By Wendy Netter Epstein
Price transparency has long eluded the health care industry, but change — fueled by rare bipartisan support — is afoot.
The Trump Administration promulgated new rules relating to health care price transparency, and the Biden Administration seems poised to keep them. Though patients have grown accustomed to going to the doctor and agreeing to pay the bill — whatever it ends up being — they aren’t happy about it. The majority of the public (a remarkable 91%) supports price transparency. And lack of access to pricing has long been a significant glitch in a system that relies on markets to bring down prices.
Though recent rulemaking looks like progress, it is still too soon to celebrate. Questions remain about consumer adoption, the role that providers will be willing to play, and the impact that transparency will have on pricing. The possibility that transparency will worsen existing inequities also requires careful observation.
The New Law of Price Transparency
The path toward price transparency started with the Affordable Care Act, which required that hospitals post their standard charges. These standard charges ended up being of little use to patients because they were hard to access and understand and bore scant resemblance to what most patients would have to pay.
The Trump Administration brought two significant changes. First, in November 2019, CMS promulgated a final rule directed at hospitals. The hospital rule went beyond the chargemaster, requiring hospitals to post payer-specific negotiated charges and the minimum and maximum payer-negotiated prices. After an appeals court rejected a challenge to the hospital transparency rule, it took effect on January 1 of this year.
Second, in October 2020, the Department of Health and Human Services issued a final rule directed at insurers. The rule requires insurers to provide personalized information on enrollee cost-sharing for health care services and negotiated rates for in-network providers, among other requirements. This rule is set to go into effect in 2023 and 2024.
The Biden Administration could still walk back these rules. But given that they build on a commitment that started with the ACA, and that public support for transparency is strong, it probably won’t.
These new rules aim to do two things: improve consumer decision-making and better the functioning of the market. Whether they can succeed remains to be seen.
Effect of Price Transparency on Consumer Behavior
Let’s start with the ideal scenario. Personalized cost estimates help patients understand cost before they consent to a procedure. Because they have skin in the game from high deductibles or other out-of-pocket costs, price transparency pushes them to refuse unnecessary care. Patients also shop around for better value care, like they do with other consumer products. As a result, prices go down.
The theory is compelling. The real world, however, isn’t quite so neat. Consumers often are not positioned to identify unnecessary care or good “value,” which requires understanding quality.
Also, not all health care is shoppable. A patient may shop for the best price on a diagnostic test like an MRI. But a patient with stage IV cancer is not likely to shop around for a lower priced surgeon. Patients are more likely to comparison shop when quality is easy to ascertain or less variable. One study found that about 1/3 of patient care is shoppable.
Many patients are not in the habit of making health care decisions that consider price. Even without these new rules, pricing information has become more readily available from insurers, employers, and providers in recent years. Yet patients have been slow to make use of it. This isn’t to say that patients won’t learn, but changing norms takes time.
A lot will depend on what use doctors and other providers make of pricing information. Patients are often beholden to the recommendations of their providers. According to a recent study, 70% of Americans think doctors should be discussing prices with them, but only 28% have actually had that happen. Implementing new payment models that incentivize doctors to consider cost are important, but there is risk in their overuse. And doctors must be able to access price information in real-time, which requires systems integration that does not yet widely exist.
Also, cost is not relevant for all patients. For instance, cost may be less salient to patients who regularly hit the out-of-pocket maximums on their policies and who regularly satisfy their deductibles.
Perhaps most importantly, it is not clear that we want all patients to care about cost. As COVID-19 has only served to highlight, health inequity in the United States is tragic. Price transparency has the potential to exacerbate health inequity if it causes patients to turn down necessary care that they cannot afford. While lower priced care is not necessarily lower quality, increased reliance on price could push lower income Americans to lower quality care. Close monitoring is essential. A stronger safety net and reduced out-of-pocket costs for more vulnerable populations are also important corollaries to the price transparency rules.
Effect of Price Transparency on Market Pricing
While the rule requiring insurers to provide personalized cost estimates aims to impact consumer behavior, rules requiring disclosure of negotiated rates focus on lowering market prices.
At the outset, it is important to note that early compliance with the hospital transparency rules seems to be low. One study of the largest 100 hospitals in the U.S. found that 65% were unambiguously not compliant with the rules. And another investigation found that hospitals are using code to block their price lists from google searches.
But even if hospitals end up complying, the effect the rules will have on pricing is unclear. The health care market is notoriously flawed. Prices in the U.S. are considerably higher than in peer countries. Insurers pay highly variable rates even for care provided at the same hospitals.
Transparency could improve these faults. Disclosure of prices will allow insurers that are overpaying providers to negotiate better rates. But the opposite could also happen — providers garnering lower rates relative to competitors may be able to negotiate higher ones.
A lot will depend on bargaining power and market consolidation. Concentrated markets — which prevail in much of the country — generally have higher prices.
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It has always been incomprehensible that prices in health care are so opaque. It is logical that patients deserve to know what they are committing to pay before they agree to pay it. But as we applaud this progress, policymakers must closely track the effects of increased transparency.