Texas Legislates Medical Price Transparency

Stanley Feld M.D.,FACP,MACE

State legislators are beginning to understand their role in Repairing the Healthcare System. The individual states have the power to license the hospital systems, the physicians and the insurance companies to practice in their state. The states have not used their power wisely to date. It could be they view this as the federal government’s responsibility.

“Texas passed legislation in June that will require health care providers to give consumers statewide greater access to price information for medical services and billing procedures.”

President Bush called for price transparency in his State of the Union address. The reason is accurately described below.

“Many consumers take advantage of comparison-shopping when they are in the market for a new car, electronics, and everyday items, and the purpose of the new law is to allow them to do the same with their health care. It is not uncommon to go to a doctor’s office and be confused by the co-pays, deductibles, out-of-pocket expenses, and other intricate aspects of health care plans.”

Price transparency is an essential ingredient in the Repair of the Healthcare System. The State of Texas is on the right track. The difference between the car, electronics and everyday item purchases and healthcare purchases is for the former the consumer is spending his own money. When the consumer is spending his own money for healthcare, comparison shopping will occur but not before that because the patient is spending other peoples money.

State Sen. Robert Duncan (R-Lubbock) authored Senate Bill 1731, which took effect September 1. The new law includes multiple methods of creating transparency in health care prices.

“Having witnessed the recent years’ incredible growth in the cost of health care, it’s become clear we need more transparency for Texans considering their medical needs,” Duncan said. “This new law will move the Texas health care industry toward becoming a more market-driven entity, which will ultimately benefit consumers and practitioners.”

There is no explanation how price transparency will benefit the consumer or the practitioner.

“Three key players are affected when price transparency legislation is considered: physicians, insurers, and facilities such as hospitals and clinics.”

“Under the new law, billing requirements statewide are now standardized for all three groups. Also, doctors and hospitals must disclose their billing policies and standardize their billing procedures. Care providers must give estimates of expected charges and itemized statements of services to patients who request such information.”

The immediate problem with the legislation is that each stakeholder has multiple prices. Each stakeholder has retail prices and several discounted prices. In order for each stakeholder to comply with the law they need only to publish their retail prices. This methodology has no relevance. It does not motivate the consumer to comparison shop. If the patients were motivated to save money and taught to be smart about purchasing healthcare they would comparison shop. If the facilitator stakeholders saw this happening they would start posting lower prices on the web than their competition in order to attract customers. Only then would a competitive marketplace be developed.

“ Consumers will now be able to shop online for doctors’ services and estimated costs for procedures. Since physicians are not necessarily equipped to assist patients with complicated insurance information, consumers are better served by a central site where they can collect it themselves, the law’s supporters say.”

“The legislation requires the Texas Board of Medical Examiners to provide on its Web site a Consumer Guide to Health Care that will give patients information on physicians’ billing practices. Patients will be able to access physician billing information and find average charges for procedures.”

Bill 1731 requires price transparency for all the stakeholders. However the focus of the execution of the legislation so far has been on the individual physician and his fees. Physicians are politically the weakest and least organized of the stakeholders. I predict the requirements for compliance will be much slower in coming for the hospital systems and insurance companies. The hospital systems and the insurance companies have the most opaque price policies. A consumer simply cannot get the information from a hospital system in advance or adequate price information from an insurance company.

When the hospital systems and insurance industry publishes their prices the consumer will only see the retail prices. The solution is to require everyone to print all their prices as the automotive web sites Edmunds and the Kelley Blue Book do. At these web sites you can get the manufactures average retail price, the average sales price in your area and the invoice price.

Only when this happens and consumers have ownership of their healthcare dollar will a competitive market driven healthcare system occur.