When Patients Know the Cost of Lab Services, the Prices Stay Honest
- BY FGA
Eighty-eight percent of voters support price transparency when shopping for health care. It should not come as much of a surprise, given medical debt is a leading cause of bankruptcy for families.
Price transparency plays an important role in lowering the cost of prescription drugs, hospital visits, and insurance premiums. When market forces are applied, patients shop around for the best deals on products and services that keep them healthy. But one area in medicine is often overlooked: lab services.
Currently, the costs for basic labs and screenings vary widely, with virtually no variation in quality. A quick search on comparemaine.org shows the average cost for a routine blood test for cholesterol levels in Maine is $7, but the range is from $4 to more than $100. A blood glucose level lab averages $6 but could cost up to $89. A kidney function test averaging $15 could cost north of $300.
How do they get away with it? The answer is simple: Consumers don’t know how much things are supposed to cost.
Quietly inflating the prices of lab tests is not a problem unique to Maine. In North Carolina, our own research found that a kidney function test ranges from $13 to $229 among hospitals. Two hospitals in Raleigh located just 15 minutes from each other are charging $13 and $140. For most patients, saving $127 would be worth a few extra miles in the car—they just don’t know it’s an option.
And as an increasing number of doctors become affiliated with hospitals and large health systems, labs are frequently directed internally, where costs tend to be higher. A woman living in California, for example, had blood drawn by a hospital-affiliated doctor from an office located near the hospital. The cost was $319 total, and $46 after insurance.
Months later, her blood was drawn from inside that hospital’s medical center. The same exact tests were more than 800 percent more expensive. She was shocked.
The range of costs for MRI scans is just as extreme as blood testing in Los Angeles, ranging from $225 to as high as $6,000.
Labs and imaging are one of the easiest places to allow price transparency and market forces to reduce cost. It doesn’t require any changes to the quality or availability of the services. If patients were better informed, price distortions would simply disappear.
Some states have taken the issue into their own hands, passing price transparency requirements and developing tools to help patients get a better picture of their true medical costs. In Kentucky, developing a price transparency tool put more than $1.9 million back into the pockets of patients within just three years. Patients using New Hampshire’s price information saved an average of 36 percent on medical imaging services.
Studies demonstrate that when patients have clear information on prices and what their insurance providers are willing to cover, patients are more likely to shop around for the best prices. One 2016 study in JAMA Internal Medicine examined a large, self-insured plan of a grocery store chain.
The company published a list of prices on all nearby lab services and informed its employees that insurance would cover up to the 60th percentile of prices (known as “reference pricing”). After that, the employee would have to pay the difference.
For example, if the range of local prices for a routine lab test ranged from $4-$100, insurance would only pay $57.60 (or the 60th percentile within a range of $4 to $100).
With this incentive for employees to shop around for the best price, the study found average costs of lab services dropped by an astounding 31.9 percent. Over three years, the program saved $2.57 million total, with savings on out-of-pocket costs for covered employees of $1.05 million.
We know that price transparency puts downward pressure on costs. We’ve seen the phenomenon in action across every sector in the economy. In fact, price transparency is an essential condition for markets to function.
This problem can be solved on its own—if labs start listing prices on the menu.
Bottom Line: We will not get health care prices under control until patients know how much things cost. There is strong research showing that more price transparency in lab services would provide substantial savings for patients and families.
