Is Health Care Price Transparency Key to Lowering Costs?

How much does an MRI cost? It depends. In fact, for privately insured patients, the difference in the costs for an MRI could be as great as 65 percent—even at the same hospital. Such counterintuitive price differences arise because hospitals and other health care providers negotiate the prices for care with each individual insurance company separately. The prices resulting from those negotiations are kept secret from the public, which means that many privately insured patients simply have no idea how much their plan is charged when they receive care. Most patients will not know the true “cost” of their health care until weeks after receiving medical care when they receive a bill. But this veil on health care pricing would be lifted under a new rule proposed by the Centers for Medicare and Medicaid Services (CMS). Hospitals would be required to disclose the prices they negotiate with private insurance plans for services such as X-rays, MRIs, and common laboratory tests. The proposed rule comes after President Donald J. Trump directed the U.S. Department of Health and Human Services (HHS) in June 2019 to require hospitals to post information “that will meaningfully inform patients’ decision making and allow patients to compare prices across hospitals.” Experts suggest that the proposed price transparency rule has two aims: improving consumer access to information about out-of-pocket costs and increasing price competition in the private health care market. “Health care is the only industry where customers must purchase a product or service with no idea what it will ultimately cost,” reportedly said Marni Jameson Carey, executive director of the Association of Independent Doctors. The proposed rule contains two demands. First, it requires disclosure of negotiated prices for 70 “shoppable” services, which are those that patients can typically schedule in advance. Such services could include outpatient visits or even cesarean deliveries. Second, the proposed rule requires that the prices be listed in a “consumer-friendly” format. CMS states that this requirement would make hospitals list prices “in a prominent location online” or in written form. It would also mean that prices are written in “plain language” and includes information about health care services that are typically provided alongside the listed service. Supporters of the measure argue that equipping consumers with information will make the health care market more competitive, lowering costs to the benefit of consumers and payers. Supporters can point to findings that, even after controlling for hospital fixed effects, insurance plan traits, and patient traits, over 20 percent of the total national variation in prices comes from within-hospital price variation. Recent polling indicates that 82 percent of voters want to know ahead of time how much non-emergency care costs. These costs are relevant to many people who have plans that require coinsurance payments or who must pay high deductibles. But some health care market experts push back on the premise that public disclosure of negotiated rates will make the private health care market more competitive. They point to states that have price transparency laws on the books. They maintain that those laws are not often effective for consumers shopping for care, turning to reports that suggest that current state regimes require consumers to process a lot of information and interpret how pricing data affects them individually. Hospitals are also wary that providing the negotiated rates will lead to more competitive health care markets. Rick Pollack, president and chief executive officer of the American Hospital Association, stated that the proposed rule “could seriously limit the choices available to patients in the private market and fuel anticompetitive behavior among commercial health insurers in an already highly concentrated insurance industry.” Hospitals fear that health plans will leverage the disclosed prices to negotiate lower rates, to their financial detriment. Although lower health care prices are a top priority for the American public, hospitals could feel particularly squeezed for resources when pressured to lower negotiated prices with more private insurers. Alternatively, they may feel compelled to justify how their higher rates reflect better quality, perhaps using advertising schemes that could run afoul of fraud and abuse statutes. Some early industry-based polling indicates that some providers, including hospitals, are wary about the proposed rule. In one recent poll, nearly half of respondents indicated concern about the proposed rule’s requirement that negotiated rates be made public. About 22 percent of participants indicated that they were concerned about their ability to provide information about out-of-pocket costs to potential patients. Health insurance plans, too, worry about the proposed rule. Just as hospitals worry about being forced to lower their reimbursement rates, health plans are concerned that, especially when negotiating with large health systems, they will be forced to raise prices. “Competition experts, including the bipartisan Federal Trade Commission, agree that disclosing privately negotiated rates will reduce incentives to offer lower rates, creating a floor—not a ceiling—for the prices that hospitals would be willing to accept,” argues Matt Eyles, president and chief executive officer of America’s Health Insurance Plans. If the proposed rule is finalized, hospitals and health plans are likely to sue CMS, perhaps on the ground that negotiated rates are trade secrets. Indeed, negotiated rates have long been treated as confidential, as health care is a highly competitive industry. For example, when HHS indicated in a different proposed rule that it was thinking about adding pricing information to the definition of “electronic health information,” UnitedHealth Group reportedly told the agency that such information constituted trade secrets. With health care likely to remain a top issue among voters in the upcoming election cycle, many Americans are paying close attention to plans from both Democrats and Republicans to address problems of access and cost. It remains to be seen whether the Trump Administration’s pricing transparency plan will provide relief to the millions of Americans who have private health insurance plans. The proposed rule’s comment period ended on September 27, 2019