Fact: Americans Will Soon Spend 1 Out of Every 5 Dollars on Healthcare

COMMENTARY Health Care Reform

Fact: Americans Will Soon Spend 1 Out of Every 5 Dollars on Healthcare

Aug 11th, 2020 4 min read

Commentary By

David N. Bernstein, MD, MBA, MEI

Resident physician, Harvard Combined Orthopaedic Residency Program at Massachusetts General Hospital

Robert E. Moffit, Ph.D.

Senior Fellow

Americans will soon spend nearly one out of every five dollars on healthcare, yet most remain clueless about the real costs because such information is simply unavailable. utah778/Getty Images

Key Takeaways

To really drive the United States’ healthcare system forward we need robust outcomes measurement and transparency-especially the outcomes most important to patients

In order to make price transparency as beneficial as it can be, patients must also be able to access and compare health outcomes most important to them.

Markets cannot work unless consumers have good information from reliable sources, so that consumers know what medical treatments and procedures really cost.

Healthcare delivery involves a financial transaction. Whether it is a total knee replacement or a well-child clinic visit, money is exchanged in return for services. This holds true whether a patient pays for everything out of pocket, is covered (in full or in part) by a private health insurance plan, or receives care through tax payments to a government program, such as Medicare or Medicaid. 

Delivering high quality care, however, requires something more. Competition based on price and quality can help drive improvement in care delivery. In many cases, health insurance does not cover the entire amount sought by a hospital or clinic, leaving patients to pay exorbitant fees after the fact. These bills are often unexpected and, to make matters worse, shockingly high due to the lack of price and insurance coverage transparency. 

The good news is that innovative policy, reinforced by recent court rulings, is starting to remove the secrecy behind medical service prices, providing consumers more information so that they can make the best choices for themselves. However, improving price transparency and fixing “surprise billing” are only two pieces of the much-needed healthcare transformation puzzle. To really drive the United States’ healthcare system forward, we need robust outcomes measurement and transparency—especially the outcomes most important to patients. 

Healthcare is unlike the rest of our economy. Consider a simple analogy. You are hungry and would like to order a pizza; there are dozens of pizzerias nearby, but initially, you do not know what any of them charge or how any of their pizzas taste (i.e., their quality). In this situation, you simply order and pick up a pizza and as you’re leaving the pizzeria, the owner tells you how much you owe—and you must pay it. Ultimately, you have to guess on both the price and the quality and hope you guess right. Now, imagine a situation where now the price of each pizza is known but you simply do not know which tastes the best—how would you choose? Is that $20 pizza pie truly higher quality than that $15 pizza pie and worth the additional $5? Does the prestige of the pizza maker or the store’s location matter to you in terms of quality? This is the dilemma in America’s healthcare delivery system. It can no longer be ignored. 

To date, many publicly-reported quality metrics are not comprehensive, nor do they capture what is most important to the patient. For example, the U.S. Centers for Medicare and Medicaid Services (CMS) offers an online tool called Hospital Compare, which allows patients to search for different hospitals and see their star ratings, with five stars being the best possible rating. CMS also provides more detailed information on patient experience, timeliness of care, and short-term complication and mortality rates for a few key service areas, including lower extremity joint replacement. 

This is progress. The available information is based on valid data and includes some key outcome measurements previously unavailable to the public. Still, it is immensely limited in scope and lacking other, arguably more important, outcomes. For example, patients seek total knee replacements in order to increase function, decrease pain, and improve quality of life. But where is this information for patients? Hint: it’s not available—yet. 

Fortunately, a bipartisan consensus on the need for greater transparency is beginning to drive positive, patient-centered change. It is not as though the tools to measure such outcomes or knowledge on how to do so are unavailable or unknown. Indeed, we already measure hospital readmission, complication, and mortality rates, and we have the validated patient-reported outcome measures, or PROMs, that allow for accurate measurement of patient function, pain, and quality of life. Making the collection of such information routine and the findings publicly available, using an appropriate risk-adjustment approach, would allow patients to review and compare hospitals and physicians based on what they care about most. 

Still, this is a challenge. Why? Because maybe those highly regarded hospitals or surgeons aren’t as good as they would have you believe based on their pedigrees or prestige. Or maybe they are. We just don’t know. Highly placed professionals should have the opportunity to prove the superiority of their performance through measurable outcomes on the items that are most important to patients, and those outcomes should be reported publicly. 

We can “fix” healthcare through increased competition and the alignment of market incentives across multiple stakeholders. In order to make price transparency as beneficial as it can be, patients must also be able to access and compare health outcomes most important to them. Only then can patients appropriately and confidently decide for themselves the tradeoffs they are willing to make from both a quality and price standpoint. Further, increased competition would lead to both better quality and lower prices. 

While there is a long way to go, some innovative policymakers have taken major steps to make price and quality more transparent and accessible. The Trump administration is proposing regulatory changes to expand transparency in hospital and insurance pricing. Perhaps more importantly, state officials are addressing the issue within the context of their own very different healthcare markets. 

The state of Maryland, for example, has been a pioneer in promoting transparency in prices and performance among forty-seven acute care hospitals. After revealing stunning disparities in hospital prices for the same medical procedures in 2017, the Maryland Health Care Commission, an independent regulatory agency, created a website that provides detailed information on consumers’ costs of “shoppable” medical procedures: hip and knee replacements, vaginal deliveries and hysterectomies. Next on the Commission’s procedural list: C-Sections, colorectal resections, as well as bariatric and spinal surgeries. Related to each of these procedures, the Commission’s quality metrics include hospital data on potentially avoidable medical complications. Thus, Maryland combines crucial price and quality information in a consumer-friendly format. 

Maryland is making a good start. Markets cannot work unless consumers have good information from reliable sources, so that consumers know what medical treatments and procedures really cost and whether or not they are getting good value for their healthcare dollars. 

Americans will soon spend nearly one out of every five dollars on healthcare, yet most remain clueless about the real costs because such information is simply unavailable. They find insurance bills confusing, nursing costs shocking, and hospital charges mystifying. Transparency on price and performance would clean up this mess, empower consumers directly, help them to take informed decisions, and take the mystery out of healthcare financing and quality. It is overdue. 

This piece originally appeared in The National Interest https://nationalinterest.org/blog/fact-americans-will-soon-spend-1-out-every-5-dollars-healthcare-166526

Donate to The Heritage Foundation

Our more than 100 policy experts and researchers are invited to testify before Congress nearly 40 times a year

DONATE TO HERITAGE