How a lack of healthcare price transparency compares to purchasing a bad car

Image removed.Healthcare delivery in its current state may have something in common with purchasing a bad car, according to Jeffrey W. Jones, a managing director with Huron Healthcare, a Chicago-based consulting group. Jones delves into the phenomenon of "information asymmetry"--when not enough information exists for the buyers and sellers of goods and services to make economically rational decisions, in a new white paper.

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That often occurs when there are too many specific cars that are flawed--"lemons"--in the marketplace. In such a marketplace, the seller of the used car has more information about the soundness of the vehicle than the buyer. And if the car is brand new, there is no information about whether it will be a good car or a bad car until the consumer drives it off the lot. The fear of buying a lemon not only drives the prices down, but it makes it more difficult for sellers of mechanically sound vehicles to find buyers at even a reasonable price, the white paper states.

The same phenomenon can occur in healthcare delivery, according to Jones. Individuals with health problems are more willing to pay higher premiums to obtain healthcare insurance. Insurers, in the meantime, try to screen more aggressively for potential illnesses in would-be customers. Premiums go up, and healthier consumers are discouraged from obtaining insurance. Patients also receive unnecessary treatments because they do not have enough information to make sound medical decisions.

The vehicle conundrum has been solved with the greater transparency provided by firms such as CarFax and a variety of businesses that provide pricing data via the Internet, as well as the availability of long-term warranties, according to Jones.

Buy price and quality transparency in healthcare will eventually overwhelm information assymetry and bring greater pricing stability to the overall market, Jones posited. He cited several initiatives, including one on price transparency launched by the Healthcare Financial Management Association.

Jones also cited Guroo, a price transparency website launched by Aetna, Humana, United HealthCare and the Health Care Cost Initiative. And he noted that a Group Health price transparency initiative brought down the cost and frequency of knee and hip replacement surgeries.

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While there is some data that suggests patients are more reliant on pricing data to make healthcare decisions, Healthcare Dive has reported that many consumers still lack the information and the impetus to make sound financial decisions about the treatments that they receive.

To learn more:
- read the Huron Healthcare white paper  (.pdf)
- check out the Healthcare Dive article

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