Commentary

Sigaud: Healthcare Prices not Reflective of Quality of Care

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If you’re like most people, you know very little about the costs of the medical services you receive.  The ubiquity of third-party payers in our health care system (be it private insurance carriers or the government through programs like Medicaid and Medicare), the complexity of billing practices and negotiated rates, and the resistance on the part of health care special interests against enhancing transparency have made it difficult for consumers to easily access cost information from medical providers.

A look at recently-released data from the Maine Health Data Organization shows a disturbing trend of massive (and seemingly arbitrary) health care cost variation between different providers in Maine – even between those in close proximity to each other.  Mercy Hospital in Portland, for instance, offers precancerous skin growth removal for an average of $117.  Less than a mile away, Maine Medical Center charges $551.  At Eastern Maine Medical Center, a knee replacement typically costs $47,233, while Saint Joseph’s Hospital – a 6-minute drive away – charges only $35,827.  Affiliated Labs, located in Portland, charges $11 for an electrolyte blood test while the same test at Maine Medical Center – just twelve minutes away – costs $101.  The list goes on.

Advocates for the health care industry have tried to justify these discrepancies by claiming that cost doesn’t properly capture the value of a medical service.  A low-cost procedure, they say, may not be as safe, nor the stay in the hospital as pleasant, as in a more expensive facility.  But according to an analysis by the Maine Heritage Policy Center, quality and patient satisfaction correlate poorly with health care prices in Maine.  Though available data regarding hospital-associated infection rates is sparse, the evidence suggests that as cost goes up, the quality of care and patient satisfaction ratings tend to decline.  Conversely, facilities that offer affordable prices often produce better outcomes and earn higher marks in patient satisfaction surveys.

It’s not difficult to explain these price disparities.  The absence of robust cost transparency (and mechanisms to motivate consumers to comparison shop for procedures) has allowed hospitals to set virtually whatever prices they like, confident that most of their patients won’t bother checking how much other providers charge.  Fierce competition, the most effective way to keep prices down, is all but non-existent in our health care industry.  At bottom, health care costs don’t reflect the value of a medical procedure – they indicate what hospitals think they can get away with.

A bill that will soon be voted on by the Legislature — LD 1305 — promises to bring greater transparency and competition to the health care market.  It requires providers to be more responsive to inquiries about the cost of services and offers financial incentives to patients who receive medical care at less than the average price, empowering consumers to save money while forcing providers to compete for lower prices.  In New Hampshire, where a similar program was instituted a few years ago, health care costs have already begun to decline as hospitals realize that arbitrary price-setting doesn’t work in a competitive, transparent market.

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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