The opaque problem of medical pricing transparency

It’s easy to see the benefits of our free-market, transparent economy:  it keeps our iPhones affordable and WebMD always at our fingertips to tell us that our headache could be from stress, or a brain tumor. As you race for an MRI, you probably won’t consider the cost; and it doesn’t matter because that information is careful concealed until you get a bill for more than an iPhone…or four. Medical pricing in the US is an opaque and secretive system that leads to Americans spending far more on health care with fewer returns on investment than other Western nations. San Francisco-based Stroll Health is developing a disruptive app to make finding the price of procedures as easy as, and far more accurate than, self-diagnosis.


               Per capita spending according to OECD Health Statistics 2013 

According to the Centers for Disease Control and Prevention, in 2010 the US spent $8,402 per capita on healthcare, which totals 17.9% of GDP. Compared to other developed nations, we spend almost twice as much per capita with no improvement in outcomes. A Washington Post blog on March 26, 2013 by Ezra Klein highlights national differences through 21 graphs of outrageous pricing and spending on medical procedures in the US.


              From 21 graphs that show America’s health-care prices are ludicrous” 


              Life expectancy in the US (blue) compared to the rest of the world according to OECD Health Statistics 2013

American health care is a sluggish and entangled behemoth. We are currently facing the daunting task of not only identifying the causes of the dysfunction, but also implementing effective solutions that directly address the underlying issues. A November 2013 article in The Journal of the American Medical Association (JAMA), found that price increases account for 91% of the increased cost of health care, which far outpaces the costs associated with an aging population. The root cause of this dysfunction is a fragmented healthcare system in which parties act as lone wolves in segmented areas of the system. The lack of coordinated efforts to manage costs or fight diseases, coupled with lagging information technologies, minimizes the role of patient as consumer and further exacerbates the dysfunction. Author David Matheson stated for Russ Britt’s Market Watch article, “The extreme fragmentation makes it hard for anyone to be held accountable for health care.”

In the same issue of JAMA, Dr Uwe Reinhardt expanded on the culpability of fragmentation for sky-high health care costs. Fragmentation results from a private health insurance system that does not allow individual insurers to influence market pricing as in all other capitalist markets. With prices secretly negotiated in the private sector, health care providers do not have to provide the costs of their services to patients and doctors.

Several states have enacted policies in response to the federal government’s resistance to address the issue of health care pricing. While these policies clearly identify a pressing issue, most are too weak and have proven ineffective. Case in point, New Hampshire is one of two states, along with Massachusetts, cited in the Health Care Incentives Improvement Institute’s (HCI3) Report Card on State Price Transparency Laws as having adequate price transparency laws. However, if you visit New Hampshire’s HealthCost website, you find, “a failure in the data reporting process has made updating price estimates at the moment impossible.” The delay could last months.


               New Hampshire’s HealthCost website has yet to provide costs

What is the solution to reining in runaway health care costs in America? Federal intervention represents a coordinated effort, but it risks bureaucratic creep. The University of California, San Francisco held the first “The Future of Healthcare Transparency in California: A Multi-stakeholder Summit” last October to discuss the issue with key opinion leaders in the field. The summit emphasized encouraging voluntary action on the part of health care providers to provide pricing data and increase access to claims data. This appeal, predicated on acting together for the greater good, naively neglects the motivations of individual players within the health care complex.

Alternatively, disruptive information technology in the form of publicly accessible websites and mobile apps provide a more flexible and pragmatic solution. Nimble, innovative startups can increase price transparency by putting the consumer back into the market. To asses the growing number of available tools, HCI3 published their list of comprehensive specifications for price transparency tools based on the capabilities and drawbacks of existing applications.

Dr Reinhardt included Healthcare Blue Book and Castlight Health in his article on disruptive technologies. While Healthcare Blue book is an excellent resource, it provides “fair prices” for services based on your zip code rather than the actual prices of specific providers.  Castlight Health is more specific, but it is only available through employers and for their health care plan. Additionally, neither of these tools are available as a mobile app. A quick search of the App Store for “health care prices/health care costs” and related permutations returns less than seven potential iPhone apps including FAIR Health’s Healthcare Cost Estimator and the Health Cost Estimator, which are both based on “fair pricing”. Welter by DynaHIT LLC is the only one that approaches price transparency. In its beta version, it provides the cash price for basic primary care appointments in Chicago. However, in reality their “data was generated through a cost survey and should be considered cost estimates”.

To effect change someone needs to fill this need and fill it fast.  Enter Stroll Health, an energetic  group ready to solve this gigantic problem. The San Francisco-based startup founded in 2013 by Jordan Epstein, Matt Maurer, and Drew Moxon, has created an iPad app that begins to put real prices for health services in the hands of doctors. They aim to enrich the doctor-patient relationship by allowing doctors to instantly identify the best service for the patient based on actual cost, quality, and location. “In our experience, we’ve seen that tools marketed directly to the patient are always underutilized,” said Epstein, “we believe that bringing the cost transparency discussion to the physician’s office is a big win for doctors and patients.” Doctors are being confronted more frequently with concerns about personal out-of-pocket costs for the services they order and are frustrated by their inability to answer. Unfortunately, costs outside of their offices are as much a mystery to doctors as patients.


              Stroll cofounders, Maurer and Epstein, with OBR volunteer, Laura Sasportas, at OneStart Bootcamp

In tandem with these disruptive technologies, high-deductible plans are growing. These plans make patients responsible for a higher percentage of their health care costs. By increasing the patient’s financial incentive to seek out lower priced and higher quality services the market pressures can correct the lopsided system. Employers are indirectly driving this as they opt to reduce their health care burden by moving to these high-deductable consumer-directed health plans (CDHPs). This 2007 debate provides a good primer on CDHPs. If the consumer is expected to contribute more, they should have access to pricing. Dr Nathan Handley, physician at UCSF, “While it certainly makes sense that the patients who are most interested in discussing cost would be the ones who clamor most for Stroll, so far in my experience nearly every non-HMO patient I’ve talked to wishes they were informed of these choices with their physicians and had the ability to be engaged meaningfully with their physician—they just don’t know this opportunity is available.”

This recent trend further shows the relevance of Steven Brill’s article for TIME magazine, Bitter Pill: Why Medical Bills are Killing Us, which conveys the impact of opaque pricing on the individual. Everyone gets sick and worrying about the potential and unpredictable financial burden of an illness is not conducive to getting well fast.

Stroll recently won the first Prebacked hackathon and competed as finalists in the OneStart Americas competition. The data in the beta version is drawn from samples from insurance companies and Medicare. Currently they are seeking additional partnerships with insurance companies and physicians willing to conduct pilot tests.   

(Thank you to Charlie Carbery and Jordan Epstein for their comments and insights.)


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