costs where they need to
be. I believe you can take out the waste, the
administrative waste, and in Washington State it is
reported to be 68 percent of every dollar that goes
through the health care pipeline. Let us get the waste
out. There is enough money in there.
Here's the kicker, let us not be naive to think
providing insurance for everybody answers the problem.
Why do I say that? There are two references in my
briefing. One is from USA Today, Kaiser Family
Foundation, and Harvard. They did a survey and they
found that of those wrestling to pay health care costs,
61 percent had insurance. If you do not believe that,
look at the Harvard study where 47 percent of
bankruptcies were related to health care costs. And if
you read the study, 75 percent of those had insurance.
So let us not be naive to think that providing insurance
is the panacea that is going to fix it.
I am a free market guy. I love free market because it
works. I also want to take care of the uninsured. I
get frustrated with health care when it becomes a
ployable tennis match.
Thank you very much. I guess that means I am out of
time, thank you.
[The prepared statement of Dr. David MacDonald
follows:]
Prepared Statement of Dr. David MacDonald, President, Liberty
Health Group
Chairman Deal, Ranking Member Brown, and members of the
Subcommittee...
I appreciate the opportunity to testify today about the need
for transparency in health care prices. As a family physician,
former residency director and LTC, U.S. Army, co-founder of
SimpleCare, and President of Liberty Health Group, I have a wide
variety of experience. Today the focus is transparency.
Most will never experience what the uninsured/underinsured face
when trying to access health. You may be surprised that it could
take more than a dozen phone calls before you get an answer to a
simple question, "What does 'this' cost?" One can even outline
scenarios of care (complicated/ uncomplicated visit; EKG; Echo;
etc) and it is still a challenge to get a price. If the educated
have a hard time getting a price, imagine how challenging it is
for those who know nothing about the system!
I recently visited a prestigious university medical center for a
cardiology visit. I received bills that were four times the amount
quoted! Also, I observed courtroom proceedings by this hospital
for "judgments" of unpaid hospital bills. Those in court were the
ones who should benefit from the non-profit status afforded
hospitals. We cannot expect hospitals to give away care, but
neither should they continue with billing practices that border on
extortion.
"I know what I know; I know what I don't know; but I don't know what
I don't know." Robert Ricciardelli
Nobody would tolerate a "managed grocery" card that enabled you to
go the grocery store, purchase various items and then get a bill
30 days later. Either the purchaser of the card would financially
collapse because consumers abused the card; or the consumer would
become irate when they had to pay their bill. Basically, this is
what is happening in health care.
For those who think that providing insurance for everyone is the
answer, there are two reports that suggest that this will not be
the answer many hope for�
USA Today/Kaiser Family Foundation/Harvard Survey regarding health
care - of those who reported experiencing challenges paying medical
bills, 61% had insurance.
Health Affairs, 2 February 2005 - 47% of bankruptcies are related
to medical bills; yet 75% had insurance at the beginning of the
medical challenge.
Without addressing transparency issues, providing insurance is not
the answer. Individuals must still pay their maximum out of pocket
charge and other bills not covered by their insurance (Ambulance
services). Many believe increasing costs of insurance is because
the cost of health care is rising so fast. When health care costs
are insulated from free market forces, costs escalate at a rate
much greater than medical inflation.
According the HealthINFLATION News (3/31/04; Vol. 13, No. 3),
inflation for various aspects of health care is as follows:
Annual Inflation March February Net Increase
Health Care Indexes 2003 2004 in inflation
Dental Care 3.6 5.2 1.6
Eye Care -0.1 1.4 1.5
Medical Equipment -0.2 1.2 1.4
Non-prescription drugs 1.2 1.6 0.4
Physician Care 3.0 3.4 0.4
Health Care 4.3 4.2 -0.1
Prescription Drugs 3.7 2.8 -0.9
Inpatient Hospital Care 7.2 5.9 -1.3
Nursing Home Care 5.5 4.4 -1.1
Misc. Professional Care 3.2 1.8 -1.4
Outpatient Hospital Care 11.9 6.0 -5.9
If benefits were based upon actual costs of health care, we would not
have a health care "crisis." Health care consumers are insulated by
co-pays, deductibles, nondisclosure of prices by hospitals, and fear
of posting prices by physicians.
Costs are not the only issue to be concerned about. Innovation,
quality and access to care are also important. In a free market
world, costs should be controlled while increasing access to better
quality products. The United States has "invested" in health care
more than other countries. Our investments have paid off by the
innovative medications and interventions that have been discovered.
The United States has more Nobel Prizes than any other nation.
In fact, we have more Nobel awards for Physiology and Medicine
than all other countries combined! Many are benefiting from the
United States' investment in new technology and medications.
The computer is the best example of the power of free market
forces controlling technology costs. Computers are consistently
less expensive while the features and options continue to improve.
Innovative technology is responsive to free market forces. Health
care technology may be more expensive initially but should become
progressively less expensive when exposed to market forces.
Liberty Health Group has experienced success in controlling costs
in most aspects of health care delivery. Lab tests, surgical
procedures, and diagnostic studies are less expensive with
transparency and an engaged consumer. When the consumer has
knowledge of costs and quality, they make decisions tailored to
their preferences. Some may prefer a more expensive option
because of better quality or service. Others may prefer less
expensive options and save money for future medical needs.
Transparency in prices should not be confused with socialism (all
prices are the same). In fact, the freedom to charge different
prices rewards innovative services.
The ones who suffer the most from hidden costs are the uninsured
and underinsured. Hospitals routinely charge 400% more for the
uninsured/underinsured. It is impossible to determine what a
hospital receives from insurance carriers for comparable visits
or procedures. Supposedly, insurance carriers represent large
purchasing groups that justify deeper discounts. 42 million
uninsured are a significant purchasing group and should be
afforded the same discounts as insurance carriers! False scales
can never be justified!
Here is an example of the prices an uninsured individual
faced when hospitalized in California. I compared CMAC/
Tricare pricing to the hospital prices. The hospital
would not tell what they accepted from other insurance
carriers for similar care and services. Our goal - pay
an amount accepted from an insurance carrier. The
billing department was not cooperative and resisted giving
any information.
Lab Tests (code) CMAC/Tricare Pricing Hospital Prices
80053 $16.09 $229
84484 $14.98 $218
82805 $43.19 $480
83520 $19.70 $234
Summary of some tests $229.62 $2832
Procedure Codes CMAC/Tricare Pricing Hospital Prices
CT Scan (71260) Global $348.05 $2,614
HHN (94640) $12.90 X 31 = $399 $125 X 31 = $3875
ER (99285) $149.20 $419
EKG tracing (93005) $17.93 $329
Pulse Oximeter (94760) $4.75 $328
The discrepancies are glaring and beg an explanation! Our goal was
to resolve this matter without legal intervention. Even if the
CMAC/Tricare numbers are low, there cannot be such a wide disparity
between the hospital bills and the CMAC/Tricare maximum allowable
charge. The hand held nebulizer (HHN) therapy bill and pulse
oximeter bills are almost unbelievable! Sadly, this is not an
uncommon example.
The notion that hospitals must charge more to make up for the "abuse
by the uninsured" is not supported by sound ethical or business
discussions. A study by Alwyn Cassil, Center for Studying Health
System Change, focused on the frequency of ER visits 1996/97 -
2000/01. They found a 16% increase (108 million/year) in ER visits.
Those with insurance or Medicare accounted for 66%. The self-pay
or those not charged accounted for 10%. Medicaid/Cash patients
reported waiting longer and rated the service they received lower
than insured patients. The uninsured were not a major factor for
increased crowding in the ER.
It is imperative that hospitals reveal the amount they accept from
insurance carriers for a procedure, lab, or service. Mandating
they post a price will not resolve the disparity. The result be
like the Average Wholesale Price (AWP) used for pharmacy prices,
or the shadow that "discounts" create - neither one is practically
useful. AWP is a meaningless business term. A 30% "discount" of
an inflated price is often worse than 100% payment of a legitimate
price.
It is unconscionable to allow this two-tiered billing practice to
continue. I have spoken to Hospital Administrators who fear the
wrath of the "Medicare Fraud Squad." They are concerned that they
cannot accept less than their billed rate from the uninsured/
underinsured. A transparent price would eliminate this fear.
Furthermore, it does not seem logical to give insurance carriers
a price break when they pay their executives multiple million
dollar salaries. Sliding scales do not produce transparency.
Liberty Health Group has success with outpatient costs. We have
seen progressively less expensive lab tests, diagnostic tests,
medication costs controlled, and renewal rates that are consistent
with medical inflation (2-4%). New technology and medications will
always be more expensive. The individual should be allowed to
decide if the more expensive medication is worth the money.
Small businesses are also affected by non-transparent pricing.
They are challenged to keep up with premium inflation that is
triple medical inflation. Many business owners cannot afford to
continue to offer benefits. Mandating coverage does not resolve
the problem posed by non-transparent prices.
The Department of Treasury and IRS issued guidance that gave small
businesses more leverage in their health benefits options by
expanding the use of Health Reimbursement Arrangements (HRA),
Section 105 of the Internal Revenue Code (June 2002). The
employer credits pre-tax money to their employees that may only
be used for qualified medical expenses. Unspent money can
accumulate for future medical needs.
Cafeteria plans (Section 125 of the Internal Revenue Code) are
similar. The employer and employee can contribute pre-tax money
into these accounts for qualified medical expenses. These plans
work best for predictable medical expenses. However, unspent
money in the Cafeteria plans does not accumulate. As a result,
there are end of year spending sprees with the remaining money.
Health Savings Accounts (HSA) are another exciting option. The
employer and employee may contribute to these plans that include
a pre-tax medical account and a qualified high-deductible policy.
In my experience these plans are rich in concept but disappointing
in application. The main reasons they are disappointing are: a
lack of transparency regarding pricing (HSA holders pay "retail"
prices at the doctor and hospital); and renewal rates are
disproportionately high after 2-3 years into the plan.
When employees have control of a portion of their health care
dollars, they will shop for health care. Preventive services are
more likely to be used, less expensive medication options will be
pursued, and routine care/immunizations are not neglected.
Legislative efforts that would help control costs, increase access
to care, and encourage saving unspent money for unpredictable
medical events might focus on the following:
Hospitals:
Remove the fear Hospital Administrators have expressed regarding the
"Medicare Fraud Squad" evaluating and assessing fines.
Assess non-profit status of hospitals who continue to expect payment
from the uninsured that is 400% higher that what is accepted from
insurance carriers.
The word "profit" must be defined. There are "for profit" hospitals
that are efficient, less expensive than comparable hospitals, and
treat all in the ER. Society would be much better served by a "for
profit" hospital that posted prices than a non-profit hospital that
charges those who need help the most 400% above an acceptable
insurance payment.
Something to ponder�Why can hospitals own physicians but physicians
cannot own hospitals? Is there ethical superiority of one
relationship to the other?
"You must deodorize profit and make people understand that profit is
not something offensive, but as important to a company as breathing"
Sir Peter Parker
Chairman, British Rail
"End of year spending sprees by the Federal Government is an
egregious waste of tax payer's dollars." �unknown
Pharmacy prices:
Disclose rebates and all financial benefits related to pharmacy
issues.
Average Wholesale Price (AWP) is a meaningless number for most
discussions. The question is rather simple, "What does the drug
cost?"
Insurance costs: Eliminate restrictions for purchasing health
insurance across state borders.
Physician fees: Encourage physicians to "post their prices" without
fear of fines. I posted my prices since 1997 without any legal
problems. Those concerned about a "two-tiered system" must agree
that our health care delivery system currently has a "two-tiered
system" that favors the insurance carriers and discriminates against
the uninsured. This must end!
Transparency issues in health care are vital for the success of any
health care delivery system. Costs are controlled, access improved,
and innovation appropriately rewarded when prices are transparent
and free market forces are allowed to work. I know from the front
lines of health care that we could rapidly and dramatically improve
health care for the uninsured and underinsured with
non-discriminatory, transparent pricing.
"We do not have to see eye to eye to walk hand in hand."
Phillip Gambel
Mr. Deal. No, but you are.
Dr. MacDonald. Well, thanks.
Mr. Deal. What that means is we have got some business on
the Floor we may have to attend to in just a minute but
thank you, very interesting testimony.
Dr. Collins?
Dr. Collins. Thank you, Mr. Chairman for this invitation to testify
on the importance of making health care cost information publicly
available.
Mr. Deal. Would you pull that a little closer, Doctor?
There you go.
Dr. Collins. Transparency and better public information on
cost and quality are essential for three reasons: to help
providers improve by benchmarking their performance against
other providers, to encourage private insurers and public
insurance programs to reward quality and efficiency, and to
help patients make informed choices about their care.
Transparency is also important to level the playing field.
The widespread practice of charging patients different
prices for the same care is not equitable, especially when
the uninsured are charged more than other patients. But it
is unreasonable to expect that information on prices, total
bills, and quality will cause health care markets to perform
like markets for other goods and services. Health care is
not homogeneous and patients will never have as much
information about the care they need as the physicians who
care for them. Health care decisions are made under
emergency conditions, emotional stress, and in many
occasions both the insurance industry and the health care
delivery sector are highly concentrated, leaving patients
with few real choices.
As important as price transparency is, price information
is of little value by itself. Knowing the prices of health
care services is not very helpful when you do not have
information on the total cost of caring for a given
condition and the quality of the outcomes of that care.
The current state of health care information is inadequate.
Patients report that they rarely have cost and quality
information available to them. Physicians rarely have
comparative information on the quality of their own care
or on the quality of the care to physicians to whom they
refer patients. Patient use of information, however, is
not likely to transform the health care market. Patients
are in the weakest position to demand greater quality and
efficiency. Payers, Federal and State governments,
accrediting organizations, and professional societies are
much better positioned to insist on high performance.
Posting a greater financial burden on the sickest and
poorest patients through cost sharing and high deductibles
is not the right prescription for what currently ails the
health care system. Americans already pay far more out of
pocket for their health care than citizens in other
industrialized countries and people in high deductible
health plans either coupled with health savings accounts
or not allocate substantial amounts of their income to
their health care. They also are much less satisfied with
their care than adults in more comprehensive plans. Most
troubling is that people in high deductible plans are far
more likely to delay, avoid, or skip health care because
of cost. The problem is particularly pronounced among
people with low-incomes and health problems. When people
in high deductible plans do access care, there is evidence
that they are more likely to have problems paying bills
and to accumulate medical debt.
So what needs to be done to achieve transparency in our
health care system? Medicare should assume a leadership
role in making cost and quality information by provider
and by patient condition publicly available. It should
forge public and private partnerships to create a
multi-payer database, uniform quality measures, and
transparent methodologies for adjusting quality and cost.
As the IOM has recommended, a national quality
coordination board within HHS could be created. The
board could set priorities, oversee the development of
quality and efficiency measures, and ensure the
collection of information on those measures. Health
information technology should be invested in and
fundamental changes in current payment methods should
be made. Medicare's physician group demonstration
project is a step in the right direction.
HSA health savings account legislation should be modified
to reduce its potentially harmful effects on vulnerable
populations. Legislative modifications might include
permitting lower HSA eligible deductibles for lower wage
workers, exempting primary care, as well as preventative
services from the deductible, exempting prescription
drugs essential for the management of chronic conditions,
and guaranteeing choice of a comprehensive plan to workers
who are covered under employer plans, permitting greater
flexibility and benefit design, and setting an income
ceiling on eligibility for HSAs to reduce the tax subsidy
for higher income individuals.
Price transparency is the beginning, but it is unlikely
to have a major impact in the absence of better information
on quality and the total bills for the treatment of various
acute and chronic conditions. Creating a database with
this information is certainly feasible but it requires
Federal leadership. This hearing is an important step
towards achieving that outcome.
Thank you.
[The prepared statement of Dr. Sara R. Collins follows:]
Prepared Statement of Dr. Sara R. Collins, Senior Program Officer,
Future of Health Insurance, The Commonwealth Fund
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Deal. Thank you, Dr. Collins.
I am going to try to get both of you in before we have to
break for a series of three votes and as you know that
would take us a little while to get back. So Dr. Goodman,
we will proceed with you now.
Mr. Goodman. Thank you, Mr. Chairman and members of the committee.
Will we some day be able to buy health care the way we buy
groceries? Some people think that day is coming but before
our consumers can be savvy shoppers in the medical
marketplace, they must have information about prices and
quality and must be able to compare prices and compare
value.
A recent Harris Poll found that Americans could guess the
price of a new Honda within $300 of the actual price, but
when asked to guess the price of the cost of four days in
the hospital, they were off on average by $8,000.
Now some have suggested in this hearing that we need new
legislation, but I would say before we legislate, we
should stop and ask why are we having this problem in
the first place? It is not normal for sellers to hide
their prices. In normal marketplaces the sellers
advertise prices, they attract buyers by offering
discounts. So what is it that is so different about the
medical marketplace? I would suggest to you that the
big overriding difference is that decade after decade,
going back almost 100 years, we have various institutions
actively suppressing normal market forces. And so today
we are living with the effects of 100 years of, in my
opinion, unwise legislation.
Doctors today primarily do not compete with each other
on the basis of price. And prices in the doctor market
price are primarily not allocated research. That is not
the way we allocate doctor time. And the same is true of
hospitals. The hospitals are not competing with each
other on the basis of price, and prices in the hospital
marketplace are not allocating resources. The examples
of hospital prices that Representative Lipinski gave us
are examples of prices that are pure artifacts. They were
chosen by hospitals in order to maximize reimbursement
formulas. They are not equating supply and demand.
Now, although we like to think that our health care system
is very different from the system in Canada, the fact of
the matter is that we pay doctors here about the same way
that doctors are paid in Canada. On average, every time
patients spend $1 in this system, only .10 is paid out of
pocket at a doctor's office. In Canada the physicians and
services are free. In America they are almost free. In
both countries we are not allocating the doctor's time on
the basis of price. We are not rationing on the basis of
money. We are rationing by the patient's time. We are
rationing by waiting.
Now, does the health care marketplace have to work this
way? The answer is no. And Dr. Ginsburg pointed to the
example of cosmetic surgery and LASIK surgery. These are
important markets. Third party payers have not been in
these markets for years. For cosmetic surgeries probably
two decades since third party payers paid. What we found
in these markets is price is readily available. It is not
just a price, it is a package price that covers doctor,
nurse, and anesthetists, and facility. People know what
they are going to pay. Now Dr. Ginsburg said we have
some problems in this market. Well, we may have problems
but they pale in comparison. They are miniscule in
comparison to the problems that Dan Rather talked about
on Sunday night on 60 Minutes that we are having with
other kinds of surgery.
Now, we can find other examples in the medical marketplace
where third party payers are not involved. Wherever the
third party is not involved, we find prices performing
the normal function that we expect prices to be found.
Minute clinics in the Target stores in the upper Midwest
have prices for all their procedures. People know what
they are going to pay, there is very little waiting, and
they work very well. Wal-Mart wants to take this system
nationwide. Steve Kassis' organization also wants to
take them nationwide. No third parties are involved.
The TelaDoc service, you can actually talk to doctors on
the telephone with this service. You know what you are
going to pay, you are charged for the number of minutes
you talk. Prices are very visible, they are very
transparent, and it works very well. Luminous now
allows patients to email their doctors and have email
consultations. People know exactly what they are going
to pay. They pay from their health savings accounts.
Going forward, we have remarkable new technologies that
I think do not require any legislation. We simply need
to let these technologies spread. For drugs, RX Examiner
allows patients to see where the authentic and generic
substitutes and over the counter substitutes for expensive
brand name drugs. And DestinationRx.com allows patients
to compare prices nationwide. And I would guess that the
average patient can cut his drug prices in half simply by
shopping nationwide for drugs. Some patients can cut
their cost by 90 percent, enormous opportunity for
reduction in cost.
In HealthMarket we have already heard has a brand new
technology that is really exciting. Prices for 400,000
doctors and 20,000 procedures readily available with a
computer program. Simbro is a company that has developed
a product that allows a lot of quality comparisons among
hospitals. eMedicalfiles allows another kind of
transparency. It allows the doctors to see what other
doctors have done and what is happening in other facilities
for the patient, and does it all while protecting the
privacy in accordance with the HIPAA regulations.
I would say that the most important factor that we can
identify in all of this is empowering patients. That is
why I think we need expanded medical savings accounts,
and flexible medical savings accounts. Forget the high
deductible, forget the co-payment, we just need the
patients being in charge of the money. The supply side
will respond.
Thank you, Mr. Chairman.
[The prepared statement of Dr. John Goodman follows:]
Prepared Statement of Dr. John Goodman, President and CEO,
National Center for Policy Analysis
Will consumers some day be able to shop for health care the way
they shop for groceries? As farfetched as that idea may seem,
some believe it will become a reality. But in order for
patients to become savvy shoppers in the medical marketplace,
they must be able to discover what things cost and to compare
prices as well as value. Today, that is not easy to do.
A recent Harris Poll found that consumers can guess the price
of a new Honda Accord within $300. But when asked to estimate
the cost of a four-day stay in the hospital, those same
consumers were off by $8,100! Further, 63 percent of those who
had received medical care the last two years did not know the
cost of the treatment until the bill arrived. Ten percent
said they never learned the cost.\1\
This is not an academic issue. If you are like most other
Americans, your employer has raised your health insurance
deductible and copayment within the last few years. And,
you may have a special account from which to pay bills directly.
Increasingly, employees are being asked to make their own
choices and manage their own health care dollars.
The medical marketplace is not prepared for these changes.
Not only do patients typically not know the cost of the medical
services they receive, the institutions of health care
delivery often make price and quality information difficult,
if not impossible, to obtain.
Why is information consumers have ready access to in other
markets not generally available in health care? What
institutional and technological changes are needed in order to
make such information routinely available prior to health
purchases? What is the appropriate role for public policy?
Source of the Problem
The principal reason why prices are not publicly quoted and
commonly known in health care is that prices do not serve the
function in health care that they do in other markets.
Specifically, doctors and hospitals do not compete on the
basis of price and prices do not ration scarce resources the
way they do in other markets.
Although ours is a very different system from the health
care system of Canada,\2\ the way in which we pay providers
in both countries is surprisingly similar. In general, fees
are set by third-party institutions and those institutions
pay all, or almost all, of those fees.
On the average, every time Americans spend a dollar on
physicians' services, only 11 cents is paid out-of-pocket;
the remainder is paid by a third party (an employer, insurance
company or government).\3\ From a purely economic perspective,
then, our incentive is to consume these services until their
value to us is only 11 cents on the dollar. Moreover,
millions of Americans do not even pay the 11 cents. Medicaid
enrollees, Medicare enrollees who have medigap insurance,
and people who get free care from community health centers
and hospital emergency rooms pay nothing at the point of
service. Most members of HMOs and PPOs make only a modest
copayment for primary care services. Clearly we are not
rationing health care on the basis of price.
But if not price rationing, how do we ration physicians'
services? We ration the same way other developed countries
ration care. We force people to pay for care with their time.
The services of physicians are a scarce resource and a valuable
resource. So at a price of zero (or at a very low out-of-pocket
price) the demand for these services far exceeds supply. Unable
to bring supply and demand into balance with money prices, our
system does that next best thing. We ration by waiting.
Some may object that the real demand for physicians' services
is not determined by time or money but by the amount of sickness
in society. Yet this view is surely wrong.\4\ Consider that
12 billion times a year Americans purchase over-the-counter
(OTC) drugs and suppose that on their way to these acts of
self-medication all of the purchasers stopped to get professional
advice. To meet that demand, we would need 25 times the number
of primary care physicians we currently have!\5\
Now suppose that instead of physically going to a doctor's
office, purchasers of OTC drugs could get professional advice
by means of telephone or email. The same problem would arise.
The demand for advice would far exceed the ability of physicians
to supply it.
In general, patients cannot have the best of both worlds. If
they communicate with doctors the way they communicate with
lawyers, they will have to be charged money prices for the use
of the doctor's time (the way they pay legal fees). Health care
cannot be both easily accessible and free. It must be one or
the other. Waiting is not an accidental by product of modern
health care delivery. It is an essential ingredient.
What difference does this make? A great deal of difference.
In general, if doctors do not compete with each other on the basis
of price, they do not compete at all.
One consequence of rationing by waiting is that the time of the
primary care physician is usually fully booked, unless she is
starting a new practice or working in a rural area. This means
that almost all the physician's hours are spent on billable
activities. Further, there is very little incentive to compete
for patients the way other professionals compete for clients.
The reason: neither the loss of existing patients nor a gain of
new patients would affect the doctor's income very much. Loss
of existing patients for example, would tend to reduce the average
waiting time for the remaining patients. But with shorter waiting
times, those patients would be encouraged to make more visits.
Conversely, a gain of new patients would tend to lengthen waiting
times, causing some patients to reduce their number of visits.
Because time, not money, is the currency we use to pay for care,
the physician doesn't benefit (very much) from patient pleasing
improvements and is not harmed (very much) by an increase in
patient irritations.
What about the hospital sector? As is the case for physician
services, fees for hospital services are set and paid by
third-party payers. And, as is the case for physician services,
the scarce resource again is the doctor's time. Here, however,
it is not patients who are waiting on doctors; it is hospital
beds (and other facilities) that wait on doctors.
In many ways, the two sectors are mirror images of each other.
In neither sector do prices clear markets. And in neither sector
is competition among providers based on price.
Can Health Markets be Different?
There is nothing normal or natural about rationing by waiting.
The exterior offices of lawyers, accountants, architects and
other professionals are called "reception areas," not "waiting
rooms," and very little waiting actually goes on. The reason:
waiting is a wasteful way to allocate resources. In markets
for other goods and services, the consumer's cost is typically
the producer/seller's income. But when people pay for goods
with their time, their waiting cost is not someone else's income.
It is a net social loss.
Rationing by waiting is not only socially wasteful, it is a poor
way of delivering health care. Under such a system, there is no
way to insure that those who need care the most get it first, or
even get care at all.\6\ Human resource experts estimate that
one-quarter of physicians visits are for conditions that patients
could easily treat themselves.\7\ Balanced against these
"unnecessary" visits are all of the potential visitors who choose
not to seek care. Undoubtedly, many of those are "necessary" but
unrealized visits; and, hence, the patients go without professional
treatment.
To find radically different physician behavior, one must look at
markets where third-party payers are not involved at all, such as
the markets for cosmetic and lasik surgery. Unlike other forms of
surgery, the typical cosmetic surgery patient can (a) find a package
price in advance covering all services and facilities, (b) compare
prices prior to the surgery and (c) pay a price that is lower in
real terms than the price charged a decade ago for comparable
procedures - despite the considerable technological innovations in
the interim.\8\
Ironically, many physicians who perform cosmetic surgery also
perform other types of surgery. The difference in behavior is
apparently related to how they are paid. A cosmetic surgery
transaction has all the characteristics of a normal market
transaction in which the seller has a financial interest in how
all aspects of the transition affect the buyer. In more typical
doctor-patient interactions, doctors are not paid to be concerned
about all aspects of care and therefore typically ignore the
effects on the patient of the cost of time, the cost of drugs, and
other ancillary costs. Note, this holds for HMO doctors as well
as fee-for-service doctors and what is true for U.S. doctors in
general is also true of doctors who practice in the government-run
health systems of other developed countries.
Whenever there is waste and inefficiency in a market, there is an
opportunity for entrepreneurs to make profits by eliminating that
waste and inefficiency. The health care market is no exception.
What makes entrepreneurship difficult in health care is that in
order to eliminate waste and inefficiency, the entrepreneurs must
step outside of the normal payment mechanisms. This means that
patients who take advantage of these services often must pay
out-of-pocket for what theoretically should be covered by their
insurer.
The entrepreneurial activities we have identified tend to have
two characteristics: (a) they allow patients to economize on time
and (b) they step outside the normal reimbursement channels,
usually asking for payment at the time of service. Here are some
examples:
Minute clinics. These are walk-in clinics located in selected
Target and Club Food stores and some CVS Pharmacies, and Wal-Mart
has signaled its interest in providing a similar service through
its stores nationwide. They are staffed by nurse practitioners.
No appointments necessary and most office visits take only
15 minutes. Treatments range from $25 to $105. In contrast to
standard physician practice, medical records are stored
electronically and prescriptions are also ordered that way.
TelaDoc. This service offers medical consultations by telephone.
A doctor usually returns patient's calls within 30 to 40 minutes.
If the call is returned later than 3 hours the consultation is
free. Access is available around the clock. Registration for
the service costs $18. Phone consultations are $35 each, with a
monthly membership fee ranging from $4.25 to $7.
Doctokr. This is the Virginia medical practice of Dr. Alan
Dappen. Although he offers in-office appointments, he encourages
most patients to have either an e-mail consultation or a phone
consultation. Dappen charges based on the amount of time required.
A simple consultation generally costs less than $20.
CashDoctor.com. This is a loosely-structured network for doctors
across the country that are "cash friendly." Practices styles and
fee schedules are available online.
Is Needed Technology Available?
It is possible to have a health care system in which third-party
payers neither set the fees nor pay the fees of providers. For
example if health insurance worked like casualty insurance (the
type of insurance people purchase for their homes and automobiles),
insurance reimbursements would cover the expected cost of care for
most providers; but patients would be free to negotiate with
individual providers and pay more (for better service) if they
found extra value warranted the extra charge.
Even in this imaginary market, however, there has to be a way
for patients to gain access to price and quality information.
So how exactly would that work? Some assume that we need a new
government program to kick-start needed technological changes.
Yet while pundits talk and politicians threaten to legislate,
the private sector already has developed many of the tools to
solve these problems.
In the market for drugs, the web site Rxaminer.com allows patients
to discover therapeutic and generic substitutes for brand name
drugs as well as over-the-counter alternatives; the site
DestinationRx.com allows patients to compare prices nationwide.
A model developed by Health Market allows its insureds to compare
the price they will pay for 20,000 procedures performed by
virtually every doctor in the country.
A product developed by Subimo allows patients to compare quality
and price data for most hospitals in the country.
A product developed by eMedicalfiles creates needed
transparency for doctors - it allows medical records to travel
electronically as patients go from doctor to doctor and hospital
to hospital.
What Public Policy Changes are Needed?
If we do not need government to fund or regulate new technologies,
what changes are needed? New government policies can help in
two ways. First, in markets where government is the primary
third-party payer (e.g., Medicare or Medicaid), policymakers can
use existing technology to let its own insureds have access to
price and quality information. (Some modest steps in the right
direction are already underway.)
Second, we need to change the tax law to make it easier for
people to self-insure for medical expenses instead of
over-relying on third-party insurance. In order to have a
workable, well-functioning medical marketplace, we need to
fundamentally change the way we pay for health care, including
the way we pay doctors. A step in the right direction is the
creation of Health Savings Accounts (HSAs). Instead of an
employer or insurer paying all the medical bills, about
3.2 million people are managing some of their own health care
dollars through these accounts and another 3 million have Health
Reimbursement Arrangements.\9\
Despite their many advantages, HSAs can be made even better.
Under the current system, HSA plans with deductibles and
copayments graph onto the current payment system and reinforce
it rather than challenge it. Under the current HSA rules, if
a patient pays for care with dollars, those dollars count
toward a deductible and move the patient closer to the point
when a third-party will pay all remaining financial costs.
But if a patient pays for care with time, this does not count
toward the deductible. Further under most HSA plans, time-saving
innovations are typically not covered expenses. In these ways,
most HSA plans are tacked on to the existing payment system,
rather than an alternative to it.
The current HSA law's primary problem is that decisions the
market should make have been made by the tax-writing committees
of the U.S. Congress instead. What is the appropriate deductible
for which service? How much should be deposited in the HSAs of
different employees? How can we use these accounts to meet the
needs of the chronically ill? In finding answers, markets are
smarter than any one of us because they benefit from the best
thinking of everyone. Further, as medical science and technology
advance, the best answer today may not be the best answer
tomorrow.
Mr. Deal. Thank you.
Dr. Anderson?
Dr. Anderson. I do not know if I am going to make it.
Mr. Deal. Switch chairs?
Dr. Anderson. No, I think I will be fine, I am a loud
person.
Thank you, Mr. Chairman for the opportunity to testify
this morning.
My overall message is that simply publishing prices will
not allow consumer to comparison shop and will not bring
prices down. Additional information will be necessary
for comparison shopping to occur. Let us assume you went
to the hospital and the hospital presented you with their
price list. The price list is called a charge master file
and it lists the prices for approximately 25,000 different
items. First, you probably would not understand most of
the items on the charge master file. As a result of the
testimony I gave two years ago at an Energy and Commerce
Committee hearing, I have been involved in numerous court
suits involving the rates that hospitals charge the
uninsured. I also was on 60 Minutes last week talking
about this issue.
Because of many of these court suits, I have been reading
far too many charge master files. One of the items on the
charge master file for example is the head bugger upper
body cover. The charge for one hospital is $77.50 for
that. Another item on the charge master file was the
lactated wingers and the charge at that hospital is $189.
Charge master files have 25,000 different items like this.
The normal person and probably most doctors cannot
understand what is on the charge master file. In order
for price lists to be useful, the price lists need to be
understandable.
Second, a patient needs to know which of these 25,000
items on the charge master file he or she will need. Most
patients entering the hospital have no idea what services
they would need. Should they compare prices for the head
bugger upper body cover? Should they compare it for the
lactated ringers? The typical patient, in-patient, will
probably need only 50 different items. The problem is you
do not know which of these 25,000 items you are going to
need, and it is unlikely the hospital or the doctor can
tell you in advance which of these 50 items you are likely
to need. Transparency, price transparency works only if
you know what you are going to buy.
Third, the patient is unlikely to be making the final
decisions. The team of doctors caring for you is the one
who makes the final decisions. When you go to the
emergency room because you broke your wrist, you do not
make the final decisions. Same story when you go to the
hospital for cancer treatments or to treat your diabetes.
The decisions are generally left to the doctor because
most of us do not know what a head bugger upper body
cover or a lactated ringer even does.
Fourth, the prices that you will be quoted on the charge
master file are not the prices that most people pay.
In my testimony, I include a tape of the charge to cost
ratios for hospitals in each State. In 2003, New Jersey
had the highest charge to cost ratio at 3.75. What this
means is that New Jersey hospitals charge $3.75 for an
item that costs them $1. Does this mean that hospitals
in New Jersey are earning enormous profits? No. Available
data suggested New Jersey hospitals are earning only
small profits. The reason is clear. Although they charge
$3.75 for an item that costs them a dollar, they do not
receive $3.75 from these patients. Health insurers, health
plans, Medicare, and Medicaid do not pay full charges.
They negotiate rates, we negotiate rates which are much
closer to cost than to full charges. The only patients
asked to pay these full charges are the uninsured, some
people with high deductible health savings accounts, and
the international visitors. It does not make sense to
post prices that only a few patients actually pay. For
the prices to be useful, they need to reflect what most
insurers are actually paying and not the hospitals price
wish list.
Fifth, the prices can change daily. A person could do
comparison shopping and find the best price. Then when
they actually enter the hospital, they would find that
all the prices have changed. In fact, the prices could
change while the person was in the hospital. It would
be necessary to force the hospital to maintain its price
to allow comparison shopping.
Sixth, if you require hospitals to disclose prices for
just a limited set of procedures, it would lower the
prices for just those limited set of procedures. Would
you go into a Wal-Mart if they would tell you the prices
for only 50 items but wanted you to buy everything?
My testimony so far has only focused on hospitals.
Inadequacy of simply posting prices also applies to
physicians and drug plans. For example, the Medicare
prescription drug plans can change the prices of
prescription drugs any time they choose. They can also
change the co-insure amounts any time they choose. As
a result, a Medicare beneficiary who initially found
the least expensive plan may quickly find that these
prices have all changed.
So what can be done to improve price transparency? My
proposal is to require all providers to quote their
prices in terms of Medicare rates. The hospital or
physician could say I charge X percent of the Medicare
rate. One hospital might charge 120 percent of the
Medicare rate and other hospital would charge 125 percent
of the Medicare rate. For certain items, the hospital or
physician could deviate from the Medicare rate. The
advantage to this is it would allow each patient to
compare one number, one price. The Medicare rates are
publicly available information and nearly all doctors
and hospitals are familiar with Medicare prices.
Currently there are 25,000 items on the hospital charge
master file and over 10,000 items CPT codes that
physicians use. There is no way for a patient to
compare this many prices especially when he or she
does not even know what services she is going to use.
I appreciate the opportunity to testify this morning.
[The prepared statement of Dr. Gerard F. Anderson
follows:]
Prepared Statement of Dr. Gerald F. Anderson, Johns Hopkins
Bloomberg School of Public Health, Health Policy and Management
Mr. Chairman, members of the Committee, thank you for this
opportunity to testify this morning. My name is Gerard Anderson
and I am a professor in the Bloomberg School of Public Health
and a professor in the School of Medicine at Johns Hopkins
University. I am also the Director of the Johns Hopkins Center
for Hospital Finance and Management.
I believe health care prices should be more transparent.
Currently, it is very difficult for consumers to be aware of
the prices that they will pay for hospital, physician, and other
medical services as well as the prices they will pay for products
such as drugs. However, simply publishing the price will not allow
patients to compare prices and will not bring prices down. Two
additional steps are necessary. First, patients need to know what
services they will use. Most patients do not understand what goods
and services they may need and so they cannot do comparative
shopping. Second, prices must reflect market forces. List prices
are established by the hospitals and physicians without any market
constraints. Too often list prices have no relationship to the
prices that are actually being paid by insurers. The prices should
reflect the market place and should not be dictated by only the
hospitals and physicians. One way to allow prices to be more
transparent is to base all rates on a single price standard. The
Medicare payment rate is one logical suggestion and one that is
commonly used in negotiations between insurers and providers.
Providers could simply say that they charge X% of the Medicare
rate.
Why Does The United States Spend So Much on Medical Care? - Its
Prices Stupid
Making patients aware of the prices they are paying for medical
services is especially important when you compare the prices that
Americans pay for medical services to the prices people pay in
other countries for similar services. Every year I write an
article in the journal Health Affairs which compares the level
of spending on health care services in the United States to the
level of spending in other countries. I have attached a copy of
the most recent article in this series.
What the article shows every year is that the United States spends
nearly twice as much for medical care as many other industrialized
countries. In 2003 (the most recent year comparative data is
available) the United States spent $ 5635 per person compared to
$ 3003 in Canada, $2996 in Germany, $2231 in the United Kingdom and
$ 2139 in Japan.
These higher levels of expenditures can make it difficult for
American industry to compete in the international market place.
For example, the financial problem the American auto industry is
having is partially related to the high costs of medical care. The
price of a car sold by General Motors includes over $1500 in health
care costs. In other countries, cars incorporate much lower health
care costs.
Each year we use the article in Health Affairs to investigate why
health care in the United States is so much more expensive compared
to the other countries. We have investigated a number of hypotheses
including: malpractice costs, defensive medicine, aging of the
population, the lack of waiting lists in the United States, the
obesity levels in the United States, and the high level of
technology that is available in the United States. We have
investigated each of these factors in one or more of the articles.
What we have found is that each factor is partially responsible for
the higher costs in the United States. However, none of them really
explains why the United States spends nearly twice as much as other
industrialized countries.
As we continue to examine the data we have reached the following
conclusion - "Its Prices Stupid." This was the title of our article
in Health Affairs in 2003 and it remains our primary conclusion of
why health care in the United States is so expensive today.
Comparing Drug , Hospital and Physician Prices in the United States
to the Prices Other Countries
In 2004, we published an article in Health Affairs entitled Doughnut
Holes and Price Controls which compared the drug prices for the
25 most commonly prescribed drugs ( both brand name and generic) in
the United States to the drug prices for the same 25 drugs in
Canada, France and, the United Kingdom. What the article shows is
that the United States patient is paying approximately double the
prices for drugs as patients in Canada, France and the United
Kingdom are paying. This explains the desire for reimportation
among United States consumers.
We have also compared the expenditures for hospital and physician
services. The United States spends twice as much per capita for
hospital and physician services as other industrialized countries.
When we examined the reason we first discovered that quantity was
not the reason - Americans are receiving fewer hospital days per
capita and fewer physician visits per capita than people in most
other industrialized countries. In fact, managed care and other
initiatives have eliminated many unnecessary hospitalizations and
shortened the average length of a hospital stay.
A second explanation we examined was technology and we found that
access to expensive technology was not a major reason for the
higher per capita hospital spending. The United States, for
example, has approximately the same number of CT scanners and MRI
machines as the average industrialized country. The Japanese have
access to the most technology. For example, Japan has 4 times more
MRIs per capita and 7 times more CT scanners per capita than the
United States. In spite of using all this technology, health
expenditures per capita in Japan are only 38 percent of the
United States.
Per capita spending for American hospital services is more much
more expensive than other industrialized countries because of the
price of a hospital day. The price of a day in an American
hospital is nearly two and a half times the price of a hospital
stay in other industrialized countries.
A similar argument can be made for physician services. Americans
do not receive more physician services than people in other
industrialized countries. Yet the price of a physician visit in
the United States is over twice the price in other countries.
Because of the work we have done comparing the prices in the
United States to the prices in other countries I am in total
support of the efforts to control prices in the United States.
The reason why the United States health care system is much more
expensive can be summarized in three words - "Its Prices Stupid."
Policy Initiatives To Control Prices in the United States
Public payors such as Medicare and Medicaid have undertaken a
number of initiatives to control prices. The first major
initiative was the Prospective Payment System to control hospital
rates in the Medicare program. It was soon followed by the
Resource Based Relative Value System that is used to pay physicians
in Medicare. Other prospective payment systems have followed for
other types of providers. Medicaid programs have followed a similar
approach to Medicare.
Over the past 20 years little public policy attention has focused
on controlling prices in the private sector. The last public
policy attempt to control prices in the private sector was
President Carter's Hospital Cost Containment initiative. This was
an attempt to control the rate of increase in hospital rates for
all insurers and for self pay patients.
It is always surprising to me that prices are substantially
higher in the private sector than they are in the public sector.
MedPAC numbers continually show that the private sector pays
10 - 20 percent (and in some years more) than the public sector.
I have often wondered why the private sector cannot get better
rates. Some have argued that the public sector shifts costs to
the private sector. The real policy question is why the private
sector allows the "cost shift" to occur. Why can not the private
sector use competitive forces to get lower rates than the public
sector?
Because the private sector is paying higher rates than the public
sector, the public sector has difficulty keeping prices low. If
the public sector was paying substantially lower rates then the
hospitals and physicians could restrict access to public
beneficiaries. The differential between the public and private
rates cannot become too great. The public and private sectors
need to be able to work together to keep prices low. In the
United States this means the private sector becoming a strong
force in controlling prices.
Does the United States Get Value For the Higher Prices?
It is difficult to compare outcomes across countries. Without
an ability to compare outcomes it is impossible to calculate
value. There have been a number of initiatives to compare
outcomes.
For years we have known that the life expectancy is lower in the
United States than in many other industrialized countries and
that the infant mortality rates are generally higher. This would
suggest that we are not getting value for the much higher
spending in the United States. Critics of these comparisons
have correctly pointed out that life expectancy and infant
mortality rates are determined by many factors and that health
care may play only a minor role.
To examine if the health care in the United States is better
than the health care in other countries we conducted a study
comparing the clinical outcomes in the United States to the
clinical outcomes in England, Australia, New Zealand, and
Canada. We selected 21 indicators to compare. For example, two
of the indicators were 5 year survival rates following a
diagnosis of breast cancer and mortality from asthma in
people are 5 -39. The 21 indicators covered a number of
illness categories but were not designed to be a comprehensive
list.
What we found was that the United States was the best on a
few indicators, the worst on a few indicators, and in the
middle on most indicators. Not a good showing for a country
that spends more than twice as much per capita as these other
countries. Internationally it is clear that higher prices in
the United States do not necessarily result in better outcomes.
We have also looked at how these other countries have been
able to control prices for hospitals, physicians, drugs and
other goods and services. The answer in some other countries
is that the prices are set by the government. In other
countries all the insurers get together and negotiate as a
group with the providers. Imagine all the insurers on one
side of the table and all the providers on the other side of
the table and the end result of the negotiation is a set of
prices that all insurers will pay.
An examination of the experiences of these other countries
suggests that either regulation or collective negotiation
could work if the objective was to control health care prices.
There are, however, a number of obstacles to overcome. United
States policy makers have not believed that regulation is an
effective way to control prices and having all insurers
negotiate together would violate antitrust policy.
Pricing Transparency - What Else Is Needed
For the reasons discussed above, I am in favor of a renewed
policy emphasis on lowering health care prices. The United
States is now considering a different approach - to make prices
more transparent. This approach has some merit although simply
posting prices will not achieve the objective of allowing
consumers to engage in comparison shopping and will not bring
down prices without additional steps being taken. The remainder
of my testimony suggests what else needs to be done and finally
makes suggestions regarding what actions the Congress should take
in addition to requiring prices to be posted
First, it is critical for patients to know the services they are
going to use. Comparison shopping is not possible if the patient
does not know what goods and services he/she is are going to buy.
Second, the prices need to be reasonable. By reasonable I mean the
prices must reflect what is being paid in the market place. The list
prices that are established by hospitals and doctors generally do
not reflect what insurers are actually paying.
Comparison Shopping
Imagine going into a grocery store or a department store and not
understanding: (1) what most of the products you are purchasing
actually do, (2) what is actually on the bill, and (3) having no
idea what you are going to buy when you enter the store. In this
case you would not be a good comparative shopper even if you knew
the prices. You need to understand what you are buying before you
make the purchase.
In health care there is often an additional factor. Imagine that
you are not even the person picking out the goods in the grocery
store or the department store. Imagine that someone else is making
the decisions about what to buy for you. Health professionals, most
commonly doctors, make most of the decisions when you go to the
doctor's office or the hospital. For many clinical conditions this
will always be the case.
The following sections explain why simply requiring hospitals,
physicians, and drug plans to post prices is insufficient. Without
these additional steps, the market place will not work and
comparison shopping will not be possible.
Hospitals
The hospital charge master file lists the prices for each service
the hospital provides. The hospital charge master file contains
10,000 items in a small hospital and 50,000 items in a large hospital.
Simply posting the prices on the charge master file will provide
the patient little information if the patient wants to do comparison
shopping for hospital services.
1. The typical hospital bill contains 10 to 500 items. These could be
$1000 for an hour of operating room time or $5 for a Tylenol. The
patient will never use most of the items on the charge master file.
Without knowing what services he/she will use it is impossible for
the patient to do comparison shopping.
2. Unfortunately, in most cases hospitals and/or the doctor cannot
tell the patient in advance which services they will need. The
hospital or the physician may estimate that the procedure may require
an hour of operating room time but the operation may require only
30 minutes or may require two hours. The hospital or the physician
cannot know if the patient will want or need a Tylenol. Without
knowing precisely what services are going to be used it is impossible
to really do comparison shopping. Should the patient compare prices
for 30 minutes, 60 minutes or 120 minutes of operating room time?
Should the patient compare prices for Tylenol or ibuprofen?
3. Comparing the 10,000 to 50,000 items on the charge master file is
foolish when the patient will probably use less than 100. The problem
is that the patient does not know exactly which 100.
4. Many of the items on the charge master file and ultimately on the
hospital bill are written in code so that only the hospital
administrators and a few other experts in the field can understand.
The charge master file will need to be translated if the consumer
is going to understand what he/she is buying.
5. I examined a hospital bill for a person who was charged over
$30000 for an outpatient procedure. A $30000 charge for a procedure
that did not even require an overnight stay.
6. The bill contained numerous charges. Many of the services on the
bill were written in a strange language. I wonder how many people in
this hearing room know what a "Bairhugger upper body cov'" is or why
the charge is $77.55. The same hospital bill contained the following
items and associated charges:
a. Furosemide/20MG/2ML/V - $4.54
b. Toradol 30MG/ML 1ML S - $ 22.02
c. Versed 1 MG/ML 2CC VIA - $11.37
d. Lactated Ringers 2B2324 - $189.00
e. Valve IV - $7.15
f. Pack Custom Cysto - $58.00
g. Set Tur - $35.35
h. **Zofran 1 Mg dose - 155.18
If the consumer is going to effectively comparison shop, then these
items will need to be described in English.
7. Hospitals are currently allowed to change their prices at any time.
A patient could comparative shop for hospital services on Monday
and enter the hospital on Tuesday and find that the prices have all
been changed. In fact, the patient could enter the hospital on
Tuesday and remain in the hospital until Friday and see the prices
changed every day they were in the hospital. This same issue applies
to the Medicare Prescription Drug benefit. The drug plans are able
to change their prices at any time. If patients are going to engage
in comparative shopping the prices have to be fixed so that the
patients can compare prices.
Physicians
1. In most cases it is the physician who is making the decision about
what type of care the patient will receive. The physician is unable
to provide any guarantees in most cases concerning what services
he/she will ultimately provide. As a result, comparative shopping
will be impossible since you do not know the prices of what services
to compare.
2. Comparison shopping for certain physician services is possible.
Probably the best example is LASIK surgery. It is a relatively
standard procedure and therefore it is possible for the physician
and the patient to compare services and compare prices. In this case
a price list is probably sufficient. LASIK, however, is more the
exception than the rule.
3. The more common encounter between a physician and a patient is when
the patient does not exactly know what is wrong and the physician
has to order a series of tests to discover what is wrong and then to
decide on the appropriate treatment. This cannot be predicted at the
beginning. Then once the treatment starts it is often unclear what
will be needed and how long it will take.
4. For example, each woman with breast cancer will probably respond
differently to treatment. As a result, the oncologist cannot specify
in advance what services will be provided or what will be charged.
If a woman was trying to comparative shop for an oncologist she
would need to know what services will be provided and not just the
prices that will be charged for services that she may or may not
need. The same principle applies to people with chronic conditions
such as diabetes, congestive heart failure, or asthma. No physician
can tell the patient in advance what services he/she will require
in the next year and therefore true comparison shopping will be
impossible.
5. In the Medicare program two thirds of Medicare spending is by the
23% of beneficiaries with 5 or more chronic conditions. These
beneficiaries see an average of 13 different physicians during
the year. Their condition is always changing. It will be impossible
for these beneficiaries to predict what services they will need in
the coming year and therefore comparison shopping for physician
services is impossible.
Pharmaceuticals
1. The Medicare Modernization Act allows Medicare beneficiaries to
compare drug prices in different health plans. Many consumers have
found this comparison shopping very difficult.
2. The drug plans participating in Medicare Part D do not have to
disclose the price that they are paying for the drugs. All that is
provided to the Medicare beneficiary is the retail price. Drug
plans are likely to obtain discounts from the pharmaceutical
companies.
3. Medicare beneficiaries are locked in to a specific drug plan which
they choose based on the prices of the drugs and the cost sharing
arrangements. However, the drug plans are free to change prices
and change cost sharing arrangements during the year. A drug plan
that was the least expensive for a beneficiary with one set of
prices could become a very expensive plan if the drug plan
changed the prices during the year or changed the cost sharing
arrangements.
4. Next year another problem is likely to arise - Medicare
beneficiaries developing new diseases which require new drugs
that they did not anticipate.
5. A major problem for Medicare beneficiaries doing comparative
shopping is that they are locked in to a particular plan for a
year. Many have found the least expensive plan assuming their
use of drugs does not change during the year. However, for
millions of Medicare beneficiaries the drug regimen is likely
to change and at that time they may not have the least expensive
plan.
6. Unfortunately, Medicare beneficiaries get sicker as they age.
Some years they develop a new chronic condition and that
chronic condition may require them to take a new drug or
multiple new drugs. The typical Medicare beneficiary acquires
an additional chronic condition every two or three years. As
noted earlier in this testimony, 23% of Medicare beneficiaries
have 5 or more chronic conditions. These beneficiaries fill
an average of 50 prescriptions during the calendar year. Many
of them change prescriptions during the year.
7. Without knowing what drugs you are going to use in the year
it is difficult to do comparative shopping.
In summary, price comparisons have little value unless the
person knows exactly what goods and services they are buying.
In health care it is difficult to predict in advance what
goods and services will be needed and doing comparison
shopping while a procedure is being done is not generally
feasible.
Reasonable Prices
It is not sufficient simply to post prices. The prices must
be reasonable. By reasonable I mean that the prices must
reflect the market place. The list prices that are in the
hospital charge master file do not reflect market forces
for reasons that will be described below. The same applies
to most physician charges.
Let's assume that a hospital had prices of $1,000,000 per
day. Would that be a reasonable price? I suspect most
reasonable people would say no. What if a doctor had prices
of $1,000,000 for an office visit - would that be a
reasonable price? Again I believe most reasonable people
would argue that $1,000,000 for an office visit is an
unreasonable price.
Under the current system hospitals and physicians have the
ability to post any price they choose. There is not a
requirement that anyone ever pays that posted price and in
fact the posted price is seldom paid.
The question then becomes how does Congress determine
what is a reasonable price? It makes no sense to require
hospitals and physicians and others to post unreasonable
prices. Two possible standards to determine if the prices
are reasonable are (1) costs and (2) the market place.
Costs are relatively easy to calculate for hospitals.
Groups such as MedPAC routinely use costs to compare to
what Medicare is paying. The Medicare Cost Report
calculates Medicare allowable costs for nearly every
hospital in the United States. Costs are more difficult
to calculate for physicians, health plans, etc.
One reason for not using costs is that they do not
encourage efficiency. The prices could be high because
the hospital is very inefficient. A second reason for
not using costs to determine if the price is reasonable
is that costs may not reflect market forces. A hospital
with very high costs may be unable to lower its prices
sufficiently to enter into an agreement with a health
plan or an insurer.
An alternative is to use the prices that are actually
being paid in the market place. The prices reflect the
discounts that hospitals, physicians and other groups
negotiate with insurers.
The charge master file submitted by the hospital does
not reflect market prices. In most cases neither do the
charges established by physicians. Few patients actually
pay these charges. Insurers obtain large discounts off
these list prices - often as high as 75 percent. I have
actually seen contracts where the discount from list
price was over 900 percent and in this case the hospital
was still earning a profit from the insurer because the
negotiated rate was above the hospital's actual costs.
For a price list to be reasonable it needs to reflect
what is actually being charged in the market place.
Because the issue is easier to understand in the
hospital context, I will focus on the unreasonableness
of hospital charges as shown in the charge master file.
How Charges Are Set By Hospitals
Hospital charges are determined by a charge master file
and the hospital or hospital system determines the
charges in the charge master file. The hospital or
hospital system has complete discretion to set each
and every charge on the charge master file.
The hospitals often do not know how they set
each charge on the charge master file. There
is not a formula that hospitals use to set
charges.
According a December 2005 MedPAC report entitled "A
Study of Hospital Charge Setting Practices" "The
hospital charge description master (CDM), or "charge
master" is extensive, usually containing between
12,000 and 45,000 individual charge items and
procedures across hospital department providing
patient services. Every chargeable item in the
hospital must be part of the charge master in order
to bill the patient, payer, or health care provider."
The MedPAC report was based on interviews
with 57 participating hospitals and/or
systems involving 238 hospitals. Some of the
quotes in the Report from the interviews the
team conducted with hospital executives
involved in setting hospital charges
demonstrate that the charges are not set by
market forces or using a systematic
methodology.
"With over 45,000 items in the charge master, the
vast majority have no relation to anything, and
certainly not to cost."
"There is no rationality to the charge master and
costs still do not have much relevance."
"Charges have less and less meaning each year�"
There have been numerous academic articles written
describing how hospitals determine their charges.
However, perhaps the most illuminating presentation
was a newspaper article that was published in the
Wall Street Journal on December 27, 2004 and written
by Lucette Lagnado. The article takes advantage of
the data on hospital charges that California hospitals
are required to report. The article also contained a
quote from William McGowan, chief financial officer at
the University of California, Davis Health System and
a 30 year veteran of hospital pricing policy
implementation. In the article Mr. McGowen explained
the rationale of hospitals charges "There is no
method to the madness. As we went through the years,
we had these cockamamie formulas." His conclusion is
not much different than what the hospital executives
said to MedPAC in the December 2005 report.
The same Wall Street Journal article includes a chart
that shows the variation in charges in seven
California hospitals for services such as chest
x-rays, complete blood count, CT Scan, Tylenol, etc.
The chart below shows the variation in charges at
the seven California hospitals for just Tylenol
and a chest x-ray. The range for one tablet of
Tylenol was free to 7.06. The range for a routine
chest x-ray was from $120 to $1519.00. These are
substantial charge variations.
<GRAPHIC NOT AVAILABLE IN TIFF FORMAT>
As noted earlier it would therefore be
unreasonable to expect a person to do comparison
shopping on all items in the charge master file,
the vast majority of which he/she would never use.
If you only had the information on this chart which
hospital would you choose? The two hospitals that
do not charge for Tylenol have the highest charges
for an X-ray. Unless the patient knew if he/she
would need an X-ray or would need Tylenol the
price information is useless.
There are a few items on the charge master file where a
consumer would know the products and could compare prices.
These are items the person might purchase outside of the
hospital. I reviewed the charge master file at one hospital
and this is what I found.
In 2002, the charge for one tablet of ibuprofen was over
$5.00. The charge for one chewable tablet of a multivitamin
was also over $5.00. A 12 packet of Rolaids was over $10.00.
If the person needed a 15 minute massage the charge was over
$50.00 or over $200 per hour. In 2002, the person was being
charged over $600 per day for a semiprivate room. Many of
these charges increased in 2003, 2004, and 2005.
Why Hospital Charges Are Set So High
When a person goes to the drug store to purchase
ibuprofen, multivitamins, or Rolaids the prices are
clearly labeled. The prices in other drug stores
are clearly labeled. A drug store that charges
high prices will likely lose business. The market
place operates.
In contrast, the amount that any hospital proposes to
charge for ibuprofen, multivitamins or Rolaids or any of
the other 25000+ items on the charge master file is not
set by market forces. As a result, they are much higher
than they would be if market forces prevailed. The
following section explains why it is inappropriate for
consumers to pay what is on the charge master file.
Before 1929, patients did not have health insurance and
patients paid hospitals directly for each service.
Patients paid charges. To some extent, market forces
influenced the amount a hospital could charge. One
hospital might charge $4.00 for a day in the hospital
while another hospital charged $5.00. It was relatively
simple for patients to compare hospital charges when all
that the patient was comparing was one number - the price
for a day in the hospital.
As the depression worsened in the 1930s, the ability of
people to pay their hospital bills worsened. Blue Cross
and other insurance programs developed in response to
the inability of people to pay their hospital bills.
During this period, hospitals' charges were based on the
cost of providing care, plus a markup typically of less
than 10%. Because health insurers paid the charges,
there was little or no gap between the amount billed and
the amount collected by hospitals. Market forces were
operating to some extent to hold-down charges.
By 1960 most hospitals had moved away from a per day
charge and were using a charge master file to bill
patients. In 1960, however, the charges set by hospitals
were still based on the cost of providing care plus a
small allowance for profit. Most insurers continued to
pay charges. The charge master listed all the services
the hospital provided for the patient: ibuprofen,
multivitamins, Rolaids, etc.
In 1960, the typical charge master file established by
hospitals had 5000 separate items. This was a major
expansion from 1930 when there was typically only a
room and board charge. It was becoming difficult for
market forces to operate by 1960 because an individual
patient did not know which of the 5000 different items
he/she would need. Comparison shopping was becoming
more difficult.
The hospital bill was calculated by multiplying the
amount on this charge master file by the number of
units received. For example, if the hospital charged
$1000 per day in the hospital for room and board and
the person remained in the hospital for 4 days, the
room and board charge would be $4000. Two hours in
the operating room might cost $500. Other services
the patient received would be added to this bill to
calculate a total charge.
Competition for patients kept hospital charges close
to the level of hospital costs. Nearly all hospital
bills were paid on a charge basis. Market forces
continued to operate to some extent through the
early 1960s.
Fewer and Fewer Insurers Pay Full Charges After 1960
Between 1960 and 2003 fewer and fewer insurers paid
hospitals on the basis of charges. First the public
sector and then the private sector stopped paying
full charges. When public and private insurers
stopped paying hospitals on the basis of charges,
market forces no longer served to hold down
hospital charges. By 2003, market forces and
regulations were operating to hold down hospital
prices for many public and private insurers such
as Medicare, Medicaid, United Healthcare, Anthem,
and Premier.
At the same time, hospital charges were being
increased to very high rates. This became know
as "cost shifting." Cost shifting meant that
patients being asked to pay full charges were
paying higher and higher charges while the rate
increases for insurers like Medicare, Medicaid,
United Healthcare, Anthem, and Premier were
much lower.
When the Medicare program was established in
1965, Congress decided that the Medicare program
would pay hospital costs and not hospital
charges. Congress recognized that charges were
greater than costs and that the Medicare program
would be able to exert little control over
hospital charges. This was the first real break
from paying hospital charges.
A very detailed hospital accounting form
called the Medicare Cost Report was
created to determine Medicare's allowable
costs. In order to allocate costs between
the Medicare program and other insurers,
the Medicare program required hospitals
to collect uniform charge information.
For example, if 40% of the charges
were attributed to the Medicare program,
then the cost accounting system would
allocate 40% of the costs to the
Medicare program.
In order to prevent fraud and abuse, the Medicare
program required hospitals to establish a uniform
set of charges that would apply to all insurers.
Otherwise, the hospital could allocate charges
in such a way that would result in more costs
to the Medicare program.
Hospitals continued to have complete discretion
on how they established their charges. The
Medicare program did not interfere with how
hospitals set charges for specific services.
The Medicare cost report simply required the
hospitals to report their charges.
Two major changes occurred in the 1980s that
severed any impact that market forces would
have on hospital charges. One occurred in
the public sector and the other occurred in
the private sector.
First, Medicare created the Prospective
Payment System for inpatient hospital services
in 1983. In 1990, the Medicare program moved
away from paying costs for outpatient services
and instituted the Ambulatory Payment
Classification System that sets rates for
outpatient services. Most Medicaid programs
adopted their own Prospective Payment Systems.
Second, most private insurers began negotiating
discounts or using some other mechanism other
than paying charges to pay hospitals. Managed
care plans began to negotiate with hospitals in
the early 1980s. They wanted discounts in
return for placing the hospital in their network.
They successfully negotiated sizeable discounts
with hospitals. As indemnity insurers began to
compete with managed care plans in the mid
1980s, they also began to move away from paying
full charges and started negotiating their own
deals. Nearly all indemnity insurers and
managed care plans stopped using full charges
as the basis of payment by 1990.
Insurers such as Aetna, Cigna, Medical Mutual,
and United Healthcare get substantial discounts.
In many hospitals these insurers are paying
only one third of the billed charges.
Comparing Hospital Charges
Because of these regulations and negotiations few
if any insurers actually pay full charges. Because
virtually no public or private insurer actually
pays full charges, charges are an unrealistic
standard for comparison. A more realistic standard
is what insurers actually pay and what the
hospitals have been willing to accept. That should
be a standard of comparison to see if the amount
paid is reasonable.
The amount charged is determined solely by one
party in the transaction - the hospital. It is not
a market transaction. The amount paid that is
determined by both parties in the transaction is a
reasonable amount. These are the rates determined
in a negotiation between insurers and hospitals.
Self Pay Patients
In 2006, only three groups routinely paid full charges.
The three groups were: (1) the uninsured, (2)
international visitors and (3) some health savings
accounts that carry a high deductible. Together these
are commonly known as "self pay" patients
Because the federal government, state governments,
private insurers, or managed care plans do pay full
charges, the regulatory and market constraints on
hospital charges were virtually eliminated. Each
insurer has developed a different way to pay hospitals;
this lead to a phenomenon known as "cost shifting".
The self pay patients continued to pay higher and
higher charges as hospitals "shifted" costs to self
pay patients.
Between 1960 and 2006 hospitals began increasing their
charges much faster than their costs. The reason is
that market forces were not holding down charges. The
greatest acceleration occurred after 1995. This can
be seen by examining the ratio of charges to costs
and by examining the rate of increase in hospital
charges compared to the rate of increase in hospital
costs.
Self pay patients have virtually no bargaining power.
A patient with an emergency does not have the ability
to compare prices and comparison shop. They are
likely to go to the nearest facility or where the
ambulance takes them. During an emergency situation
the person or their family cannot bargain or
negotiate. The provider has all the power.
Most visits are not emergencies and so it would be
possible for self pay patients to comparison shop.
However, the ability of a person to negotiate with
a hospital or physician is very limited. For the
reasons stated earlier the self pay person does not
know what services he/she will need with any
certainty and therefore would not know what prices
to compare. Going to a doctor or going to a hospital
is not like going to the Wal-Mart and filling your
shopping cart. In the medical setting you do not
select the services and you do not know what
services that you will need until you receive them.
A person contemplating open heart surgery, a person
with diabetes, a person with a pain in their hip
will not know what services they will need and
cannot therefore realistically compare prices.
The relative bargaining power is totally skewed
in favor of the provider for a self pay patient.
I have read numerous depositions where a self pay
patient needed hospital care and tried to
negotiate a discount off of list price. In
virtually every case the person was turned down.
Some hospitals have a discount policy for self
insured patients but it is often very complicated
for the person to access. The rates that self
patients pay are often three times the rates that
health plans are paying. Health plans pay a rate
that is generally 10-20 percent above cost, not
100 - 300 percent above cost.
Ratio of Charges to Costs
The most common way to examine the relationship
between charges and cost is by the ratio of
charges to cost. It is a routinely used statistic
in the hospital management and hospital finance
literature. As the ratio between charges and cost
increases, the divergence between charges and
costs increases. A ratio of 3.0 means that charges
are three times costs. This suggests a 200% profit
margin if the patient pays the full charges.
Table 1 shows the ratio of charges to cost by state
for 2000-2003. In 2003 New Jersey was the state
with the highest ratio of charges to costs.
According to table 1, the ratio of charges to cost
for all hospitals in New Jersey was 4.51 in 2003.
In other words, the average hospital in New Jersey
was charging $4.51 for each $1.00 it cost. This
is a 351% profit margin.
Maryland has the lowest charge to cost ratio.
Since the mid 1970s Maryland has been regulating
hospital prices and not allowing the ratio of
charges to cost to exceed certain values. In
Maryland the prices for self pay patients are the
same as for people with health insurance, only
Medicaid gets a slight discount.
Table 1 also shows that charges were increasing
much faster than costs in most states
during the 2000 -2003 period. The relationship
between charges and costs was continuing
to erode over this time. In New Jersey, for
example, the ratio of charges to costs
increased from 3.16 in 2000 to4.51 in 2003. In
other words, the markup over costs
increased from 216 percent to 351 percent over
a three year period in New Jersey. Other
states had similar increases in their ratios of
charges to cost.
What Can Be Done To Improve Price Transparency?
Patients cannot ever understand the 10-50,000
items on the charge master file. Also it does
not make sense for them to examine all the items
on the charge master file when they will only
need 10-500 items. The same holds true for the
10,000+ CPT codes that physicians use. There
needs to be a way for hospitals and physicians
to signal their relative prices.
When each hospital and each physician has
complete discretion to establish its own price
list, it will be impossible for the patient to
do comparison shopping. Because they do not
know what services they are going to need,
they cannot be good comparison shoppers.
Also because each hospital and each physician
has discretion to set the rates for each
individual service, it is difficult to
determine if the prices are reasonable. If
there were one basic price list, then it
would be possible to easily compare prices.
Not all insurers would have to pay the same
rate but they would use the same set of
relative prices.
One possibility is for the hospitals,
physicians and other providers to say that their
prices are X% of the Medicare rate. One hospital
could say that they accept 125% of the Medicare
DRG rate. They would accept the same percentage
above or below the DRG rate for all DRGs unless
they explicitly made an exception for certain DRGs.
Another hospital could accept 120% of the Medicare
Prospective Payment rate.
For physician services a physician could say that
he/she charges 125% of the RBRVS rate. The physician
could say that for certain procedures he/she charges
more or less than 125% of the Medicare rate. The
same principles would hold for other providers.
The providers would announce their prices with
reference to Medicare rates.
This could solve both problems that I have mentioned.
The patient would know the price of one provider
relative to another provider. The patient would not
have to know the price for any specific service;
instead the patient would know how the prices generally
at one hospital compare to the prices at another
hospital. Second, it would be obvious when a provider
set a price that was not in the market range. It would
be obvious that hospitals and physicians are charging
patients much more than what insures such as Medicare
are paying.
Thank you for the opportunity to testify this morning.
I would be happy to answer any questions.
Mr. Deal. Thank you.
I apologize, we are going to have to take a
brief recess while we go vote and we will be
back and reconvene at that time.
[Recess]
Mr. Deal. I call the hearing back to order.
We have several witnesses who need to leave,
Speaker Gingrich being one of them, I understand
very soon so Members will come as you have noticed,
they sometimes come, sometimes they go. Hopefully
some will come back.
I will begin the questioning and let me just tell
all of you that I think this has been one of the
more interesting panels that I have heard because
certainly, first of all, the issue is a current
and important issue. Your points of view I think
have all been well taken and I appreciate that,
and I am sure the members of this committee do, too.
So let me try to get a handle on some of it though.
First of all, I am a supporter of health savings
accounts but as Dr. MacDonald said, if we do not
know what we are paying for and we are taking the
money out of our own health savings accounts that
is one thing we need to know what we are actually
going to be charged. The one that bothers me, I
suppose even more than that, is we have all heard
the arguments that the Government is negotiating
the prices on behalf of the government programs,
primarily Medicare and Medicaid. The health
insurance industry is negotiating their prices on
behalf of their insured's. Therefore, the only ones
that do not have anybody negotiating for them are
the ones where they get hit the hardest. The
argument being that we have been squeezed so much by
the Government and we have been squeezed so much by
the private insurance industry that that is the
only place that we can stay alive. Now is there any
validity to that argument first of all? Mr. Speaker,
what is your take on that?
Mr. Gingrich. Well I want to say again thank you
for letting us come and talk today. And I thought
the panel was actually very, very interesting and
this is a topic that could go on endlessly.
I just want to start with a very important
ascertation that this system is a mess. Any time
you go to somebody that is trying to pay the
bills at a hospital, at a doctor's office, at a
pharmacy, a pharmaceutical company, or you name it.
They are always going to have reasons inside this
system that are perfectly reasonable because they
get up every morning saying how do I maximize my
revenue in a system that is a mess? So everybody
has good stories. I mean if you have malpractice
litigation reform, prices can come down. You see
that in Texas and Missouri right now. If you have
other kinds of reforms, prices can come down. So
the last suspects who are unable to defend
themselves are small businesses and the uninsured.
Small businesses and the uninsured both get gouged
and that is just a fact.
But in a true market where price transparency was
available and quality information was available,
people would in fact rapidly migrate to less
expensive better solutions. In airlines, the price
has dropped from .23 a mile in 1979 or '78 in
constant dollars to .12 a mile in 2003. Now that
is a breathtaking change and the average American
today can fly more places at lower costs than any
time in history, and as a result more people fly.
So I would argue that until you decide you are
really going to be in a market, and, it is going
to be. Look, I used to represent Delta Airlines,
Eastern Airlines, Southern Republic, PanAm, go
down the list. It is very painful to make a
transition from a regulated secret operation to
an open market operation. I will tell you, it is
going to be painful in the health field too, but in
the end you are going to get better results for more
people and I would take the money saved on waste and
fraud and I would turn that money into tax credits
so that every American of every income level was
inside 100 percent. I am for a 300 million payer
system where every American has insurance coverage.
You can afford that if you take the waste and fraud
out of the system. You cannot afford that inside
the current system.
Mr. Deal. Yes, Dr. Goodman. Push the button down.
Mr. Goodman. If an uninsured person goes to the
hospital and gets emergency care, there never was a
contract and there never was a meeting of the minds.
You might consider legislatively determining what a
fair price is. It might be what the cost is paying.
Or if the hospital is getting a significant
disproportionate share of money, you might say that
a fair price is the Medicare price or the Medicaid
price whichever is lower. If an uninsured person
goes in for elective surgery again, if there is a
meeting of the minds and agreement on price, that
is fine, but if there is not, again you might go
back and rely on some legislative benchmark of what
is a fair price.
Mr. Deal. Dr. MacDonald, I am very intrigued by
what you have done and I apologize that I am running
out of time. Maybe we will have some time for more
questions but, you know, it seemed to me in the
whole context of this that if you are paying cash
or paying out of your pocket or reaching into your
health savings account and that is the source of
the money, it is not going through all the
bureaucracy of having to file the insurance claims
and having to argue with the insurance company as
to whether this is appropriate or that is appropriate.
You know it would seem to me that ought to be the
cheapest customer because they have cost you less in
overhead. Am I wrong?
Dr. MacDonald. No, you are correct. And actually
that is part of the problem with the HSAs, I mean
you go in and use your HSA dollar, you are paying
retail price not wholesale price. So it should not
be a surprise that people with a high deductible are
not pursuing care. A lot of people are missing the
point. They are using high deductibles as the
deterrent to care. Well the deterrent to care is
paying ten times what is accepted from an insurance
carrier. What I do not consider is places like
California. Take the frequent flyers in the
emergency room, the people that are coming in and
they do not understand, attach them with mentor.
Get dollars currently being spent in Medicaid or
Medicare, whatever pot you want and let us look at
those dollars. Track them, qualified medical
expenses, only so it is not beer and pretzels that
they use the money for. It is real things, and let
us see if we can make an impact on the frequent
flyers in the emergency room. A lot of people
think they are the reason for the high cost and
that is not true. Cassil in my briefing, I
referenced the article you can look at it and
see. They looked at the emergency room visits
for about four years, 16 percent increase, 66
percent were Medicare and those with insurance,
ten percent for those without insurance. The
burden to care is not a high deductible policy.
The burden to care is the reality if it is confusing.
And I am glad the gentleman had spoke, they do not
understand 25,000 lists, master lists. Well they
do not really care, and you do not care either.
You only care about the one thing that is on your
list. See no one in this room cares about 25,000
doodads. They really do not. You only care when
you get sick and you see that bill. That is what
you care about. I mean, you pay with a dollar that
swipes and it is gone, you should not pay the
administrative burden.
Mr. Deal. Mr. Pallone?
Mr. Pallone. Thank you, Mr. Chairman.
I wanted to ask either Dr. Anderson or Dr. Collins
or both of them a question that relates to my poster.
They have seen my poster before about buying two
stents and you get free same day installation. I
developed this basically to highlight to absurdity
of trying to transform the health care market into
other types of commodity markets. And reality is
you cannot treat health care like a simple commodity
in my opinion. But that is what I wanted to ask you.
I mean, do you think, can you treat health care like
a simple commodity? I mean part of the problem is
the tremendous amount of uncertainty that exists
within health care. It is not like going to buy a
car and saying you want to pay X amount of dollars
to get power steering and power brakes. That is my
opinion but that is what I want to ask you. In other
words, you know, do you think we can look at this
like a simple commodity? Do you think we can look at
it in the way that we buy a car or, you know, get
power brakes? And are there other unknown variables
that may factor into the price?
Dr. Anderson. When you go and buy a car, you can kick
the tires, you can look at the power steering, you can
make all those decisions. When you go to the doctor,
when you go to the hospital, you cannot do all that
because you do not know what services you are going
to need until you actually receive those services.
So to take your stent example, you do not know which
of the many stents you are going to use so you could
not do comparison shopping to say I want this stent
or that stent. You do not know clinically which
stent is the best you have got to rely on your doctor.
He or she is going to make those decisions for you.
I had the privilege of being on 60 Minutes last Sunday
and the stent example was used actually in a particular
hospital and they were charging, they essentially
bought it for less than $10,000 and were charging the
patient $50,000 so they had a markup of basically
5 to 1 on this particular stent. But as a consumer,
I would not know whether $50,000 was the appropriate
price or $10,000 was the appropriate price. I would
not even know whether or not I was going to need a
stent until I showed up at the hospital and my doctor
said that is the way that we are going to treat your
heart attack or that is the way we are going to take
care of your veins. So it is much more complicated
than buying a car.
Mr. Pallone. Dr. Collins?
Dr. Collins. Patients are really in the weakest
position really to demand lower prices and higher
quality from their providers. Accrediting
organizations, the Federal government, State governments
are in a much stronger position to negotiate prices.
It is really unreasonable to think that this market is
ever going to function like markets for other goods and
services. It is far too concentrated both on the
insurer side and also on the provider side. So we
really need to look at different ways to solve both the
quality and the cost problem.
Mr. Pallone. And she brings me into the next question
which relates to individual consumers not having, you
know, the ability to negotiate, you know, discounts on
provider payment rates. In other words, the individual
versus, you know, large volume consumers. And I wanted
to ask Dr. Ginsburg, you know, basically that. There
seems to be some idea that consumers, particularly the
uninsured if they know the actual price for a medical
procedure will be able to negotiate a better rate with
a provider of their choice. But Dr. Ginsburg, that
seems to fly in the face of what we know about how
markets work today. Discounts are granted based on
volume for the most part. And one side to an
individual in need of an appendectomy for example does
not have a lot of leverage to try to negotiate a better
rate for that procedure. So I wanted you to comment
on this. How well are consumers going to be able to
negotiate discounts on their own? Isn't that what
insurance is supposed to do?
Mr. Ginsburg. I agree with you that consumers are in
a very weak position in medical care and other markets
to actually negotiate. What consumers can do is if
they are aware of the prices and different providers,
they can decide to go to a provider with a lower price.
They are more likely to do that if they not only find,
but have good price information but if they have
information on quality which usually is not the case.
The key thing in this area is that uninsured people
have very different needs than insured people. For
the most part insured people have their insurer
negotiating for them and for all the other enrollees
so that if you are considering whether Government
should do something to increase price transparency,
the focus should be on uninsured people and so just
to make it easier for them to compare, not to
negotiate but to make comparisons across providers.
Mr. Pallone. And just to, I do not know if we have
time for this, Mr. Chairman, but one of the health
care proposals that we wind up discussing this year
is association health plans. And the premise behind
those is by allowing small businesses to band together,
they can negotiate better prices largely exempt from
consumer protection laws. Now isn't the premise there
exactly the opposite of what many who would also
support AHP's are arguing today, that it is the
individual would could potentially negotiate the
discount. The whole premise is the opposite, it seems
to me.
Mr. Ginsburg. Yes, that is right. I think the
motivation, you know, that is stated is the combining
and being able to, I mean, larger groups do get better
rates for health insurance. That is well understood.
And the notion is that by smaller groups coming
together into a larger group they can get a better
rate. And there are a lot of other things involved
with the association health plan issues such as risk
selection and whether you are going to form a pool of
healthier than average people, get a better rate on
that basis and wind up in a sense imposing costs on
people not in your pool.
Mr. Pallone. Thank you.
Thank you, Mr. Chairman.
Mr. Deal. Chairman Barton?
Chairman Barton. Thank you, Mr. Chairman.
Mr. Speaker, in your remarks you talked about health
care being a commodity like any other commodity.
When I took economics way back in the '70s, my
recollection is that my economics professor indicated
that health care was a little bit different
kind of a product. That it wasn't a pure
commodity because it actually affected people's
health and was just a little bit different.
So do you want to elaborate on that?
Mr. Gingrich. Yes, thank you for the question. Let
me say first of all the term commodity does not
simply apply. There are very complex commodities.
But the question is does the interaction tend to
respond to market behaviors? And so I am going to
just say a couple of comments have been made in the
last couple minutes. You have very large markets for
airline tickets in which individuals get dramatically
better choices because collectively they apply amazing
downward pricing pressure on the airlines. They do not
negotiate directly with the airline, they negotiate
with the market. And they say to the market, I am not
going to pay this price and the result is prices come
down. The evidence is overwhelming, but you can in
fact describe most hospital costs and the people can
make rational decisions. And again I am not talking
about in an emergency room when you are in a crisis
whether it is a heart problem or it is an automobile
accident, but I would suggest to you that most
decisions in health care are not in fact situations
of absolute helplessness. In every other aspect of
American life where people make complex decisions,
what kind of home do you want to live in? What kind
of job do you want? How far from your job do you
want to live? What kind of car do you want to build?
Which kind of vacation do you want to go on? We have
amazing complexity even for senior citizens. Senior
citizens are allowed to go to Wal-Mart with 258,000
items and nobody has suggested that they are too
stupid to go around Wal-Mart, but you get to health
and we say gee, people cannot understand this. They
cannot understand it because the current system is
professionals, bureaucrats, and regulators talking
to themselves. So people never make it simple
enough, all right? That happened even with the
Medicare Part B where the CMS bureaucracy, despite
its best efforts, could not talk in a language that
would be perfectly normal for most people.
So I am going to start and just say that if you look
at general patterns, and there was discussion
mentioned earlier, look at dentistry, which is not a
simple process. When you go to the dentist's office,
the dental assistant is giving you an X-ray and it is
being read in real time while you are sitting there
and you are discussing with the dentist what ought
to happen to your mouth. And people have this
conversation every day. Look at laser surgery. I
do think the problem of fraud is real, but that is
a commercial market problem with any product. You
can have fraud with automobiles, you can fraud with
stock, and there is always something that gets fraud
because some people are nasty and mean spirited.
Chairman Barton. Even if we agree that health care
is a different kind of commodity or is not the same
as airline tickets exactly or some of the other
automobile parts, there is no reason to state that
transparency and pricing information would not help.
Does anybody disagree with that, regardless of what
you think health care is that more transparency is
a good thing not a bad thing and price information
is a good thing not a bad thing? Does anybody
disagree with that?
I hope I did not make the Speaker mad. We do not
normally have witnesses just get up and walk out of
the room. Yes, sir?
Dr. Anderson. Well I think that transparency is a
good idea at the same time it is very different in
health care than it is in other services. So I do
not think transparency will buy you very much. In
my testimony, I talked about this but let me take
Speaker Gingrich's example of Wal-Mart versus health
care. In Wal-Mart, you go out with your shopping
cart and you make all the choices yourself, you know
all of the prices. When you go into the doctor's
office or go into the hospital, you are not the person
making the choices as to what to put in your shopping
cart. When you got E care at Georgetown University
Hospital you were not making the choices of which
service to get, which stent to get, which kinds of
activities and you were not in a position most of
the time nor was your family member at that time in
the position to make it. So as somebody who still
teaches health economics at Johns Hopkins University,
I can tell you that at least I am not teaching it as
a commodity.
Chairman Barton. My time has expired but this I think
is worth telling. They asked me as I was going into
the surgical room for my operation or incision for my
heart attack if I wanted to be sedated and I said not
unless you have to. I want to be awake if it is allowed.
So they gave me some sort of mild drug to make me feel
good, but I was conscious. So I am watching the doctors
get ready to put these stents in my heart and they are
talking about it and so I did ask the doctor, I said do
you mind if I ask you what that stent costs? He said
well this stent, it costs, I am not sure but it costs
between $2,000 and $3,000. He said we are going to put
three of them in your heart, and I said that is a good
thing, right? And he said, yeah, that is a good thing.
He said I do not want to talk politics with you because
he had learned that I was a congressman and I was
Chairman of the committee that had jurisdiction over
health care, but he said if you were a Medicare patient,
Medicare would only pay for one of these stents. He
said now we practice the best practices of medicine.
You need three and we are going to put three in your
heart, but if you were a Medicare patient, Medicare
would only pay for one. I said we will change that,
and we are trying to change it. I may have changed it,
and do not know it because since I had my heart attack
I did not finish the final negotiations on the
Medicare/Medicaid budget reform package but I instructed
that we change it in that package. So even on the
operating table I was asking the cost question but I
did not say do not put it in because it costs to much,
I said put all of them in you need.
I yield back, Mr. Chairman.
Mr. Deal. Where did you send the bill?
Chairman Barton. Blue Cross Blue Shield.
Mr. Deal. Ms. Capps is recognized for questions.
Ms. Capps. Thank you, Mr. Chairman.
And thank you each of you. I am sitting here very
frustrated and I will come out with my bias as having a
background in public health in just a minute. But I
want to associate myself with the Chairman's remarks.
Mr. Barton, when you were willing to sort of own up to
your experience, both in your opening remarks and now,
it seemed to fly in the face of a lot of the discussion
about free market commodity and all of this; but I agree
with you. If we are talking about health care as a
commodity, it certainly is a very complex and service
laden quality based situation we are talking about. And
Dr. MacDonald knew I was frustrated too and he, as
provider of care--and I have a lot of respect for family
physicians--and there is something about being on the
front lines and seeing whatever comes in the door and
understanding what you acknowledged to me personally.
And the Speaker also said this is a broken system and
we have too many people on the panel, and we are taking
on too many topics. Transparency is a good thing.
Health savings accounts are an important discussion
point but they are not going to save health care. They
are not the solution. I am not a big fan because it
skims off a lot of people. When Mr. Gingrich got up
and left I was going to say, you know, a lot of people
luckily can talk about choosing their home, choosing
the credit card they are going to buy, choosing their
job. But what about the people who never have those
kind of choices who also need health care who are barely
lucky to be able to rent, who get the job that nobody
else wants, and cannot afford--here is where my bias
comes out. I remember when managed care came to
California. I have been a nurse there all my adult
life before I came here and it was non-profit, it was
Kaiser. And it was effective to me in that it allowed
people in the plans, it incentivized people to do
preventative health care, to lose weight, to change.
The most important thing we should do as a Nation is to
give people incentives to practice the behaviors that
will lower their health care costs and keep them out of
the hospitals where it is very expensive to get health
care. But I have watched managed care do a number on
my State in my area and there are not any programs left
because it became profit making and they could not
afford to do all those things.
But I am concerned about one aspect of medical savings
accounts because it seems like if people choose a
savings account, they are going to choose a high
deductible plan. Most of us think we are not going to
get sick. Dr. Collins, I will pick on you but anybody
else can jump in if there is time. When the people
choose high deductible plans, what does that say about
the public health system at large and about doing the
kinds of things that will be the most cost effective
as a Nation providing care or receiving care?
Dr. Collins. The Commonwealth Fund sponsored a survey
with the Employee Benefit Research Institute where we
did a nationwide survey of people who had both
comprehensive plans and also people in consumer driven
plans, plans with high deductibles and no savings
accounts and plans with high deductibles and savings
accounts. What we find is that people in the plans
have much higher out of pocket costs in the plans
being the consumer driven plans or high deductible
plans have much higher out of pocket costs than those
in the more comprehensive plans. Most worrisome is
that we do find that people when asked if they skipped
care, avoided care, delayed care because of the cost
when they were sick. People in the high deductible
plans, in the consumer driven plans, the plans with
savings accounts and without were much more likely to
say yes to that question. So there is some evidence
that people are avoiding the kinds of care that they
need to keep them healthy over the long term. We also
asked about prescription drugs. We asked if other
people had skipped those just to make their medication
last longer.
Ms. Capps. Right.
Dr. Collins. If they had not filled a prescription
because of the cost and we find the same thing. With
a particular, the problems particularly pronounced
among people who have health problems and low-incomes.
Ms. Capps. I hate to be so rude to see if anyone
knows are there studies that demonstrate that this
actually adds to the cost of health care for this
Nation by people doing this, by seniors? I mean
that is what I would like to find out. If we are
talking about fixing a broken system, a system that
is way too expensive, is there anybody who knows of
studies that when people do not get the care they
need because they cannot afford the high deductible,
where is that cost going?
Dr. Collins. There was a study done by Tamblyn that
looked at whether people who had high out-of-pocket
costs reduced their prescription drug use and they
found that they did and that there were adverse
health consequences as a result of that.
Ms. Capps. Which could be more--could Dr. MacDonald
just--he wants to answer that.
Dr. MacDonald. Well the Rand data is contrary to
what you said in that when people had control of
their money, mothers would pursue preventative care,
immunizations, and routine care so there is data to
support contrary to what your study showed. In my
experience with Medicaid patients, many came in to
see if I could help them pay for the medication.
We actually worked on ways to get rid of the
medication. So my practical experience of seeing
people without money, they would ask how can we get
rid of the need for the medicine.
Ms. Capps. I just submit to you that a lot of them
came to me as a Member of Congress and said they
cannot take their medicine and, they did not have a
doctor who would work with them like you did. So I
think we need more information.
Okay, well I went over my time.
Mr. Goodman. Well the Commonwealth study was a
really bad study because it confused the difference
between a high deductible plan which was in the
market for decades, and plans in which people actually
managed their own health care dollars. All reporting
for the industry is when the health savings accounts
are funded, when people have the money there, they get
more preventative care than under traditional plans
and they do quite well and there is no evidence that
they skimp on needed care. There is evidence that
they skimp on or cut back on unneeded services, have
fewer unnecessary trips to the doctor, and fewer
prescription drugs.
Ms. Capps. Okay.
Mr. Goodman. Especially from brand name to generic.
Ms. Capps. Right, so those who are in the savings
accounts but again I come back to the point that a lot
of people have never, so many people do not have a
savings account at all and this is a moot point for a
lot of the people that I represent in my congressional
district.
Mr. Deal. Mr. Shimkus is recognized for questions.
Mr. Shimkus. Thank you, Mr. Chairman.
This is really a telling hearing because it does highlight
a huge difference between protecting bureaucracies or the
Government versus empowering individuals and giving them
choices. One of the benefits of health savings accounts
is where you have 44 to 46 million uninsured Americans. I
think most Americans are concerned about catastrophic
issues.
With health savings accounts you would make catastrophic
coverage more affordable for everybody. And that is a
fact. And then so the question is that I would like to
in talking about this Dr. MacDonald, how much of the
health care costs are in these emergency room aspects,
the emergency visits of all the health care costs what
is the percentage of that?
Dr. MacDonald. I do not know the number, I just know in
the emergency room.
Mr. Shimkus. Yes.
Dr. MacDonald. I thought this discussion was what was the
cost. I am confused because I think we are distracted
into an HSA discussion. I thought we wanted to talk about
what is the cost. What is the cost in the ER, it is
inflated about ten times what is accepted from insurance
carriers. The uninsured cannot bear that bill so what is
the percentage, I am not sophisticated enough to know that
number.
Mr. Shimkus. Well ask around, let us follow up on your
comment then.
Dr. MacDonald. In the emergency room, the average bill
right now for the insured is about $400 to $500 starting
plus whatever goes on top of that. When the insurance
carrier coded the right visit 99C85, $149 is what they
pay.
Mr. Shimkus. See I am from the Midwest, from Southern
Illinois, a rural area where people still want to pay
their bills and people will do all they can to make sure
they pay bills do. If they have no coverage and if they
have an inflated emergency room cost, do you think that
is a system which would encourage them to try to pay
their costs, or if it is inflated by ten fold, what would
the person with moderate to no income, what would they
probably do?
Dr. MacDonald. I have talked to a lot of administrators,
hospital administrators, who write it off. I have looked
at the 5500's of a lot of hospitals and if you analyze
and scrutinize the 5500 which is the tax reporting and
see where all the money is going, it has been a very
interesting event for me. I have learned things that I
did not want to learn and that is when people say they
are not making money. Look at the 5500's and you will
see what non-profits are doing. I think the non-profit
status needs to be reevaluated because someone goes to
the ER and gets a bill they are not going to pay it.
They are just not going to pay it. They are going to
write it off or go to collections or get a judgment.
I have been in the courtroom with people that are having
judgments put against them by a non-profit hospital for
a bill that is ten times what is accepted for an
insurance carrier. It has just got to end.
Mr. Shimkus. One of the reasons why I kind of try to
stay off this committee for a couple cycles was the
funding aspects of health care is just too confusing
and it is. What I have come to the conclusion is such
cost shifting that does, it is the uncompensated care,
all these millions of uninsured, people claiming that
they are writing off and they are writing off inflated
costs, that is why the transparency debate. What is the
best model to clean up waste, fraud, and abuse? And I
would like--go ahead, sir.
Mr. Goodman. This is not confusing in those areas of
health marketplace where third party payers are not
paying most of the bills. If you went to a Target
Store in the upper Midwest in a shopping mall you would
see a list of prices. You know exactly what you are
going to pay. I would bet that those prices that are
being charged to people in Target Stores are less than
what Blue Cross pays and I would bet they are even
less than what Medicare or Medicaid pays. So markets
really can work, people can shop, and people can
compare prices for a lot of health care services and
there is no reason to deny them this opportunity.
Mr. Shimkus. And we see some of this already. I
would like to claim the name of a former colleague,
Dr. Greg Gansky who served with us here. He is very
knowledgeable, and was great on the Health Subcommittee.
Who can answer the question of as far as LASIK surgery
or elective plastic surgery one that is not in essence
regulated, how has a competitive model worked in those
two areas?
Mr. Goodman. It is very good. Over the decade of the
1990's, the price of all cosmetic surgery, the real
price went down.
Mr. Shimkus. Even Dr. Gansky would--I have heard him
say that a number of times as a Member of Congress
because that is the type of medicine that he practiced.
Mr. Goodman. For every other surgery we are getting
10 percent a year increases where prices are going up
and down in real terms in this market and even though
we have all kinds of technological innovations, huge
surgeon demand, huge surgeon procedures, this is a
market that works like real market, people get prices.
The thing that I think that needs to be emphasized
here is you are not getting transparency because
anybody negotiated for it or because anybody regulated
it. You are getting transparency because markets are
always transparent when they have to deal with
consumers spending their own money.
Mr. Shimkus. And my time has expired, Mr. Chairman,
I yield back.
Mr. Deal. Mr. Green you are recognized.
Mr. Green. Thank you, Mr. Chairman.
And following my colleague from Illinois, I can
understand the concern about, I like to empower an
individual. The problem I have is most insurance
spreads the risk. So I can buy a high deductible
for my auto insurance and save a lot of money. How
many people have $5,000 for their auto insurance
for, you know, if they have an accident? You know
they may have $250, $500, maybe $1,000. But we are
talking about a $5,000 deductible for health care
and you are spreading that risk. If I am healthy,
then I am probably going to want an HSA and have the
income to be able to put that money aside. But if
I am not, if I am a blue collar worker that has to
pay those every month or the employer requires him
to pay monthly, HSAs are really not going to be
helpful to them very much and I think that is what a
lot of the studies that I have seen. But I like
the idea of, and that is the focus of this hearing
is, transparency. I have no problem with
transparency.
And I will follow up on our Chairman who really did
not have a choice on his stents because it was
emergency. But I was diagnosed up here two years
ago that I needed to have a CAT Scan, and because
I might need stents, I said well wait a minute, it
is going to take me five days if that is going to
happen? My family is in Houston, I have two great
heart facilities there with both Dr. Cooley and
Dr. DeBakey. I said I am going to go home. So I
went home. Admittedly, I did not call Dr. Cooley
and ask him by the way, how much will you charge
for my CAT Scan or call Dr. DeBakey at Baylor and
compare to UT. I did not do that. I called my
daughter who said the best one she thought would
be Dr. Cooley because she is also a UT doctor. But
be that as it may, I do not thing consumers can make
that even when they have that choice. Now, and that
is what bothers me, but I like the transparency
because in all honesty it works for the things that
are elected. LASIK surgery, I wear glasses most of
the time. I have not wanted to do LASIK surgery
because I do not know of the comfort level of me not
wearing glasses would be worth whatever risk, the
concern I have about the process. But it also does
not always work when you have children because again
having two children that grew up, you know, we
wanted them to go to their pediatrician. I do not
know if my wife would have been willing to shop
around for pediatricians that charged $25 instead of
$30. She went with a pediatrician that was recommended
by her OB-GYN. And so again, I like the transparency
and I like to do that but I also do not think that it
works, it is the panacea that everybody is looking for.
And again, my problem with the hearing is that if we
are trying to do transparency and is the next step to
show HSAs are really good, I think you have a long way
to go.
Let me ask Dr. Ginsburg, one of the other witnesses,
Mr. Goodman talks about HSAs as devices to motivate
shopping. In fact is it the high deductible plans that
motivate shopping while the HSAs delete the incentives
especially for high income people because people have
what essentially amounts to free cash to spend on their
HAS?
Mr. Ginsburg. Yes, I agree with that. It is the high
deductible plan that qualifies you for an HSA that
proves the incentives for you to be careful in your
health care shopping. If you just had a high deductible
plan, you would have the sharpest incentives. If you are
fortunate enough to have an HSA as well, in a sense the
HSA dilutes your incentives because here is money in an
account that I can only use for health care.
Mr. Green. Yes.
Mr. Ginsburg. And I also know that if I can afford to
and if it is used, I can put more in it and get a very
substantial tax subsidy. If I am high income, it is
probably worth a 45 percent tax subsidy. So in a sense
it is not the HSA which is the cost saving thing, it is
the high deductible plan and the HAS, if anything, makes
that plan more acceptable to consumers if they are going
to have a balance to buffer them.
Mr. Green. Sure. If you are getting a tax incentive to
do it.
Mr. Ginsburg. That is right.
Mr. Green. But we could also encourage and I would hope
business, you know, because we are seeing a lessening of
businesses providing not only better care for their
employees but also attended care, higher cost to the
employee based on their care, and also their dependence.
But maybe it is Congress and this is not the committee to
talk about tax incentives but maybe if Ways and Means
look at tax incentives for--that would include these
other than HSAs. Sure, let us put HSAs in there but let
us also look at other health plans that we could buy
instead of making just a regular deduction. We could
actually incentivize people to say hey, I want a full
service plan because particularly I have two small
children and they have to go get shots, it is going to
have to do all this.
Mr. Ginsburg. Because there is really a lot that can
be done as far as thinking through the entire structure
of tax subsidies for health care and making them more
rational. For example, making greater use of tax
credits instead of the exclusion of the employer
contributions from taxable income would have some very
different distributional effects. And even the HSA,
I think a lot of people have complained about the
rigidity of the requirements and it has to be $1,000
deductible for individual, $2,000 for a family. I am
sure that if the idea is to encourage people to have a
plan that leaves them with some incentives to economize
in the cost of care, there must be better ways of doing
this. In particular if you just specified what I would
call the technical term the actuarial value of the term
of the plan which basically is the percentage of the
bill that the insurance pays. If you just say that we
do not want actuarial values above a certain percentage
that then would give the insurance industry all the
flexibility to come up with benefit structures that are
suitable and people like rather than having legislated
a very specific benefit structure that some people do
not like.
Mr. Green. Thank you, Mr. Chairman.
Mr. Shimkus. [Presiding] Thank you.
I would now like to recognize the doctor from the State
of Texas, Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman.
I appreciate the panel's forbearance for staying with
us so long today. I guess I need to make a personal
observation too since everyone else is doing it and the
Chairman's no longer here. The Chairman of the full
committee is no longer here but he needs to understand
that the doctor was offering him a sedative before the
cath for the doctor's benefit so that he would not ask
questions during the cath. At least that is what I
always used to do in my practice. I did not do
cardiology but it worked in my--
Mr. Shimkus. Who paid for that sedative? Should the
doctor or the patient?
Mr. Burgess. You did on April 15.
Doctor, your story, is a very compelling story and I
have actually been in the same place on more than one
occasion myself. A patient needed a tubal ligation
and we tried to take her to the hospital. It was
$12,000. She could go to a surgery center down the
street where it is $1,000. It was a pretty easy
choice to make. And the question then would come up
why am I not going down to the street to the surgery
center for all tubal ligations. You ask a very good
question in your testimony and forgive me if you
covered it and I just missed it but under your points
in the end is something to ponder, why can hospitals
own physicians but physicians not own hospitals?
That is an opinion that we struggle with on this
committee a great deal and I thank you for bringing
that observation to the committee because while it
may not be germane to the discussion today, it is
very germane to a number of things that we do take
up on this committee. You make another point about
eliminating the restrictions for purchasing health
insurance across State borders that would be what
was described as a blood feud here one night about
ten months ago when we marked up a bill to that extent.
But again, you just have to ask the question who are
we serving here? Are we serving one side or the other
or are we serving patients? And I think we cannot
understand why we cannot get together and decide on a
basic package of benefits that might be offered
across State lines and agree on that, tie it up in a
nice package and make it available to people.
I had a situation a little over ten years ago where
I had a family member, a child, an adult child who
was unemployed by choice as it turns out, but
nevertheless, it was almost impossible in 1994 to
buy insurance for a young single adult. I was a
physician, I was willing to write a big check, it
did not need to be a little check, I would have
paid for the cost because I did not want the cost
of the hospitalization over a car wreck or an
accident of some type, a couple of days in the ICU
can be absolutely prohibitive to try to pay for
that. But there was no product available. Contrast
that with now you can go on the Internet, type in
health savings account in Google and you have a
whole panoply of products that are available to
you; some of which cost as little as $55 a month
for a person in the 20-year-old age bracket. So
there are new tools, and I guess I would just ask
the question and Dr. MacDonald, please feel free
to start off, but what percentage of people who
have health savings accounts would you reckon were
previously uninsured that are taking advantage of
this?
Dr. MacDonald. Well I would like to preface that
with again this discussion is about transparency and
cost, and I am not in favor of health savings accounts
as much as some are because it is a distorted price.
So I want to just clarify that many people are still
on the delusion and misconception that group policies
are cheaper than individual policies. And having done
this for a long time, and check it out yourself and
prove me wrong, you can get an individual policy in
most States cheaper than the group policy that you are
under at your job. Prove me wrong, check it out, send
me an email, I would love to hear the response and I
have done this because we have a lot of companies.
People get insurance, and we help them get insurance.
A health savings account is not always the best buy.
Mr. Burgess. Correct. And I thank you for doing it.
I am going to interrupt you because the time is
running out and I want to ask Mr. Gedwed about our
premise here today of course was to talk about some of
the legislative products that are out there that could
be enacted into law. Do you see in your business and
I just got to tell you, I think it is a fantastic thing
that you are doing. And really the whole hearing
should be about you, sir, but is anything that we are
likely to do bothersome to you? Is it going to hurt
your business or help your business?
Mr. Gedwed. No, I think, Congressman, it is going to
help our business. I can tell you today as we talk we
are getting really confused a lot. We work with people
every day who are single moms who wait tables and
cannot afford coverage. The first question they ask
us is what can I get in health coverage for this
amount of money, and that is all I have available.
All we do is give them as much information on quality
and price. They now can walk into the provider when
yesterday they would charge them $100 per particular
visit and they can say well why does the doctor down
the street only charge $80? And at that point, the
provider gives them a lower point.
Mr. Burgess. Let me just interrupt you there because
quickly I want to go to Dr. Goodman.
Do you see any downsize to legislation that we might
be doing?
Mr. Goodman. I think if you require hospitals to
post prices that will not accomplish very much at all
because if you watched 60 Minutes Sunday night, the
hospital association said we have the same price for
everybody, the difference is is that some people get
huge discounts and other people do not. What I wish
you would do is to go back to who owns the hospital.
I wish you would appeal the stock amendment or
greatly roll it back so that hospitals and doctors
can get together on the same team and make profitable
improvements in their product and offer package prices.
I would like to see us take all the restrictions at
the same time off the specialty hospitals. If doctors
want to go from their own hospital they can. I would
like to see an override of all State laws that say
that the hospital cannot charge a lower price to the
uninsured than they charge to Blue Cross. So there
are some things that you could do that I think would
be very, very positive.
Mr. Burgess. Thank you.
Thanks, Mr. Chairman.
Mr. Shimkus. Thank you.
The Chair recognizes the Ranking Member of the full
committee, John Dingell. You are recognized, sir.
Mr. Dingell. Mr. Chairman, thank you for your courtesy.
This has been a very useful hearing and I commend you
for it.
These questions are for Dr. MacDonald. Doctor, good
morning. The question, the first question at least we
need only a yes or no answer. Now let me ask you about
your view on these matters. You favor and support price
disclosure for hospitals, for physicians, and
pharmaceutical manufacturers. Is that correct?
Mr. Goodman. I do not think that kind of legislation
will help.
Mr. Dingell. I am sorry?
Mr. Goodman. I do not think that kind of legislation
will be helpful.
Mr. Dingell. I did not ask about helpful, I just said
do you favor that kind of situation?
Mr. Goodman. I do not favor legislation to force imposed
prices, no.
Mr. Dingell. My question is a very simple one. I am
addressing this question to Dr. MacDonald. Is that your
name?
Mr. Goodman. I am sorry.
Mr. Dingell. Since you have become Dr. MacDonald and I
have addressed Dr. MacDonald, I hope you will respond
that you were a little bit early. Dr. MacDonald, do I
have your attention?
Dr. MacDonald. Yes.
Mr. Dingell. Is there only one Dr. MacDonald at the
table?
Dr. MacDonald. To my knowledge.
Mr. Dingell. I am comforted to hear it. Doctor, is it
true that you support price disclosure for hospitals,
for physicians, and for pharmaceutical manufacturers?
Dr. MacDonald. The cost of reimbursement yes, posting
prices is meaningless. The cost of what they receive
from insurance carriers is more meaningful.
Mr. Dingell. And is it true that you also support our
transparency for insurance companies?
Dr. MacDonald. Absolutely.
Mr. Dingell. Absolutely. Now Doctor, according to a
December Health Affairs study, 20 percent of the health
care costs are associated with billing and administrative
functions of insurers. Isn't it true that transparency
in this area would be enormously helpful to enable
consumers to pick and choose a better health plan? To
pick one that devoted more of the premium to actual
health care?
Dr. MacDonald. Yes.
Mr. Dingell. Thank you. Now is it also true that while
price disclosure can be good, making it only for hospitals,
doctors, and pharmaceutical houses is just another way
to help insurance companies to negotiate better prices
without assuring that these better prices will do
anything other than to increase their profits?
Dr. MacDonald. In my experience that is not true because
we stabilize the long term re-insurance cost, renewal
rates for the businesses we are trying to help. And if
the insurance company does not continue to come through,
we get a different insurance carrier.
Mr. Dingell. I sense that you are a man of the most
exquisitely trusting character and I am comforted to
know that there is a man of that character about
especially where it concerns dealing with insurance
companies. Now according to one source, United Health
Care made a profit of $66,265 per employee in 2005.
Aetna suffered along with only $61,217 per employee.
Large hospital chain HCA had only a profit for employee
of $10,253 in 2005. Now Dr. MacDonald, isn't it true
that given this information, insurance companies are
doing splendidly and if we are really concerned about
where our health care dollars are going maybe we should
be looking at insurance company disclosures as well?
Dr. MacDonald. Yes, sir. If you stop watering the
plant, it dies.
Mr. Dingell. So you do think we ought to require a
measure of helpful disclosure by insurance companies?
Dr. MacDonald. Absolutely. We actually are getting
that, we are getting disclosure and competition.
Mr. Dingell. Good.
Dr. MacDonald. We are not in agreement with the
multiple million dollar executive salaries and then
going to the hospital and they are getting a better
price than the uninsured. It does not make sense and
I hope this committee does something about that.
Mr. Dingell. Thank you, Doctor.
And Dr. Goodman, I will thank you for your assistance.
I will try and be more clear next time.
Thank you, Mr. Chairman.
Mr. Shimkus. Thank you.
The Chair would like to thank our panel today for your
patience obviously through debates but also your great
testimony has given us a lot of food for thought and we
appreciate it. This hearing is adjourned.
[Whereupon, at 1:07 p.m., the subcommittee was
adjourned.]
Submission for the Record by Bob Inglis
Statement for the Record
The Honorable Nathan Deal
Chairman, Subcommittee on Health
The Committee on Energy and Commerce
Dear Mr. Chairman,
I want to thank you for holding a hearing on the important
issue of hospital price transparency. The difficulty in
obtaining affordable health care is one of the greatest
challenges facing American families. An estimated 46 million
Americans are uninsured, and the cost of health care continues
to grow far faster than inflation. Our current health care
system encourages over utilization of services, restricts
choice, and gives consumers little incentive to look for
low-cost alternatives (like generic drugs). In other words,
it's broken.
Consumer-driven health care models must be part of the fix.
By bringing increased market forces to bear on the insulated
world of health care, consumer-driven health care models can
apply the brakes to runaway growth in health care costs.
Health Savings Accounts, for instance, hold the potential to
transform our complex managed care system of PPOs and HMOs
into a cost-effective system in which consumers turn to the
insurance company only for the big things. �For the same
(or less) money than we're currently spending for managed care
coverage, we can (1) buy high deductible (less expensive)
policies; and (2) put the remainder in health savings accounts
to cover the deductibles, rolling the extra from year to year.
Millions of Americans have already adopted HSAs, and millions
more are expected to adopt them in coming years.
However, the long-term prospects of consumer-driven health
economy depend on our ability to help consumers gain access
to accurate and understandable information about the cost of
health care services. An increasing number of policy experts
are recognizing the importance of increased price transparency
in the health care sector. The President has been actively
publicizing the need for hospital price transparency in recent
weeks; media outlets regularly publish the stories of uninsured
consumers stuck with inflated bills after hospital visits; and
several states have already passed laws requiring hospitals to
make their charges public. Hospital price disclosure is an
idea whose time has come.
Ideally, hospitals and physicians would make price lists
available voluntarily. In fact, some insurance
companies-including Aetna and Humana-are already experimenting
with making pricing information available online. These
forward-looking companies should be encouraged. However, other
providers will need some prodding. As the largest payer in our
health care system, the federal government must take the lead.
The hospital pricing system is a labryinthe that traps too many
consumers, leaving them wandering and confused. Prices for
simple procedures and drugs vary wildly from hospital to
hospital, and list prices often bear little relationship to
cost. Theseus successfully navigated the original labyrinthe
only because he had the help of a magic ball of yarn that led
him safely through the maze. Congress needs to act now and
provide health care consumers with their own "ball of yarn," a
system of easy-to-access information that will help them make
cost-effective decisions.
That is why I am pleased to serve as the primary cosponsor of
H.R. 3139, the Hospital Price Reporting and Disclosure Act of
2005. This bipartisan legislation-introduced by Rep. Dan
Lipinski-would require hospitals and ambulatory surgical
centers to report the prices they charge for the most frequently
performed procedures and most frequently administered inpatient
drugs. The Secretary of Health and Human Services would then
post that information on a publicly available, user-friendly
website. This bill will not solve all of our health care woes;
but increased transparency can only help consumers navigate
the twists and turns of America's health care system.
Best regards,
Bob Inglis