One of the biggest obstacles to reducing health care costs is pricing. Quite simply, finding out what a specific procedure will cost before choosing a provider is difficult at best for health care consumers, i.e., your employees. Given that high deductible consumer-directed health plans are becoming more popular by the day, this lack of pricing transparency promises to limit consumers' ability to shop around and make informed, price- and quality-driven health care purchasing decisions.

The good news is that pricing transparency is getting more attention as health care reform begins to take hold. The health reform law does not contain any specific provision to mandate or encourage pricing transparency for specific health care services and procedures. In fact, it is this omission from the health care reform law that seems to be driving attention to the issue of price transparency. In particular, a recent Time magazine report that focuses on large mark-ups, potential overuse of equipment and testing and other key issues is worth a read.

Other studies also show how difficult it can be to unravel health care pricing. In some cases, health care providers themselves cannot answer questions about what a procedure will cost because that information is not easily obtainable. A study conducted by researchers from the University of Iowa and published in the Journal of the American Medical Association found a wide range of pricing for a hip replacement procedure and, in many cases, little clarity on that pricing.

The researchers contacted at least two hospitals in every state in the U.S. plus the District of Columbia and the 20 top-ranked orthopedic hospitals to ask the price of a hip replacement. Only 45% of the top orthopedic hospitals and 10% of the other 102 hospitals could provide the full price of a hip replacement (hospital plus doctor fees). The researchers were able to piece together this pricing information by contacting hospitals and doctors separately about 60% of the time.

The key point here is that getting this pricing information was not easy and, in many cases, impossible. The researchers gave up when five phone calls did not yield the required information, which is probably more calls than most consumers would be willing to make. When the researchers did obtain pricing data for a hip replacement, the differences in costs were stunning, ranging from $11,100 to $125,798.

Another study conducted by America's Health Insurance Plans (AHIP) found similarly wide ranges for health care pricing. In this case, the study focused on prices charged to insured patients who sought out-of-network care or care from physicians who do not accept insurance. The following table shows the highest fees in the study compared to common Medicare reimbursement levels for the same care.

Procedure Highest out-of-network fee included in study Medicare fee paid for same procedure
Lumbar spinal fusion $115,625 $1,867
Knee arthroscopy/surgery $34,366 $718
MRI of the brain (physician fee) $5,520 $118
Neck spine disk surgery $73,848 $1,616
Total hip replacement $48,983 $1,544
Removal of gallbladder using a laparoscope $44,000 $849
Partial removal of colon $42,800 $1,522
Source: Survey of Charges Billed by Out-of-Network Providers: A Hidden Threat to Affordability

The good news is that as more of this type of information makes it out into the public domain and widely read media, the more employers can hope to see more action by employees to make smarter health care purchasing decisions.