Health Care Price Transparency: The Good, The Bad, and The Ugly

Just this week, four hospital groups, including the American Hospital Association, filed a lawsuit to challenge the Trump administration’s new requirement for hospitals to publish the rates they negotiate with insurers, which is set to take effect on January 1, 2021.

Naturally, the new price transparency rules are welcomed by consumer advocates, but this is a rare instance where providers and payers can stand united in opposition. It’s easy to be cynical (“Of course they don’t want this!”), but in the end, could this legislation do more harm than good?

The Good

Few people will argue with the fact that health care organizations (and not just hospitals) need to do a better job in helping consumers make educated decisions. It’s hard to think of another industry where you consume services before you know the cost. Especially when pricing can vary significantly for the same procedure, even within the same market (note the 2015 Blue Cross and Blue Shield report that showed variability in cost for total knee replacement surgery in Dallas alone ranging from $16,772 to $61,584).

There has been a great deal of hope about price transparency and health care consumerism and that:

The Bad

Price transparency is a good thing, but what’s bad is that the majority of health care services are not “shoppable,” meaning they can be researched and scheduled in advance. The Health Care Cost Institute estimates that just seven percent of total health care spending for Americans with job-based coverage was on medical services that could be considered shoppable.

Even when services are shoppable, most consumers don’t do it. A 2018 L.A. Times/Kaiser Family Foundation poll showed that only one in six covered workers even tried to shop for the best price for a medical service in the previous year. Why? The same survey found that two-thirds of workers with job-based coverage said finding the cost of a medical treatment or procedure was somewhat or very difficult. Does this mean that the new mandated price transparency tools could make a difference? Yes, but old habits die hard. Research indicates that most consumers rely on physician referrals and word-of-mouth recommendations from family and friends when making decisions – not pricing information.

The Ugly

You may still be saying, “So what?” Why not just democratize availability of pricing information so that consumers at least have the option to access it?

The release of this information poses significant downsides that are not justifiable without an equally significant upside.

The key issue with the legislation is that it requires disclosure of negotiated rates between providers and payers – proprietary information that may impact negotiations. When clinicians and medical facilities can see negotiated payments, they may leverage the information to bid up their prices. Some providers may see that they are underpriced compared to their peers and raise charges.

In addition to impact on pricing and competition, many organizations are not equipped to manage the upfront and annual administrative burden of disclosing gross charges, negotiated rates and cash prices for literally thousands of services.

Where does this leave us? For now, hospitals must prepare, but we expect a formidable fight in 2020. Regardless of the final ruling, price transparency is a topic that isn’t going away. Centers for Medicare and Medicaid Services (CMS) administrator Seema Verma is a passionate advocate for change and the political climate has put provider organizations under tremendous scrutiny. As hospital communicators, it is our job to help mitigate this risk and position our organizations as part of the solution, not part of the problem.

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