transparency in health care: what consumers need to...

No. 986Delivered October 3, 2006 January 22, 2007

This paper, in its entirety, can be found at: www.heritage.org/research/healthcare/hl986.cfm

Produced by the Center for Health Policy Studies

Published by The Heritage Foundation214 Massachusetts Avenue, NEWashington, DC 20002–4999(202) 546-4400 • heritage.org

Nothing written here is to be construed as necessarily reflect-ing the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

Talking Points

• Consumer-driven health care begins toencourage more cost- and value-sensitivedecision-making in decentralized, individ-ual-level decisions, putting some reality intothe rhetoric of empowerment.

• Something approaching 50 million Ameri-cans have an incentive to seek and, if needbe, pay for price information. This includesthe uninsured and those in high-deductibleplans. The uninsured have the highestdeductible of all—every dollar they arecharged—and the highest coinsurance rateof all—100 percent.

• When the distortions of government and thethird party–payer system aren’t involved,the system actually works to create value-based competition that benefits consumers—the health care market responds to eco-nomic laws just as all other markets do.

• In a free market, where consumers make theirown decisions, technology and techniquesrapidly improve. Quality rises and prices drop.In short, freedom fosters prosperity.

Transparency in Health Care: What Consumers Need to Know

The Honorable Alex M. Azar II, Thomas P. Miller, David B. Kendall, and Walton Francis

THE HONORABLE ALEX M. AZAR II: I’m de-lighted to be here to talk with you about what thePresident and Secretary Mike Leavitt are doing totransform our health care system.

America has the greatest health care in the world.We have the best hospitals, doctors, and researchers.We lead in the development of new medicines, devic-es, and procedures. Our health care companies havethe freedom to compete. But as good as our healthcare system is, it can be even better. A more transpar-ent market can allow Americans to get better qualitycare, with fewer errors, for a lower cost.

Take the price of health care. Americans current-ly spend about $1.9 trillion on health care. That’s16 percent of our GDP. What is problematic aboutthis is that health care spending is growing at a ratethat poses challenges to the rest of our economy. Itis growing more rapidly than the general rate ofinflation, for reasons that are not always intrinsi-cally related to the value delivered by the system.In nominal terms, health care spending is growingthree times faster than wages, for example, and by2015, it looks as though we will be spending 20percent of our GDP on health care. Medicare aloneaccounts for about an estimated 3.2 percent of thisyear’s GDP and is projected to consume 11 percentof GDP by 2080.

A related problem is that quality of care can beuneven. In America, one can receive the finest medicalcare the world has ever known, or one could be thevictim of an easily preventable medical error. And the

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Delivered October 3, 2006

quality of care that one receives is not necessarilycorrelated to the price paid for that care.

America will not be able to remain the domi-nant economic power in the world if we continueto devote such a large percentage of our GDP toone sector of the economy while other leadingpowers spend half that. The system is far fromperfect and must change. People divert resourcesfrom other desired expenditures into health carebecause of its high cost; they worry about the con-tinuation of their health insurance; employersstruggle under the weight of health care expendi-tures; our system doesn’t deliver uniformly high-quality care; there is no clear connection betweencost and quality of health care provided; and inmany cases, mom and pop grocery stores usemore efficient and up-to-date information tech-nology than do our medical providers.

What’s wrong with our system? We think it canbe summarized with four basic truths:

• Our system is price blind,

• Our system is quality silent,

• Many of its incentives are in the wrongplace, and

• The most expensive medical device in the Ameri-can system is the pen in the hand of a doctor.

We need to transform our system so people knowwhat they are paying for health care, so they knowwhether they are getting good quality health care,and so they have a reason and ability to care.

How did we get here? This is obviously an over-simplification, but the problem is in manyrespects an outgrowth of two developments in the1930s and 1940s in America: the development ofhealth insurance by providers and World War IIwage controls.

Before World War II, Americans paid cash fordoctor visits—these visits were house calls, by theway—and if they had any insurance, it might behospital indemnity insurance or sickness insur-ance against disability. Hospital insurance andsickness insurance functioned as true insurance:Policyholders hedged their bets against theirhealth risks. Employers didn’t factor into thehealth care equation.

Then Blue Cross and Blue Shield, thanks to spe-cial advantages many state and federal governmentofficials gave them, began to dominate the market,and what Blue Cross and Blue Shield offered wasless like true insurance and more like what we havetoday. Blue Cross, for example, offered prepaidhealth care, which is equivalent to insuring your carfor gas and oil changes but was a popular idea dur-ing the Great Depression and was obviously popu-lar with the providers who owned the Blues.

Legislation governing nonprofit organizations,including both Blue Cross and Blue Shield, mandat-ed that they make customers who consumed littlehealth care subsidize those who consumed a greatdeal of health care by charging the same for both.They also paid hospitals on a cost-plus basis ratherthan market-determined prices. These practiceswere all incorporated into Medicare and Medicaid,and they persist in many respects today.

In 1942, Congress and the Roosevelt Administra-tion made it a crime for employers to offer higherwages, except with special government permission.Under these wage controls, businesses suddenlycouldn’t compete for workers by offering betterwages. But the market always finds work-aroundsto controls like these, so employers resorted to non-wage forms of compensation like medical insuranceand prepaid health care, pensions, and paid vaca-tions. Thus began our system dominated byemployer-sponsored group health insurance.

On top of this, the tax code subsidized employ-ers’ purchases of health insurance for theiremployees. In 1942, the National War LaborBoard ruled that employers didn’t have to paypayroll taxes on their contributions to employeehealth plans and that employees didn’t have topay income taxes on them either. In 1943, the taxcourt ruled that employer payments to commer-cial insurance companies for group medical andhospitalization premiums of employees were nottaxable as employee income. The 1954 InternalRevenue Code codified this.

As any good economist will tell you, if you subsi-dize something, you will get more of it. As a result,those of us with employer-sponsored health insur-ance end up acquiring more health care coverage

No. 986 Delivered October 3, 2006

than we otherwise would if we were bearing the fullcost of our purchasing decisions.

In fact, what most of us have today isn’t evenhealth insurance. Insurance is for non-recurring,unpredictable events, but what we insure againstare also recurring, predictable health care expendi-tures. That is prepaid health care, just like your cellphone plan and the early Blues plans. I have a muchricher health insurance plan as a federal govern-ment employee than I would have if I were purchas-ing the insurance without the significant employeesubsidy that I receive. As a result, if I stay in-net-work, I pay very little for any medical services orproducts. For instance, I pay only $15 for most doc-tors’ office visits.

If you told someone that for $15, they could gointo a grocery store and buy anything they wanted,they would walk out with the entire inventory of thestore. This is normal human behavior. Well, this isexactly what our subsidized third party–payerhealth insurance system has created. We buy moreinsurance, both genuine insurance and prepaidhealth care, than we would if we were bearing thefull cost of our decisions. This leads to more first-dollar coverage of health care, which, when com-bined with the lack of experience rating in pricinghealth insurance premiums to the individual ingroup plans, makes many of us often price-insensi-tive as purchasers of health care. As a result, ourhealth system is simply not adapted to providinginformation to consumers about the prices of ser-vices or goods.

I have a three-year-old son, who has an amazingpropensity to need stitches. He cut his eyebrowopen, and we brought him to the emergency room.Because it was a wound on the face, the attendingphysician asked us if we wanted to have a plasticsurgeon called in for the procedure. I then askedwhat would have been a perfectly normal questionin any other segment of our economy: “How muchmore will that cost?” They looked at me as if I werefrom Mars, telling me that they, of course, had noway of telling me that. I never was quite clear if theytruly didn’t know and had no desire to find out or ifthey knew but had no interest in telling me.

Then I asked another question that I naivelythought was perfectly natural under the circum-

stances: “Would plastic surgery stitches be betterthan what the attending physician would do?” Yousee, while I am a health care regulator and am froma medical family, I am not quite up to speed on thelatest in suture procedures. You can imagine the“response” that I got.

Well, lacking all relevant information, we wentthe conservative route and had the plastic surgeonbrought in—who, by the way, did a wonderful andprofessional job. But as we were leaving, a nursementioned in a rather offhand way that the stitcheswere exactly what the attending physician wouldhave done. And I can now answer the cost question:The cost difference was substantial.

You’ve all had an experience or many experiencesjust like this. It is absurd to me that one of the larg-est segments of our economy is organized and oper-ates in such a way that consumers have no realability to learn about price or quality.

Imagine you’re shopping for a new music player.You go into an Apple store and tell a clerk thatyou’re interested in buying an iPod. She suggestsyou purchase one of the latest iPods. You examine itand like it and want to find out how many songs itholds. You ask the clerk how long it lasts, how wellit performs, and how happy other people are withit. But the clerk replies, “I’m sorry sir; you’re notentitled to that information.” You really want thatiPod, though, so you decide to purchase it and askher how much it costs. Again the clerk tells you,“I’m sorry sir; we can’t tell you that either.”

We don’t learn about price because, with our sub-sidized third party–payer system incentivizing us tohave close to first-dollar coverage and our custom ofpurchasing prepaid health care, many of us rarelyhave the incentive to demand this information. Sothe system isn’t built to provide it.

As F. A. von Hayek said, “the price system [is]…a mechanism for communicating information.”When you lack price information and price compe-tition, you also impede one of the critical signals inan efficient market for communicating informationabout quality and efficiency. As a result, we as con-sumers have no way other than word of mouth andreferrals to gauge the quality of health care that wereceive and to choose providers—and any statisti-

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cian will tell you how poor measures anecdotes are.Providers don’t even have the ability to see howtheir care measures up against competitors in termsof quality.

To make matters worse, providers are not paidbased on the quality of care they provide. The newlyminted specialist right out of residency is often paidthe same for a procedure as one of the world’s lead-ing practitioners. So all too often, providers in oursystem have to maximize revenue not on qualityresults—although of course I am confident that ourproviders do strive to provide quality care as a mat-ter of professional ethos, ethics, and reputation—but on maximizing the number of cases they canhandle in a day.

One of the greatest inefficiencies in our healthcare system is the lack of interoperable healthrecords. How many times have you gone into thedoctor’s office and had to fill out a patient historyquestionnaire?

I recently went to my internist—who I think isone of the best and I have used for years—and I hadto fill out my patient history form for what must bethe seventh time. I did my best to remember mylife’s story, but as we all know, memory sometimesfails. In the course of talking through an issue withmy doctor during the exam, I happened to mentionsomething about one of my grandparents’ healthhistory. She responded, “Don’t you think that waspretty relevant information to know?” Yes, it was.But while I most likely had put it down each of thesix previous times I had filled out that form, I hadforgotten this one time. Imagine a day when youonly fill out that form once, and it is updated eachtime to go to a provider. The death of the registra-tion form. Think of the errors to be avoided, and theefficiencies to be gained in all of our lives.

My father is a doctor. When I was in high school,my summer job one year was to convert his wholepatient record system over from a straight last-name, first-name label system to a fancy new color-coded paper file system based on the first two ini-tials of the last name of the patient, with anothersticker for the last year the patient had been seen.Very cutting edge for the early 1980s, but that is stillthe system used in his office and almost every med-ical office in America. Why? In part because, even

decades into the computer and information age, hecan’t buy an electronic health record software pro-gram that he knows will communicate with and beinteroperable with the education and humanresources programs that will be used by the hospi-tals and doctors and clinics he refers to or gets refer-rals from or the insurance companies with whom hedoes business.

What do I mean by interoperability? Each of youhas a cell phone in your pocket. Many of them weremade by different vendors and operate through dif-ferent network providers—but they all work. That’sinteroperability.

Many of you also have an ATM card in your pock-et. You don’t all use the same bank, but you are ableto withdraw money from virtually any ATM in theworld and deal with any foreign currency. Bankscompete aggressively for your business and use thesame system. That’s interoperability.

Secretary Leavitt is currently leading a process tomake this possible in health care by developing theinteroperable standards that are needed for healthinformation technology to work. The promise ofhealth information technology will not be realized ifwe end up with a balkanized system where personalhealth information is not portable and accessible.We need standards for what information is to beincluded, what the fields are, etc., and we need asystem for the certification of products that areinteroperable under these standards. We are drivingthe process to develop these consensus standardsand processes.

So you can see that, while our system does deliv-er the best, most innovative care in the world, thereis much room for improvement. We’re working on anumber of critical initiatives:

• To allow risk to be pooled across state lines,with options such as association health plans;

• To bring about modern, prevention-orientedmedicine;

• To reform medical liability to ensure promptand reasonable compensation for medical in-juries; and

• To focus on value-driven health care throughthe widespread adoption of interoperable


health information technology, price and qual-ity transparency, consumer-directed healthcare, and incentives for quality care delivery.

I would like to focus on the last of these—val-ue-driven health care—for a moment. We have allhad experiences with just how expensive medi-cine can be: emergency room visits, drugs anddevices, tests and procedures—and they add upquickly. They also can add up differently based onwhether you’re paying or an insurance companyis. As I have noted, unfortunately, right now thereis no way to know exactly what you are going tobe charged or, even worse, if you are even gettingthe best quality care for the best price. It’s a com-plicated and opaque system.

All consumers deserve to know the cost and qual-ity of what they are purchasing, and health profes-sionals deserve to be recognized and rewarded forthe quality services they provide. We need to correctincentives so that consumers and providers benefitby making good choices and carry part of the bur-den of bad choices. For example, when doctors takesmart steps like investing in an effective electronicrecord system or providing personalized support forpatients with chronic illnesses to prevent complica-tions, Medicare ends up paying the doctor less. Theright incentive would pay more for better care, butto do that, consumers, payers, and providers needto know how quality is defined and who providesquality care.

What we are calling for is a transformation in ourhealth care system in the United States towards val-ue-driven health care, but change is hard. There aremany interests vested in the status quo. Many play-ers are more interested simply in shifting costs fromthemselves to other participants in the system.

Legislation is one way to change the system, butas Secretary Leavitt has said, “When it comes tohealth care, we don’t have a lack of political will, wehave too much.” This has led to the standoffs for 40years in thinking about health system reform. Manywell-meaning doctors, hospitals, employers, insur-ance companies, patient groups, and quality advo-cates have tried to push for the neededtransformation, but they haven’t been able toachieve change.

What’s been missing? The government hasn’tbeen at the table. Between Medicare, Medicaid, theVeterans Administration, DOD’s Tricare, and theFederal Employees Health Benefits Program, theU.S. government directly or indirectly insuresapproximately 125 million people’s health care, or40 percent of those who are insured in the UnitedStates. What if we were to harness that market pow-er to drive towards more efficient, effective, andconsumer-focused change in our system? To enableand empower the free, competitive market with thekind of information that competitive markets needto function efficiently?

That’s why President Bush recently signed an his-toric executive order to empower Americans to findbetter value and better care by increasing the trans-parency of our health care system. The executiveorder directs federal agencies that administer orsponsor federal health insurance programs to:

• Encourage adoption of interoperable healthinformation technology standards,

• Increase transparency in quality,

• Increase transparency in pricing, and

• Provide options that promote quality and effi-ciency in health care.

Health information technology: The executive ordermakes clear that we are committed to using thepower of the federal government as a purchaser ofhealth care to drive towards an interoperable systemof health information technology. The orderrequires federal government agencies that sponsoror subsidize health insurance as well as federal gov-ernment contracting parties, as they adopt, update,or acquire health information technology, to incor-porate interoperable health information technology.

Quality transparency: We are funding six regionalpilot quality collaboratives that bring together pro-viders, insurers, employers, and consumers in anarea to share information to aid in quality-of-careimprovement. These initial efforts were good, butany individual insurer will see only a small slice of aprovider’s practice. It makes the extrapolation ofquality results difficult, if not impossible. But if youadd the weight of the federal government’s healthprograms to that effort, you will get a much more

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complete picture of the quality of care delivered,making analysis, reporting, and quality improve-ment possible.

We will begin with those six initial sites andexpand to include other regional collaboratives. Wewill ask those who contract with or have agreementswith our insurance programs to provide informa-tion to these collaboratives regarding the quality ofcare delivered.

The federal government will not be setting thequality standards for our system. These standardsmust be standards that the providers themselvesbelieve accurately reflect quality care. Thus, we willbe working with provider groups who are develop-ing consensus standards for both doctors—theAmbulatory Quality Care Alliance—and hospi-tals—the Hospital Quality Alliance. This collabora-tive approach is critical, since if the providersthemselves don’t buy into the quality standards, thesystem simply won’t work.

Price transparency: One of the reasons that usefulprice information is so hard to come by is that thereare so many events in a single episode of healing—from the anesthesia before the surgery to the physi-cal therapy sessions afterwards. Right now, all ofthe information on each part is often completelydisaggregated or compiled inconsistently and hencecannot be compared even if it were made availableto consumers.

So that consumers can have a better sense of whatthey are actually expected to pay for, we’re workingwith insurers to organize cost information in thesame way—around the single total cost of an epi-sode of care. Then we can ask those who do busi-ness with us to provide average price information totheir consumers regarding these bundled services.We will do this in a way that takes into account theconcerns of providers and insurers regarding thesensitivity of the actual negotiated rates betweenthem. Instead of seeing many nearly incomprehen-sible bills, consumers will be able to see their costfor a single healing event.

Medicare, Medicaid, the Department of Defense,and the Office of Personnel Management are com-piling non-personalized claims information and willrelease that information to these collaboratives in

sufficient detail to provide a statistically reliablefoundation of transparent price and quality data toevery hospital, doctor, and participant in the collab-oratives that wants to see them.

HHS is now posting county-level, specific hos-pital payment range and volume information on30 elective procedures and other common hospi-tal admissions in Medicare. The new informationwill be posted on the Internet at cms.hhs.gov andis a snapshot look at the range of the amountsthat Medicare paid for a variety of treatmentsprovided in 2005 to seniors and people with dis-abilities. In addition, in August, CMS releasedthe prices that it pays to ambulatory surgical cen-ters for common procedures. In the fall, CMSwill release pricing information for physicianand hospital outpatient procedures.

Efficiency and quality: Finally, the executiveorder provides that we will develop and identifyapproaches that encourage and facilitate high-qual-ity and efficient health care. We hope to be ablethrough our programs to pay providers based onperformance, and we will require those who dobusiness with our federal health insurance pro-grams to do the same. We will encourage health sav-ings account plans and other consumer-directedhealth plans, with higher deductibles and lowerpremiums so that consumers have the incentives tobecome knowledgeable consumers of their ownhealth care.

We are using the power of the federal govern-ment as a purchaser of health care to generate thisinformation and to bring about these changes. Weare also working with major employers and askingthem to make similar commitments in contractingwith their own insurers and providers. Together wecan truly transform the system.

What’s the endgame here? Our goal is to enableAmericans to access basic information about thehealth care they consume so that they can becomemore engaged, savvier purchasers. And as consum-ers become increasingly savvy and engaged, theyexpect more choices, more responsibility, and morecontrol in every aspect of their lives. Right now, con-sumers can track down all sorts of information onGoogle. They can use Travelocity to find cheap


flights to anywhere in the world. They can trade allmanner of goods via eBay. They have tremendousamounts of price and quality data on all sorts ofthings—except for health care.

Our vision for health care is to fix that and giveAmericans the tools they need to become educatedconsumers. Within two years, we expect to measurepockets of quality against price and to see value-based competition in several markets around thecountry on several procedures. Within five years,we believe the term “value” will have earned itsplace in the health lexicon of America and that wewill be using it on a regular basis. Within ten years,we hope that a system of value-based competitionintegrated with health information technology willhave truly emerged.

As we create this pool of price and quality infor-mation, we see a day when a health care consumerplanning a hip replacement will be able to go on-line to a Web site provided by their insurer or bysome other private party. This Web site might tellthem which hospitals in their area perform hipreplacements, what distance they are, what qualityrating each hospital has received through any num-ber of private-sector rating entities, how many hipreplacements that facility has performed in the lastyear (a key indicator of quality), what the averagetotal price range of a hip replacement is in that facil-ity, and what that consumer could be expected topay out of pocket given his or her health plan.

These Web sites won’t be run by the federalgovernment. What the federal government isdoing is generating the information to allow thismarket to work more efficiently, to empower con-sumers, to make the health care system value-driven and more efficient.

Some may say that consumer empowerment can’twork in health care, that the decisions are too com-plex. I beg to differ. When the distortions of govern-ment and the third party–payer system aren’tinvolved, the system actually works to create value-based competition that benefits consumers—thehealth care market responds to economic laws justas all other markets do.

In a free market, where consumers make theirown decisions, innovation in everything from capi-

tal structure to packaging to materials tends overtime to drive real price down and quality up. Lookat shoes, computers, and dishwashers—or face lifts,nose jobs, and LASIK. With all of these, providersare able to compete for business, and people pay outof pocket. The technology and techniques rapidlyimprove. Quality rises and prices drop. Look atLASIK—between 1999 and 2004, the average priceper eye dropped about 20 percent. In short, free-dom fosters prosperity.

I have faith in Americans’ ability to make the bestchoices about their own health care in a competitivemarketplace. By keeping that as our guiding princi-ple, I believe that we can foster a health care systemthat is efficient and effective and help Americanslive longer, healthier lives.

—The Honorable Alex M. Azar II is Deputy Secre-tary of Health and Human Services.

THOMAS P. MILLER: Last May, the Joint Eco-nomic Committee organized a hearing on many ele-ments of this issue, and you can find that on the JECWeb site; Walton Francis was one of the folks testi-fying. You can also check out Michael Porter andElizabeth Teisberg’s Redefining Health Care or myshorter and more mixed review in Health Affairs inthe September/October issue.

The problem with the current system is that it’sa high-cost system. The high costs are good—weget a lot of good things—but it’s not matched bybetter value. This causes problems in terms ofaffordability for health care, access to it, opportu-nity costs because the additional dollars we spendon health care might be going for something thatcould also be valuable as opposed to everythinggoing into the health care sector.

We also have inconsistency in quality. We havepeaks of excellence in our health care system butinconsistencies in where and when you get it. Withrespect to recommended care, the statistics are thata little more than half the time you might get theright stuff. Medical errors can be a problem. Theycan be a little overstated, but it’s a real impact interms of wrong delivery of care at the wrong time.It’s a very complex system to navigate around; evenvery informed people find it hard to make heads or

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tails of what really matters and what’s going on. It’sless than an easy system to engage compared to oth-er consumer goods.

There are poor incentives. We pay for stuff that isdone; we don’t necessarily focus on whether it’sworth what is being paid, what it produces, out-comes rather than inputs. And we have inadequateinformation. We just don’t know enough aboutwhat works and who performs better if not best. Welack sufficient data, effective measures, and stan-dards. Even when it exists, it’s not widely availableor usable at the consumer level.

Why would adding improved consumer infor-mation to the health care toolkit matter? Third par-ties could certainly use some first-party help. In thepost–managed care world, we found that variousthird parties—whether it’s an insurer, an employeror payer, sponsor of a plan, government programadministrator, politicians micromanaging on occa-sion—have given us the system we have, so let’s atleast think about giving a chance to consumers toperhaps make some of the same mistakes, differentones, and perhaps find out different results by hav-ing their hand engaged in the process more thanthey have in the past.

Consumers might begin to accept the limits onless than “everything right now at no cost” if theycould understand better what the actual cost andquality trade-offs are and then could find moreeffective ways to optimize their choices withinwhatever constrained set of resources they mayhave. Consumer-driven health care, a relativelyrecent entry into the field, begins to encourage morecost- and value-sensitive decision-making in decen-tralized, individual-level decisions, but we’re notthere yet. We talk about empowerment, but infor-mation is all about putting some reality into therhetoric of empowerment. Just giving folks morecost-sharing with some money funded into anaccount doesn’t tell them how they’re going to makebetter choices and end up better for it as a result ofbeing more engaged in their health care. That’s theinformation component.

There’s also an issue of trust and legitimacy. Notonly do we have folks not necessarily trusting insur-ers to tell them what exactly is right, or theiremployers, or a government program, but if we are

going to have new information intermediaries orother of these past players providing this informa-tion, it’s got to be done in a more transparent, moreverifiable, trustworthy manner so that folks whowant to engage that information think it’s actuallyworth their while.

There are spillover effects in terms of the kind ofcompetition that could ensue from greater informa-tion. More comparative information, as we know inother sectors of the economy, fuels competition,improves the overall level of services, but there’salso a kind of dynamic effect on the provider’s side,the supply side. It’s somewhat “performing to thetest,” but there’s also a positive effect within the phy-sician and hospital communities if they know on arelative yardstick they’re not doing as well as some-one else: Even if it’s not being pressed to the con-sumer level in terms of taking their businesselsewhere, it’s likely to have some positive effectsthere. Also, as health care is increasingly complexand needs to be customized, the more you can drillthat information down to a form in which peoplecan actually use it would be very valuable.

We have some degree of transparency in healthcare, primarily at the hospital level, but it’s more ofa rear view than a leading indicator of what’s ahead.So we need to go beyond that, which is kind of anopen door policy.

The Bush Administration’s Transparency Initia-tive is an executive order on the heels of someearlier provision of information on paying for pro-cedures, what the reimbursements were in Medi-care and the Federal Employees Health BenefitsProgram. It was issued last August, focusing onquality transparency, mostly through trying tomeasure the quality of services provided to bene-ficiaries in federal health programs, but hopefullyenough claims and data aggregation so that itmeans something on another scale.

Pricing transparency was the greater focus: theprices paid for procedures by providers to beneficia-ries and enrollees in the plan. It’s unsure as towhether we’re going to step up to the really impor-tant level, which is the overall cost per episode. It’sone thing to know the individualized list price for aprocedure; it’s another thing to know what it meansover the entire continuum of care. In the same way,


there are hopes of eventually getting to overall costof treatment for chronic conditions. These are pos-sibilities, though, but they’re not exactly on theboard as yet, and I don’t know that they’re going tobe promoted as aggressively as the price side.

There was another component of this—to pro-mote care, quality, and efficiency—but if you reallylook between the lines, it basically says that as longas they provide you with a consumer-driven healthcare plan product, that’s good enough for us. So weprobably need to go a little bit further in that regard,but that’s the scope of the executive order—and, ofcourse, the phase-in of interoperable health infor-mation technology, which has been an initiative ofthe Administration for some time, and trying toleverage that through other people participatingwith the federal programs.

This Transparency Initiative complements otherearlier initiatives: consumer-driven health care,Medicare, health IT. It reinforces the emphasis ontrying to switch to more of a market-drivenapproach to health care and health services andleveraging the federal role as the first big mover inthe field. You really can’t transform the health caresystem with half of it doing something else.

On the other hand, the federal role moves slowly.Everybody has to be on board; you have to geteverybody around the table. It doesn’t have the nim-bleness and the flexibility and the experimentationyou might have in the private sector. So it’s trying tobe a collaborative with other stakeholders. Therewas actually a line in the executive order saying thiswill all be done without incurring additional federalcost. I find that more of a hope than a dream, butwe’ll see if that can actually be done. At some point,you do have to pay for things.

Early assessment: The federal program prices area nice opening measure, but they are just a crudestart. These are not market-based prices in almostevery case. There’s a little bit more in the FEHBP.They’re negotiated rates; they’re telling you an ini-tial setting of what might be a price for something,but far from what you’d like to know if you’re out inthe wider marketplace. Measuring the all-in mar-ket-based cost per episode or conditions? Much fur-ther away. How much transparency will really beprovided to the public after this is aggregated at the

federal level? That remains to be seen. How muchdata-sharing will actually occur with private payers?Private information may come in, but the questionis what will come back out that private payers canuse differently than federal programs do?

But you work with what you have, and youattract some attention to the issue, and it’s a start.On the IT side, my skepticism is just that buildingbetter, newer, and faster technology pipes is terrific;it’s important; but it doesn’t ensure that we will useeffectively what’s in those pipes. So we’ve got tothink about the incentive structure around thatinformation, whether we’re getting informationflowing through the high-speed highway in the waywe want: more relevant measures.

What do we need to know about what consumersreally need to know and how can they learn it? Theunit and the level of measurement really matter.There are real distinctions between health planchoice information, which we’ve had for sometime—it could be better—and what we fundamen-tally need, which is better point-of-service decisioninformation. It matters where you go to get yourhealth care, what you do when you’re told “followthis treatment,” how it’s followed up; that’s what isgoing to turn around the delivery side more thaneven the aggregation of choices within an insurancebundle. That deals with the front-end discretionarycare, the things that consumers can use.

There are other important costs and issues, whichare pointed out by critics of transparency who say,“What about those high-cost cases, emergency situ-ations? You don’t have time to put thought into it.”Then you need a bundled choice, and that’s bestdone through insurance. But it means that we needbetter differentiated insurance options prospectively,more transparency about that, that not all insuranceis the same; they do things in different ways. And ifwe can make those choices more transparent, that’smore than just knowing what your premium is andwhat your cost-sharing is and what the covered ben-efits are. It’s how are you going to deal with that$50,000, $100,000 episode of care, and why are youbetter than another insurer in doing that? How doyou go about it? What incentives do you provide?

We need physician-identifiable information. Wehave decent information on hospital-level perfor-

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mance on the quality side—not on the cost side,which is much more of a murky area—but there isvariation within hospitals among the physicians. Soif you don’t know who is really making the deci-sions—what’s that unit of analysis of the decision-maker, what their patterns are—even though youmight, in the aggregate, think it’s a better qualityhospital or a more affordable hospital, it may notmatter in terms of what’s facing you in a particularset of decisions, and you want to make the relevantdecision-maker, through this information transpar-ency, more accountable. It also means the consumeris more accountable for making the decisionsbecause you live with the consequences of what youdecide when you have options.

An early assessment is that price alone drawsattention, but it’s not enough. We need the all-incost by diagnosis or episode of treatment. We needto know a lot more about effectiveness. That doesn’tmean that you’ve checked off all the boxes in termsof the latest recommended guidelines about whatprocesses you go through, what we can measure interms of the tests that we’re provided. It reallycomes down to a better measure of the outcomes.What matters to people is whether they end beinghealthier or not as ill or somewhat better off, notthat they did different things to you that a commit-tee happened to recommend.

Efficiency is the same way in that regard. Wewant to know comparatively the resource use forone provider as opposed to another, not just the ini-tial list price. Where you start isn’t where you finish.Consumer satisfaction is often neglected by theesteemed bodies that think about what the bestquality care is, but in fact there’s a conflict some-times between what a consumer cares about andwhat experts think they need to know. Now it’s abalance between those two, but we should notneglect the fact that if you’re not happy as a con-sumer, that matters too, and the dimensions of thaton a subjective level.

We need better information but not perfect infor-mation that would stop us in our tracks. We need todrop the pretense that we’re going to have predic-tive certainty and all this information is going to beprecise, that there is this perfect quality thresholdyou have to meet or you don’t meet. There is a con-

tinuum. In addition, it’s the probability of this infor-mation. Nobody hits 100 percent every time out,but there are tendencies and trends, and that’s whatyou’re trying to give people: a better gauge as to, rel-atively speaking, where they are going to end up onthese different types of measures across a range.

The continuum of cost and quality means that it’snot necessarily only high-quality care that you payfor; you pay for the best value care that you can get.If you have fewer resources, you may not be able toshoot at the top, but you want to optimize that mixof cost and quality, and different people end up indifferent places.

Data aggregation is very important. You want tocollect it once, use it often. The problem here is thatthe private sector could do this more nimbly andeffectively, but they don’t have enough denominatorsize and critical mass in terms of data. That meansyou have to get it out of the federal government, andelectronic health records are a tool in this, but notan end in itself. We need to expand access to theCenters for Medicare and Medicaid Services physi-cian-identifiable data.

Senator Judd Gregg introduced legislation lastmonth; I recommend that you look at it carefully. Itwould provide a way to open up the vault for the CMSphysician-identifiable claims data with appropriatesafeguards through intermediary organizations thatcould provide some analysis of cost and quality andthen, what’s even better, make that more broadlytransparent to the public as well as the requester.

Common data, common measures, don’t re-quire comprehensive consensus care standards.Different folks may end up in different places, andwe’d like to have some competition in that regard.We want some plurals in competition and not tooversell sameness.

We want to link this to provider incentivesbecause if the payment isn’t there, people won’t payas much attention to it. We want to emphasize thetrust factor. The challenges are that this data infor-mation is power; some folks are not eager to pooland share it. I think also that you want to watch outfor administration creep in this regard.

Most of our health policy disagreements arebeing reimported back into what is said to be the


information debate. People who have fought aboutother things are fighting about it in the context ofinformation or trying to achieve their goals by say-ing it’s all part of information, and that goes every-where from trying to redesign the entire health caresystem to fighting over consumer-driven care.

—Thomas P. Miller is a Resident Fellow at the Amer-ican Enterprise Institute.

DAVID B. KENDALL: I think the first thing wehave to do with health care is admit we have a prob-lem—a big problem—so I’m here to echo and put alittle more edge on what Tom just said.

I want to start off, before I get into the transpar-ency discussion, by giving you my sense of wherewe are and where we want to be—at least where I’dlike to be—with health care. As Tom mentioned, wehave rapidly escalating costs, an average of 11 per-cent over the last six years. The curve is goingdown, but it’s now going to cost the average Ameri-can family $11,000. I can’t afford that; I don’t knowabout you guys. It’s a lot of money.

We have widespread reports of unsafe, low-qual-ity, and wasteful health care. Three-quarters of amillion people are injured or die from problems dueto drugs; these are called “adverse drug events.”What hospital that you know of tells you before yougo into the hospital how many adverse drug reac-tions happened last week? It doesn’t exist. As Tommentioned, the chances of getting the right recom-mended care is about 55 percent on average. Butwho in this room knows what your chances arewhen you go to your doctor for your care?

Researchers at Dartmouth estimate that 30 per-cent of the cost of caring for people with chronic ill-ness is wasted in Medicare. How many people inthis room, if you were talking to your mom or yourdad, would be able to tell them where the most effi-cient chronic care is in their community?

That doesn’t mean we don’t get something out ofour health care system; we’re obviously gettingsome value. In fact, a recent study by David Cutlersays that since about 1960 the additional cost of theseven to eight years we have added to our life spansthrough health care contributions is about $20,000.

We’re spending about $20,000 per year to get addi-tional life span; that’s a pretty good deal.

Cutler and others attribute a lot of this to low-cost things like statins. So the question is: How canwe get more value for less money, and why can’t wedo a better job of estimating the value of new healthcare innovation and products and make sure theyare widely used? Statins, one of cheapest things thatwe have going and very good in terms of increasinglife span, is only used by half the people who couldbenefit from it.

Finally, I wouldn’t be a Democrat if I didn’tmention the unequal access to care and the highdisparities that result—disparities not just interms of racial characteristics, but disparities interms of the differences between the uninsuredand the insured. We know that Americans wholack coverage do not get the non-emergency carethat adds to life span overall.

Where do we want to be? I do think we could allagree that we want a health care system that’s moreattuned to consumer preferences, like convenience.I’m actually for health care right now, when I needit, because I think that’s more efficient in the longrun. We want a patient–doctor relationship that ispersonalized based on the best available evidence,that treats the patient as a whole, not for what canbe billed, and is free from the bureaucratic hasslesand obstacles that pervade both our public and pri-vate health care insurance programs.

We want continuous gains in value, much likethe computer industry, which provides every day abetter, cheaper product. Why not in health care?And we want no health care disparities due to thelack of access to health care insurance. I don’t knowif anyone in this room can agree with that last one,but if we could, we could have a deal here.

The President’s executive order on transparencyis something I’m sympathetic to. As a longtimeadvocate of transparency, especially on the qualityside, I can’t help but say it’s good. Health care is veryopaque; we have no idea in terms of economicallywhether we’re getting a good deal, whether we’regetting it personally or clinically.

It’s important to mention in this whole discus-sion about transparency that it is not just the

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patients who are in the dark; the doctors are in thedark. I was out at a medical society meeting in theWest, and their whole strategy for the next coupleyears is going to be trying to collect the data thatthe insurance companies already have about themso they can figure out what’s going on. The doc-tors don’t have the data, so the transparency is notthere for anyone.

Here is the problem with what the President isproposing: It’s just too simplistic. Let me share withyou a personal anecdote. I was trying to prove thatI was still able to play with my youngsters, and in agame of Capture the Flag I ran straight into a wallrather than capturing the flag. The 15, 16 stitcheswere not a problem—that was good emergencycare; got it all stitched up—and the kids were veryimpressed with my commitment to the game, but Icouldn’t lift my arm above my shoulder; it was juststuck there.

So I got on-line. I knew I was going to have a pos-sible rotator cuff tear. I was going to have to have anMRI. I had a 30 percent co-pay; I was pretty moti-vated to find out what the costs were going to be. SoI started calling around, and it’s the story you’veheard a lot of times. Maybe you have dealt with thisyourselves: You just can’t find out that information.“We’ll get back to you in a couple weeks with that.”Or there’s one person there that can tell you thisinformation about the radiology fee at the hospital,but they’re only there one day a week.

I found a place that would at least package theprice of the radiology fee with the MRI. That wasgood, and I went to them, and I didn’t need any sur-gery. The only problem was that the surgeon keptsaying, “Just keep coming back to me. Do yourexercises—we don’t even need a physical thera-pist—and as long as you’re getting better, every-thing will be fine.” Three or four or five times, at 50bucks a shot, I’m going back to this guy to tell meI’m doing fine. I already knew that! He wasn’t takingany accountability for what he was recommending.

That’s what this is really about. Transparency isreally about accountability, and that is where we’remissing the boat in a discussion that seems to betactical about price transparency. Tom brought up alot of meaty issues, and he’s right: We need to focuson this stuff. But I also think we need to reframe the

debate: Who is accountable for cost and quality? Imanaged competition for many years, and we weregoing to make the health plans accountable for that.It turns out we didn’t want that model; let’s trysomething else. But who is accountable? That’s a keyquestion.

The answer so far from the current leadership inWashington, D.C., is health savings accounts empow-ering consumers, which is fine; but I need to remindpeople that even with the health savings accountwith a $3,000 deductible, 80 percent of the healthcare costs are still paid by a third party. There’s justnot much market clout there. Even if you took thePresident’s latest proposal on expanding health sav-ings accounts, which Congress didn’t enact this lastweek in the Ways and Means Committee, and pro-jected it out, we’d end up with 8 percent of thecountry in a health savings account. That wouldmean that only 2 percent of total market expendi-tures in health care would be funneled through ahealth savings account. That’s not much of a marketshare to move anything.

It is more if you count—and we should count—various other consumer-driven accounts like flexi-ble spending benefits and so forth. But still, thenumber is not there because you’ve got two bigthings. You have high-cost cases when you have anacute situation, and you have high-cost cases whenthere’s a big chronic illness that goes over time.That’s where the money is, and that’s what we haveto figure out how to deal with.

What do the insurance companies say, sincethey’re the ones who are on the hook right now?What do they do when they are confronted with8,000 billing codes from doctors and thousandsand thousands more from hospitals, from medicallabs, from pharmacists, and so forth? They’re doingwhat Tom was talking about: They’re trying toaggregate—they’re called “episode groupers”—allthese individual billing charges into logical groupsthat fit what happens to a patient. There are a cou-ple of them. There’s ETGs, Episode TreatmentGroups, which United Health Care has, and there’sone by MedStaff.

Several of these groups begin to look at the dataand say, “How do you analyze this stuff and see whathappens to a patient with diabetes over time?” As it


turns out, that’s a pretty good system, but there’s alot of trouble with it. For one thing, for a typical dia-betes patient, variation in the cost can vary a hun-dredfold. You can have a very small amount ofmoney that a person with diabetes has in a givenyear, or you can have a huge amount of money thata person has if they have complications and have anadvanced stage of diabetes. You can’t easily price athree-month care for diabetes without taking thatinto account, and some of the technical issues thatTom was talking about. But it’s a very promisingthing, and we should encourage this.

Let me finish by suggesting how solutions mightemerge. As Tom mentioned, we should not justmake the information available; we should activelytry to manage it on a community-wide basis. Weshould have a government agency that’s in charge.We should take Medicare and put it in charge ofputting information out there in a way that physi-cians and hospitals can use it. Before we get to aconsumer market, doctors are going to have to pricethings, and they can’t price anything unless theyhave the information about what they themselvesare doing.

Second, we need to enable excellence. There are alot of measures of performance or quality that will notbe used today because it’s a “one size fits all” approachto quality measurement. Stuff that comes through theNational Quality Forum is good, but there’s a lot moreinformation that could be disclosed. Were they tocome forward and be held accountable on more pre-cise measurements, and if we could get access to thatinformation today, we wouldn’t have to wait for every-one to have to adopt this.

That’s what I call enabling excellence. We need tocreate the conditions that allow the providers tocome together. Virginia Mason Hospital in the Seat-tle area has adopted the Toyota model for processimprovement, and they are promising their payersthat if they give them some flexibility to managecosts without having to do the individual billingsystem, we will hold our price increases constant forfive years. If you give the providers some flexibility,they can produce excellence at a lower cost.

I think we need to develop pay-for-performancemuch better. Right now, as I said, it is one size fitsall. It’s working only in a small percentage of the

overall revenue of a physician or hospital. We needto make it 100 percent, but we can work our way upthere. If I had had that shoulder injury and hadbeen able to choose a package price for my condi-tion, I would have loved that. Knowing what thequality indicators are of how I was going to do, howfast I was going to recover: I would have loved that.In order to get to that point, there are a lot of tech-nical issues that you have to get through. Withoutputting the patient at risk, it would be better to getthe third-party payers doing this at least at the sametime, if not actually leading it.

Finally, the goal should be to get to cost con-sciousness at the point of service. There used to bethe days when you had an indemnity plan. Wewould have a health care plan, and if you had thisproblem, you would get $50,000 for the payment ofthat plan. It wasn’t quite that simple, but it was a lotsimpler because health care and medicine was a lotsimpler back then. Today, it’s much more complicat-ed; but we should work to the point where you canmake, at the point of service, a cost-conscious deci-sion and essentially have that opportunity to buyyour health care coverage directly, with the help ofthe insurance company but without them decidingwhat it is going to be.

—David B. Kendall is a Senior Fellow for HealthPolicy at the Progressive Policy Institute.

WALTON FRANCIS: I want to cover three mainthemes briefly and pose a question. First, I think itimportant to think clearly about the governmentrole. Second, I want to touch briefly on five real-world efforts that have successfully transferredinformation to consumers. Third, I’d like to men-tion some real-world barriers that hinder efforts tomake the advances we need, both on price informa-tion and provider effectiveness information. Finally,I’m puzzled why we haven’t gotten greater consen-sus from both liberals and conservatives on the needto move aggressively on transparency.

Government Role. In an exchange of e-mails beforethis event, David Kendall raised a question as to theproper role of government in this entire endeavor.We could have a theoretical discussion on this or apractical one. I’ll focus on the latter.

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The reality is that, for whatever reasons, the pri-vate sector hasn’t delivered anything like the pano-ply of information that consumers should have anduse. The President’s executive order on transparen-cy simply, and I think rightly, says “get on with it”without delineating in detail how this is to be doneor exactly what is to be done.

My take on the government role is that govern-ment is vital to (1) making information available tothe private sector. Much of the most importantinformation lies in the hands of government. Forexample, Medicare claims files are to this issue asSaudi Arabia is to oil. CHECKBOOK’s Consumers’Guide to Hospitals is a crystal-clear example of reli-ance on Medicare data.

Government can also be (2) a catalyst or even auseful bullyboy. The organ transplant registry I’lldiscuss was the product of many years of hardwork by oversight units in the Department ofHealth and Human Services and depends in parton a regulation that was bitterly fought by thetransplant surgeons.

What government cannot ordinarily do well is(3) package and present the data in ways thatwork for consumers. A famous recent example isthat the FEMA Web site ready.gov was so bad thatstaff at the Federation of American Scientists cre-ated a far superior site at reallyready.org to cor-rect not only its errors, but its useless advice. Theoriginal government-created hospital qualityguide was so bad that when a Health CareFinancing Administration administrator killed it,there was no reaction but sighs of relief. Itinvolved a bookcase full of volumes that present-ed outcome data on every hospital in the countryaccompanied by letters of rebuttal and explana-tion from almost every hospital. The transplantoutcome data that I admire are on a Web site thatis, regrettably, most difficult to penetrate.

On the other hand, the government can some-times present information amazingly well. The CMSWeb site to help consumers choose a good Part Dplan, called “Plan Finder,” is easy to use, clear, andsimple and has effectively helped somewhere closeto 10 million people save a lot of money choosinglower-cost drug plans. It was certainly a key factor

in the 10-year mid-session review estimates for theMedicare Part D drug plan coming in around $100billion less than forecast just last year. So I wouldn’trule against government presentation of quality andprice data, so long as it makes the underlying dataavailable to private entrepreneurs like me.

What has to be resisted is (4) government or qua-si-government regulation of information provision.The National Committee for Quality Assurancerecently published a report called “Protecting Con-sumers in an Evolving Health Insurance Market” inwhich NCQA actually calls for state insurance com-missioners operating under the auspices of theNational Association of Insurance Commissioners,as well as accrediting bodies like NCQA, to regulatethe provision of price and quality information byhealth plans. For a body that is supposedly promot-ing the interest of consumers, that publication is theexact opposite of one that it should have published,but didn’t, on “Empowering Consumers in anEvolving Health Insurance Market.”

Real-World Efforts. I think I can claim the recordfor the longest-standing health-related consumerinformation publication in history. This Novem-ber, Washington Consumer CHECKBOOK willpublish the 28th annual edition of CHECKBOOK’sGuide to Health Plans for Federal Employees. Thislittle book rates the performance of every plan inthe FEHBP in saving enrollees money. We now sellthis information on the Web, and the version atwww.guidetohealthplans.org is actually better thanthe printed book.

I draw no particular moral, but simply observethat health plan comparison can be done whereverthere is a large enough market to justify the timeand investment in reviewing insurance policies, increating models that compare expected costs underdifferent plans, and in presenting the data and relat-ed information in ways useful to consumers. In theworld in which we find ourselves, with everyemployer’s health plans unique in benefits, cost-sharing, and premiums, there aren’t many compara-ble opportunities.

One result of my Guide is that when consumersuse it, both the enrollees and the government savemoney—lots of money. It is the bane of my life that


the human resource bureaucrats who make govern-ment purchasing decisions in most agencies neithergrasp nor care that if only one employee in 5,000uses the Guide to choose a low-cost health plan, theagency saves far more in premium subsidy than itspends making the Guide available.

The Scientific Registry for Transplant Recipientsis an HHS-sponsored Web site that provides terrificquality information. It displays case-mix adjustedoutcome data for every transplant center in thecountry. There are big differences. If you need a kid-ney, liver, heart, or other organ, these data can saveyour life.

The registry is the product of more than a decadeof research on ways to adjust the raw data to reflectdifferent case mixes at different centers. This isessential because the very best transplant centersgenerally treat the sickest patients, who are literallyat death’s door, and necessarily get worse outcomesas a result. So it represents a huge investment inintellectual resources. It also involves a great deal ofconsensus building and collaboration by stakehold-ers—matters emphasized in the executive order. Myonly criticism is that you have to drill down to findthe most useful data. It is not a consumer-friendlyWeb site.

Consumers’ Guide to Hospitals is another terrificCHECKBOOK product. It tells you how likely youare to survive if you go to any hospital in the coun-try, for a broad range of conditions, in comparisonto other hospitals. It is case-mix adjusted, it is avail-able on the Web, and it relies almost completely onMedicare data. These are the same data that used tofill a bookcase when published by then-HCFA. Thegovernment stopped publishing the books but waswilling to provide the data to CHECKBOOK. (Iwould add, in the interest of a different kind oftransparency, that the HealthGrades Web site alsouses the same data.)

Developing quality measures for physicians is thetoughest job under way, and just beginning, but it isvital for developing a real consumer-driven market.CHECKBOOK has come up with a clever alterna-tive. Rather than measuring physician qualitydirectly, Consumers’ Guide to Top Doctors asks otherphysicians—peers—which doctors they would

most recommend. There are flaws in this method,but it provides arguably the best currently availabledata on physician performance. Note that it is anapproach that does not rely on government-sup-plied or government-sponsored information.

The Part D Medicare Plan Finder Web site wasdeveloped in CMS under the direction of MarkMcClellan. Like guidetohealthplans.org, it rates insur-ance plans in terms of the most important bottomline: dollars spent by enrollees for both premiumand cost sharing. Its methodology is quite differentand tailored to prescription drug users. Also, likemy Guide, it saves both consumers and government(as a plan sponsor) lots of money. Give it a try atwww.medicare.gov.

Real-World Barriers. There is an information mar-ket failure caused by health insurance itself. Whenmy plan pays 90 or 100 percent of the cost, I havelittle incentive to seek or use price data, and themarket has little incentive to provide it. It is not easyor inexpensive to develop case-mix adjusted qualitydata. Deciding what measures are useful and creat-ing data for them is a major problem and one thatrequires not just intellectual capital, but also con-sensus-building procedures.

Privacy remains a problem, particularly forgovernment data. The problem is not patient pri-vacy, but provider privacy. Thirty years ago,then-Secretary of HHS Joe Califano tried to pub-lish data on how much money doctors weremaking from Medicare, by name, for politicalpurposes. A court slapped him down, and thatcase and others less directly relevant make it veryhard for the government to publish data on indi-vidual physicians or make it available to the pri-vate sector to publish.

The American Medical Association’s monopolyon coding medical procedures is another big prob-lem. It is hard to publish data on prices if even thenames and categories of medical procedures areproprietary and copyrighted. The AMA makes a lotof money from CPT codes and has historically beenhostile to publishing price information.

The development of tiered pricing arrangementsis another problem. Preferred provider rates aretrade secrets, and health plans have been willing to

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share them with enrollees in their plans, but not yetwith the public at large. Health care providers don’twant either quality or price data public for obviousreasons. In addition, there is a medical tradition thatcompeting on price is somehow unethical.

The entrepreneurial sector has been strangelyslow in sponsoring or publishing data. I think thereare fantastic opportunities that haven’t been recog-nized. One simple example lies in Medicare physi-cian payment rates. Those rates are widely used as astarting point in private plan preferred providerdecisions. They are useful to any consumer who iswilling to ask his doctor why he can’t get the sameMedicare rate that the doctor accepts for his elderlypatients. They are publicly available, but they havenever been packaged in a consumer-friendly way.Possible AMA copyright problems arise, however.

I am pleased to hear that Senator Gregg has intro-duced legislation to deal with some of these barri-ers. We certainly don’t need to remain under anylegal impediments.

The Strange Politics of Transparency. When I recent-ly testified before the Joint Economic Committee onthese issues, I made much of the point that there isan elephant in the room. Something approaching 50million Americans have an incentive to seek and, ifneed be, pay for price information. This includes theuninsured and those in high-deductible plans. Theuninsured have the highest deductible of all—everydollar they are charged—and the highest coinsur-ance rate of all—100 percent.

The biggest scandal over price information todate was a scandal that should excite liberals every-where. A few years ago, Yale University Hospitalcharged an uninsured black man the retail rate for aprocedure, triple or quadruple the preferred provid-er rate it accepted from health plans. Then it hound-ed him when he couldn’t pay and was going to forcehim to sell his house to pay this punitive rate. Thiscase made national news and generated a bigchange in Yale policy.

You would think that liberals and conservativesalike would agree on the need for far better consum-er information to deal with cases like this, and forthe 50 million who are uninsured or subject to highdeductibles. Also, consumer information is cheap,at least by the standards of health care spending.

Yet somehow we haven’t gotten either a social orintellectual consensus on the priority that transpar-ency should get, particularly for price information.The published academic literature is full of truthfulbut irrelevant arguments that many consumersdon’t comprehend complicated information verywell and will simply be confused by any qualityinformation. Price information is scarcely ever men-tioned, except to assert that it is useless in a worlddominated by insurance. Why is it Heritage, andnot Brookings, that is hosting this conference?

—Walton Francis is an economist and author ofCHECKBOOK’s Guide to Health Plans for FederalEmployees.

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