The Price Tag of Healthcare: Understanding the Need for Rate Transparency

Using new regulations, the previous administration has made it easier for consumers to access hospital pricing information. This is a good thing. Payers should also gain valuable insight from this data during hospital-payer negotiations.

Savvy hospitals should consider comparing their rates to those of their competitors. People can often secure better deals by paying cash rather than using insurance. However, transparency alone isn’t enough to lower healthcare costs.

Costs

Patients may have difficulty predicting the healthcare rates. Even with insurance, they often only know how much a provider charges for services once the bill arrives. These surprise medical bills can lead to debt and bankruptcy.

While new CMS rules require hospitals to make payer-negotiated prices transparent, this information is often hard to find and understand. Furthermore, even though many hospitals have price transparency data, it has been shown that consumers do not use it to lower their medical costs. Patients need trusted, actionable cost and quality information to shop for care.

This information could help consumers reduce their deductibles and avoid debt. It can also help them plan for future medical expenses, especially if they pay out-of-pocket. Increasing pricing transparency can also empower individuals to demand value from their providers, driving business to those who provide the best value and incentivizing others to compete on price.

Access

As of January 1, 2021, hospitals must publish their standard charges—also known as “list prices”—on an online tool and in a machine-readable format. However, the rate transparency requirements do not extend to insurer-negotiated rates. Officials GAO interviewed reported that legal and other factors, such as contractual obligations between providers and insurers, could prevent sharing these rates with consumers.

Hospital list-price data is irrelevant to patients because they rarely pay these amounts; instead, they typically incur costs through a combination of insurer-negotiated rates, deductibles, copayments, or coinsurance. More relevant to consumers would be price information that reflects a package of services, like a knee replacement.

Further,  rate price transparency alone is likely to change healthcare spending and quality if it is accompanied by other policies to improve value. For example, shifting from fee-for-service payments to episodes of care or payment for outcomes rather than procedures may increase the usefulness of transparency tools by focusing them on products and services that are truly shoppable.

Quality

Many advocates of price transparency argue that providing consumers with this information will cause them to shop around for the best prices, rewarding providers that offer a good value and incentivizing others to fall into line. This idea is rooted in the broader movement toward “consumerism,” which envisions consumers taking more responsibility and control of their health care and spending.

However, the evidence on consumer-facing pricing initiatives is mixed at best. Crude forms of the practice, such as publishing hospital list prices, may not help patients get better value. For one, hospital list prices are often irrelevant to patients: Patients don’t pay the published fees; they receive complex packages of services that involve multiple providers and cost a mix of insurer-negotiated rates, deductibles and copayments or coinsurance.

Additionally, current price transparency requirements don’t require hospitals to report quality alongside their prices. This oversight could exacerbate information asymmetries because patients without access to rigorous quality data might rely on proxy variables such as physician or hospital brand reputation or patient satisfaction scores to determine provider choices.

Payment

Transparency may help patients avoid unnecessary financial harm in a world of ever-growing healthcare costs. But to be effective, this type of transparency must go beyond releasing a hospital’s chargemaster list and include estimates that tell consumers how much they can expect to pay in full for specific services. The new rules that require hospitals to make negotiated rates available online are a start.

Still, more must be done to ensure this information helps consumers save money. The key will be focusing on truly “shoppable” products and services, such as MRIs or prescription drugs, and combining price information with data on quality and outcomes.