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Monday, October 07, 2013

Professor Jaime King: Unraveling the Mystery of Health-Care Pricing

King and colleagues offer fresh ideas for breaking the stranglehold that insurers and providers have over medical costs.
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Jaime King, Morgan Muir ’12, Stephanie Alessi ’13

How do you solve one of the most vexing problems in health policy—the skyrocketing cost of medical services—when no one seems to know what those costs actually are? That was the challenge UC Hastings Professor Jaime S. King confronted last fall.

A few miles up the road, policy experts at UCSF School of Medicine had been discussing how to implement the Affordable Care Act to make the health-care market fairer and more cost-efficient. But the logical first step—injecting more price transparency into the market—turned out to be more difficult than anyone had expected. It wasn’t just that the cost structure for medical services was confusing; many providers and insurers were actually barred from disclosing prices by gag rules and confidentiality agreements. “A lot of providers and insurance groups were claiming that their prices were trade secrets,” says King. “There were clauses in the contracts that banned them from discussing price.”

To figure out ways to break that stranglehold on information, UCSF officials turned to the UCSF/UC Hastings Consortium on Law, Science, and Health Policy, where King has been associate director for the past three years. King was intrigued by the secrecy issue. “It’s exciting to help solve real-world problems in the health-care space,” she says, especially one that could impact tens of millions of consumers and employers.

The result is a 113-page white paper, “Price Transparency in the Healthcare Market,” which will be published later as a two-part law review article. The first part, “Clarifying Costs: Can Increased Price Transparency Reduce Healthcare Spending?” will be published by the William & Mary Policy Review. The paper recommends a series of interconnected steps, including antitrust litigation and legislation, aimed at weakening the sometimes monopolistic power of providers and insurers as a precursor to forcing them to disclose costs. “Price transparency cannot happen in a vacuum,” King says. “If you don’t ensure that competition is functioning in the market, you could have unintended consequences, and consumers and employers could end up paying more.”

King, who has a PhD in health policy from Harvard, tapped two of her students, Morgan Muir ’12 and Stephanie Alessi ’13, to work with her on the project. The three of them quickly reached an unexpected conclusion: Price transparency does not automatically benefit all health-care consumers. In fact, in smaller communities where the health-care market is less competitive, transparency could lead to higher prices if some providers and insurers realize they have been charging less than their peers. The market for health-care services “is very different from other markets,” King says. “So making predictions based on other markets is often flawed.”

The team’s second key insight was even more provocative. “We’re conditioned to think insurers are the villains,” Muir says. Yet even more than insurers, she adds, providers—hospitals and doctor networks—“use their leverage to keep a lot of these prices secret.”

This surprising fact reflects the enormous changes in the health-care market over the past two decades. Whereas insurers once had the upper hand, imposing restrictions on consumers and providers alike, a backlash against HMOs and the rise in popularity of insurance plans that offer more consumer choice have shifted the balance of power. These days, providers have much more leeway to charge high prices and, in some cases, to force insurers in other markets to pay those same rates to affiliated providers for whom there is less demand.

“Having certain providers in your networks has become essential for insurers,” King says. “Insurers might say, we really want you so we’ll pay this higher-than-competitive rate. But then the insurer will impose a gag rule on the provider to prevent the provider from telling others what he or she is being paid.”

To King and her team, that sounded like anti-competitive behavior. Alessi, who had recently taken a course in antitrust law, was tasked with figuring out how to apply antitrust theories to the issue of price transparency. “It was exciting to take what I had learned in law school and build on it in a way that could have a potentially huge impact,” Alessi says.

King concedes that litigation won’t be easy: The issues that make price secrecy such a big factor in health-care costs “don’t fit neatly into categories that have historically been deemed antitrust violations.” But the team is gratified that the paper has been well received by everyone from consumer advocates and antitrust experts to plaintiffs’ lawyers and the California Attorney General’s Office. “We think [our theory] could end up being persuasive in the courtroom,” King says.

Now, the UCSF/UC Hastings Consortium plans to establish a clearinghouse to make information about pricing more accessible to researchers and policymakers. There’s no question that King’s conclusions might raise the anxiety level among providers who are already trying to deal with health-care reform, says Clay Johnston, an associate vice chancellor at UCSF and director of the medical school’s Clinical and Translational Science Institute. “But if we don’t reveal the prices,” he says, “none of the rest of these problems would necessarily be solved. It’s quite complicated. But the most important thing is to have an open and public discourse about this, and to make the best decisions for society.”

Read more from UC Hastings magazine here.

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