How messed up are U.S. health care prices? Here is a small but emblematic story.
I was given a new prescription for a generic drug. I went to CVS where I was told that my insurance did not cover it. The cost would be $96 for a 30-day prescription.
This struck me as excessive for an off-patent pill with more than 20 manufacturers. After all, I have another generic prescription that costs $36 for 90 days through Optum.
So I called Optum to see what they could do. I was told that they would charge $389 for a 30-day supply.
Yikes.
My next stop was online at GoodRx. GoodRx compiles price information from thousands of pharmacies. Type in the name of a drug and GoodRx tells you the price at pharmacies near you. You can print a coupon with the GoodRx price and use it at the pharmacy. The coupon price appears to be about $5 less than the everyday non-coupon price.
Even setting Optum and its $389 aside, the price difference for my drug was astonishing.
Walgreen’s at $100 with coupon was even more expensive than CVS. But Rite-Aid, the third largest drug store chain, charged $18.
How about Walmart vs. Target? At Target, $90. At Walmart, $18.
But even the $18 price was more than double that of the two lowest competitors – Costco at $9 and Safeway at $8.
Health care price variability extends far beyond prescription drugs. Peterson-KFF Health System Tracker studied the prices of several common procedures in 2018. Using the prices paid by large employer health plans, it found wide disparities within geographic areas and even larger disparities between geographic areas.
Knee and hip replacement surgery cost between $45,000 and $70,000 in the New York City area compared to $18,000 to $25,000 in the Baltimore area. Cholesterol tests cost as much as $54 in Berkeley compared to as little as $10 in Orlando. An in-office lower back MRI cost anywhere from $200 to $1,400 in Miami alone.
Some price variability may reflect quality differences. All surgeons are not equally skilled. All knee and hip implants are not equally efficacious. Sometimes, you get what you pay for.
Would the equivalent of GoodRx enable price-shopping and consumer savings for standard procedures?
Hospital transparency rules were mandated in 2021. Hospitals must post easily accessible standard prices. Unfortunately, the rules for posting leave these prices in code that will be indecipherable to consumers. For example, an “ORTHO L3913 115X-150” costs $663 at one local hospital while a “S-H FFP BTWN8-24HREA” costs $207 at another.
Moreover, posted prices may not bear any relation to what a patient actually pays once insurance or other adjustments enter the picture.
There is one counterintuitive concern surrounding price transparency. Peterson-KFF puts it this way: “As health systems and provider groups are made aware of what other providers are charging for the same care, providers could try to negotiate higher rates to match their competitors, especially in more highly concentrated markets.”
Ouch.
Jeffrey Scharf is the Founder of Act Two Investors LLC, a registered investment adviser. Contact him at jeffrey@acttwoinvestors.com.