Is Price Transparency the Key to Lowering Health Care Costs?

Most of us, when faced with needing a medical procedure, go to the provider our family physician recommends. We typically don’t find out how much it’s going to cost — or how much our insurance provider will cover — until after the fact. Comparison shopping isn’t something we think about when it comes to health care. But should it be?

The New York Times reports that price transparency could be just what the health care industry needs to drive costs down. Health care providers can charge premium rates for services without experiencing the price competition effect that other industries face, because costs are rarely discussed. Further, employers are paying large portions of health insurance costs, and insurance providers fund most or all of the cost of most medical care. So the end consumerHealth CAre Costs rarely has reason to question fees unless they receive a bill they expected to be covered.

A solution would be to make costs more transparent in health care. One startup company has emerged that will allow consumers to do just that: comparison shop for health care services. Castlight, an internet startup backed by venture capitalists, is building a search engine that will allow consumers to search for providers for a service or procedure in a general area and compare prices. Experts say this kind of transparency would result in price competition among medical providers, driving prices down. The company is even building a mobile application so patients can access information from anywhere – including the exam table.

As companies are starting to have employees shoulder more of the overwhelming cost of healthcare, Americans will be paying more out of pocket for health care services than ever before. The New York Times points to several studies that have shown that patients with more access to price information save more on health care than those that are shielded from costs. The industry trend is already heading in that direction: We have access to Nursing Home Compare, which helps consumers choose a skilled nursing facility. The main Medicare.gov site helps consumers compare and choose the right Medicare Part D plan. Why not compare hospitals, physicians, and procedure fees?

Castlight and similar health care price-shopping companies seem like the perfect solution, but there are a few challenges. For one, Castlight isn’t free to use. It signs employers on as customers, allowing employees access to the search engine (monthly fees are based on the number of employees). Also, physicians and insurance companies often have negotiated fees that are agreed to be kept secret, for competitive reasons. Some insurance companies have shared information with Castlight, while other information is obtained through EOBs (Explanation of Benefits) that patients receive.

Industry pressures may provide better access to information soon. Eventually, Castlight plans to introduce a website available for anyone’s use, and it’s likely that more companies will follow suit.

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