There was a time when consumers shopped for new cars with the same kind of limitations that hinder them from shopping for affordable health care today. The Automobile Information Disclosure Act of 1958, passed five decades after Model Ts first rolled onto the streets, finally brought about published sticker prices for new cars. In today's Internet-powered world, consumers now enjoy a wealth of information -- far beyond simple sticker prices -- that help them select the vehicles that best fit their needs. Powerful politicians, from the president on down, have recently stepped up their efforts to arm consumers with similar knowledge about health care services and supplies. With increasing force, they have been calling for detailed pricing information on everything from hospital procedures to medical devices to prescription drugs, and -- despite resistance from powerhouses inside the health care industry itself -- they insist that they will win out in the end. Already, millions of customers have signed up for increasingly popular "consumer-driven" health care plans that promise more affordable coverage. However, experts say, those customers still need far more information -- about both prices and quality -- in order to effectively shop for the health care services they require. Thus, some foresee major changes on the way. The Center for Health Transformation, an organization founded three years ago by former House Speaker Newt Gingrich, is at the forefront of that ever-growing crowd. "Health care is the last significant sector of the economy in which transparency isn't apparent and everywhere," Jim Frogue, state project director for the center, told TheStreet.com this week. "We think that the more transparency -- in all sectors -- the better. ... The publicly traded companies that embrace this trend will be fine. But those that try to fight it, that try to resist it, are going to get hurt."
'Like It or Not'The center has pushed for enhanced disclosures from hospital companies in particular. Some crucial information has, in fact, already started rising to the surface. Notably, the Centers for Medicare and Medicaid Services recently promised to start publishing the government-discounted rates it pays for common hospital procedures. Such data, some feel, should help consumers -- who have long been in the dark -- determine how much they should pay for those services themselves.
In the meantime, California released some groundbreaking information about hospital quality just this week. For the first time ever, California has published mortality rates for patients undergoing heart bypasses at every hospital that performs the surgeries across the state. Four of those 121 hospitals emerged with higher death rates than anticipated. All four were owned by Tenet Healthcare ( THC) when the surgeries took place in 2003. "The 2003 data showed positive areas at Tenet hospitals -- and some problem areas," Tenet spokesman Steven Campanini acknowledged. "We expect 2004 and 2005 data to show some improvements." Joseph Carey, executive director of the California Society of Thoracic Surgeons, has portrayed such progress as essential. Rather bluntly, Carey told The Los Angeles Times this week that underperforming heart programs will shut down "once the public finds out that these places are not doing a good job." But Frogue, for one, believes that hospitals -- like patients -- will benefit from enhanced disclosures in the end. "Hospitals certainly are not the enemy; we're not trying to paint them as the big, evil guys," Frogue says. "But at the same time, we're trying to help them help themselves -- because this trend is coming, whether they like it or not."
'The Public Interest'The Federation of American Hospitals, which represents for-profit players such as HCA ( HCA) and Tenet, has long suggested that hospital sticker prices would prove meaningless to everyday consumers. In an op-ed piece published by Modern Healthcare two years ago, Federation President Chip Kahn said that consumers should instead continue to rely on health insurers -- which negotiate wholesale discounts with hospitals -- to seek their savings for them. The Federation directed TheStreet.com to that same article when asked for its view on the matter right now. Ironically, some hospitals have found themselves fighting to use valuable pricing information themselves. One of the industry's biggest purchasing groups is currently in the midst of a courtroom battle with Guidant ( GDT) as it seeks to use pricing data on heart devices -- deemed confidential by Guidant itself -- that might help its hospital clients save money.
Guidant has already won a favorable ruling in that case and is now seeking an injunction against Aspen Healthcare Metrics, a division of the purchasing organization, so it can keep its pricing information from spreading. Guidant has gone so far as to argue that such a ruling would help the public interest. "Tortious interference with contracts between a medical device manufacturer and the hospitals that use its devices is not in the public interest," Guidant states in a recent courtroom filing. "Aspen's intent with respect to obtaining and using Guidant's confidential information is not to benefit the public. Aspen's sole motivation is to profit from that information."
is proving its worth" and recommending two major PBM stocks -- Caremark ( CMX) and Medco ( MHS) -- as a result. Merrill Lynch owns at least 1% of Caremark's stock and expects to receive investment-banking business from Medco over the next three months.
'Unequal Fight'Pharmacy benefit managers have offered somewhat similar arguments when defending their own secrecy. They portray their financial arrangements with drug manufacturers as proprietary and claim that enhanced disclosures would hurt -- rather than help -- the public interest. So far, PBMs have managed to convince a number of states to take their side. Earlier this week, the industry's powerful lobbying group -- known as the Pharmaceutical Care Management Association -- boasted that six states have now rejected new PBM disclosure laws so far this year. PCMA said that it "believes strongly that the bills went down to defeat in large part because they would have increased prescription drug costs for consumers and employers." Merrill Lynch analyst Thomas Gallucci quickly publicized PCMA's claims, saying that the "PBM business model
Technically, at least half of the states PCMA mentioned have yet to fully consider the PBM laws that have been proposed. PCMA President Mark Merritt claims that those bills "weren't even popular enough to get rejected." But Sharon Treat, executive director of the National Legislative Association on Prescription Drug Prices, offers a far different scenario. Treat says that many states have simply set aside PBM legislation -- which covers a complex and, quite often, unfamiliar topic -- until they have more time to study it. Meanwhile, she says, more and more states continue to introduce PBM rules in an effort to curb escalating drug prices and raise awareness on the matter in the process. While serving as a senator in Maine, Treat authored one of the only PBM laws that have so far managed to take effect. But she fully expects other states to pass similar laws -- possibly this year -- as they come to better understand how PBMs operate. Treat's group has been widely recognized as a driving force behind that effort. "But it's a very unequal fight," she says. "The fact of the matter is that PBMs have the resources and the ability to go all over the country. I don't even have a travel budget. ... Just imagine what would happen if we actually had some resources."
'Competitive Edge'Most recently, Treat testified in favor of a PBM bill in Colorado that fell just one vote short of leaving the health care committee. By now, Treat says that others -- including AARP and Consumers Union -- have started fighting for more transparency from PBMs as well. To its credit, however, PCMA continues to rack up victories. The group even won some assistance from a fully transparent PBM last time around.
"One of the folks from that PBM testified against the bill in Colorado," Treat says. "He said, 'Then everyone will have to do things the way that we do them -- and we'll lose our competitive edge!'" To be sure, transparent PBMs have discovered a clear demand for their services. One of them, known as Navitus, actually started from scratch when the state of Wisconsin came calling. Navitus CEO Allan Zimmerman says that Wisconsin was seeking a new PBM that would pass through all of its drug savings in exchange for a simple administrative fee. Since then, Zimmerman says, Navitus has not only met Wisconsin's drug-spending targets but has actually come in under budget -- by at least $25 million -- two years in a row. Clearly, he says, the company's full-disclosure model has not hurt its ability to bring about savings for its customers. Looking forward, Zimmerman sees his company's own model -- rather than that embraced by larger players -- as the real wave of the future. "I think the big PBMs will continue to survive," he says. "However, I think there will be an ongoing erosion of their base over time. ... If you fast-forward 10 years, I would say that transparency will be the predominant model in the PBM industry."
And it's still not easy to be a health care shopper today." Michael is doing his part to change all of that. Now 23, he will soon enter the master's program in health policy and management at Harvard Medical School. In the meantime, he recently launched his own Internet blog focused specifically on consumer-driven health care. Michael says the site, just a few weeks old, already attracts hundreds of visitors a day. "People are very passionate about the subject," he says. "Everybody wants the same thing -- better health care for more people. ... I see major changes from a decade ago, so I see them in the future, too. In fact, I see them happening right now."