Price shopping from Pittsburgh to Portland
In the weekly healthcare marketing Twitter chats we attend, whenever the issue of pricing comes up, the gloves come off. It’s fascinating to see the wide range of opinions on whether price shopping is, or should be, impacting consumer behavior in healthcare (let alone what healthcare marketers should do about it). For some, it’s an obvious yes, with the caveat that the impact of price shopping is still minimal relative to the overall healthcare choice dynamic. For others, it’s “no way, no how” – price shopping is absolutely not driving consumer decisions in their market. (For a sampling of the differing views, check out the great comments below this post.)
There does seem to be an acute difference among markets when it comes to hospital and healthcare comparisons and the role of pricing. For example, here in the Twin Cities, the issue of hospital price comparisons (even with the rudimentary gauge of how many “dollar signs” a hospital is assigned) has been prevalent for at least three or four years. We’ve had advertising wars among local payers promoting their proprietary hospital shopping web offerings, we’re the home of the innovative healthcare shopping site, Carol.com, and both the state government and the Minnesota Hospital Association have offered hospital price comparison tools on the web for a number of years.
Yet when I spoke in Chicago a couple of years back at a healthcare marketing conference and asked how many in the audience were starting to receive pricing questions from potential patients, all I got was blank stares. “We don’t get that here,” someone offered. “Just wait,” was my response.
How strong a factor is healthcare pricing in your market? What do you think causes the differences among markets when it comes to the impact – or lack thereof – of hospital price comparisons? (Concentration of provider market? Power of payers? Medical culture?) Let us know your theories, and if you’re from Chicago, let us know if you’re starting to get those questions on prices from your customers.
The main problem with healthcare pricing? The price isn’t the price. Buying a healthcare procedure involves more convoluted arithmetic than buying a home or a car. And like buying a home or car, the patient is laser focused on the payment, not the price.
The quoted cost for a procedure versus the actual amount of net revenue (or payment) that a healthcare provider will receive are often two numbers with a material difference. Likewise, the amount a patient will pay is obfuscated by monthly insurance premiums (that may be deducted from payroll) and a confusing mix of co-payments plus potential invoices for “unreimbursed” charges.
So until the price of a healthcare transactions equates with the actual patient financial responsibility and the true provider net revenue, I predict little interest in comparative shopping and continuing mistrust amongst patients, providers and payors.
Put another way, when I read a used car ad in Craigslist with pricing from an individual, I have a reasonably solid idea about the price that I am going to pay. When I read the “price” of a new car in a full page newspaper ad from a dealer (which I rarely read), I know that the price shown in the newspaper (with the small print underneath) means very little until all of the extras, financing and negotiation are completed. Alternatively, some automotive brands (e.g. Mini) allow me to go online, build my car and get a clear, detailed, accurate price quote.
Isn’t it time for healthcare transactions to have prices that are transparent?
Yes, all true. But what about those with a high deductible, say $5,000, who face a CT scan? The “price” to that consumer can vary from location to location, with little or no difference in quality or convenience. Assuming a consumer can find those prices (a huge assumption, but many are trying to solve the issue), don’t you think that information would inform or impact their decision of where to receive care? Same with other diagnostics, cosmetic offerings, etc.
Everything is ultimately demand driven. My point is; When consumers demand price transparency, we will have it. Though, as Tom points out, there are a lot of factors involved. Therefor, the educational process will be slow. The trust level will not come up quickly. There are too many ways the “price” can be manipulated. ie; “Just pay separate processing and handling” as used in television commercials when they say “we’ll double your order free.” Ummmm…so, I’m not supposed to realize that “processing and handling” is actually a way to collect the actual “cost” of “giving” someone something for “free.” Oh sure…I’m fooled.
In the end, someone will begin to “tell the truth” about hospital procedure pricing and will educate the public. From there, it will spread…someday. Once facilities lose business to those who are transparent, they will be forced to become transparent to compete.
Everything is ultimately demand driven. (IMHO)
Good stuff Jim. (Though unfortunately, healthcare is more supply driven, a perversion of normal economics, yes?) I hope your vision of “someday” comes true, but so many obstacles as you and Tom have pointed out. And given that in many cases what customers are pricing is their own health, the impact of pricing on the overall value equation may often be little or none at all. In other categories, people are willing to sacrifice (quality, convenience, reliability) for lower prices – would they with their own care?
At the expense of sounding like a broken record here, I’m going to say (once again) that many of these pricing “transparency” issues (or lack thereof) are largely due to health insurance companies and their complicated way of insuring people.
Tom, the reason you can go and shop for a car and have a pretty good idea of what you are going to pay for it is because each of those dealers has a say in what they can charge (based on their cost, competition, market value etc) for a car. Health care providers can charge whatever they want, but as you pointed it out, it doesn’t say anything about what the provider will get paid because insurance companies determine that for us.
So the comparison is not an apple to apple comparison. In your car example, the dealer doesn’t have to deal with 30,40 or more different types of “payors.” And each of those 30 or 40 different payors don’t have countless of conditions in place in order to determine if in fact they will pay for the car or not (after the car has been delivered by the way). The dealer’s relationship is directly with the buyer.
And to address Chris’s point, the reason a CT scan cost varies from location to location, is because insurance companies reimbursement for CT scan varies from place to place. Many insurance reimbursements are based on “locality.” That is just one of the many different ways medical fee schedules are calculated.
As a medical practice manager I would love to offer (in fact, I often do to uninsured patients or high deductible plans) all the pricing transparency in the world to our patients. But only if I’m able to have relationship solely with them. Much the same way an attorney or a consultant or an architect has a business relationship with her client.
@pediatricinc
All good points Brandon. The insurance dynamic is definitely why we can’t have a straight up pricing conversation. I think you and Tom are actually singing the same song (or playing the same broken record?) Tom’s car example was as much to point out how different healthcare “buying” really is compared to nearly all other types of purchases. I’m just too stubborn (or naive or blue sky) to believe there’s no way to help consumers factor the price (meaning what they’ll pay) for many healthcare transactions.
