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Competition Forces Seattle Provider to Cut Outpatient Prices

Costs reduced for nine out of 10 services

While health care costs continue to rise throughout the U.S., Swedish Health Services (SHS), a health care provider based in Seattle, Washington, has cut prices for 90% of its outpatient services by an average of 35% at its five hospitals, two ambulatory care centers, and 100 clinics, according to a report from The Heartland Institute.

For example, magnetic resonance imaging (MRI) scans once billed at $6,100 per use now cost only $1,810 –– a 70% price cut. The price of a colonoscopy has dropped from $2,203 to $1,518 –– a 31% cost reduction. The new policy took effect January 1, 2015.

Paul Guppy, research director of the Washington Policy Center, said the decision by SHS to cut prices shows that given the right conditions, health care providers can respond competitively while meeting the needs of consumers, just as in other areas of the economy.

Guppy said the price reductions at SHS developed in spite of, and not because of, the Patient Protection and Affordable Care Act (PPACA).

“Providers of services, whether it’s health care or cell phones, will reduce prices when they know consumers have real choices and can take their business elsewhere, not when people’s options are restricted or limited by federal law,” Guppy said.

Patients covered by insurance could end up paying different rates from what SHS bills, depending on their insurance plan’s contract with the hospital and whether their insurer chooses to pass the savings on to the consumer. People paying out of pocket will receive the full benefit of the price cuts.

The cuts will not apply to inpatient care, including live births and other hospitalizations.

Nathan Benefield, vice president of policy analysis at the Commonwealth Foundation, said it’s clear other health care providers could do the same as SHS if they focused on keeping costs low, but third-party payment remains a sticking point.

“Unfortunately, there hasn’t been much price competition in the health care sector because of the third-party payer system,” Benefield said. “Patients almost never shop around for better prices, and they rarely even know the cost of a service or a procedure, because in most cases an insurance company or the government is going to pay the bill.”

“There remains a lot of opposition to this movement, both from unions and from regulators that discourage competition, especially price competition,” Benefield continued. “But there are other efforts — things like low-cost health clinics and cash-only providers —moving to provide health care alternatives and to compete for patients with lower prices.”

More competition means health care providers will cut prices, especially with the increasing number of stand-alone surgery centers, said Katherine Restrepo, a health and human services policy analyst for the John Locke Foundation, a free-market think tank.

“Technological advancements coupled with approved Medicare reimbursements for a growing list of services performed in these smaller, lower-cost settings make for a more competitive and efficient heath care marketplace, which benefits the patient with quality care at a lower price compared to the same service being performed in a full hospital setting,” Restrepo said.

According to Restrepo, the PPACA has “sensitized” more people to the cost of health care services by delinking many workers from employer-sponsored health insurance, which occurs as group plan costs continue to rise and employers hire more part-time workers to avoid the PPACA’s employer mandate. Although non-group policyholders may receive a subsidy to offset the cost of their premiums, they are still left with large out-of-pocket expenses. 

“The [PP]ACA does not push for healthy competition,” Restrepo said. “It pushes for managed competition in which sundry regulations under the law limit how competitive insurance companies and hospitals can be.”

Source: The Heartland Institute; August 17, 2015.

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