Will Price Transparency in Healthcare Make Things Better?

By | January 15, 2020

United States purchasers of healthcare pay higher prices for a unit of service relative to other countries. In fact, these prices are primarily opaque, and the consumer rarely knows what it will owe for payment before they make a purchase. Market-based economics argue that price transparency of products leads to greater competition, thus leading to lower costs over time. Therefore, there is a tremendous focus concerning price transparency in healthcare to both decrease surprise billing and lower costs.

The present proposed changes will require hospitals to post publicly their prices per medical services based on negotiated rates with their payers. Secondly, clinicians, health insurance issuers, and self-insured group health plans must provide patients with estimates of their out-of-pocket costs before receiving care. This latter part will assuredly reduce surprise billing as well as allow for conversations on how to avoid less valuable services to lower costs. This will prepare and enable consumers to contemplate their methods of financing their care. Doing this may lead to decreased utilization of unnecessary or low-value testing and procedures as the patient will be better equipped with financial information.

However, there is tremendous concern regarding the exposure of negotiated hospital prices. Since the primary goal is to allow the consumer to “price” shop, since they will now know the costs, we must examine if this will, in reality, actually occur. To date, the data that examines the impact of price knowledge on purchasing decisions shows that consumers rarely utilize this information and, therefore, infrequently change their choices. Although this behavior may change over time, currently, there is a dominant preference for the patient to listen to both their provider and word of mouth versus shopping based on price and quality. Numerous price transparency tools presently exist with minimal usage.

Another concern is in allowing all to view everyone’s negotiated prices; this will enhance a hospital’s ability to negotiate higher rates, and thus equalize payments and decrease the ability of payers to distinguish their products based on price. Moreover, this leads to the argument that prices will rise rather than fall, as there will no longer be a negotiation lever between payers and providers. However, there would be a benefit to those participating in value-based payments, as they will have a much better idea of the cost of services in a market, and can thus refer based on pricing as long as it does not impact quality.

My utmost concern is two-fold. First, what is the problem we are attempting to solve, and secondly, does knowing the price make a difference? These facts interrelate when it comes to hospital costs. To no one’s surprise, most hospitalizations are not elective, and those services that fall into such a category are moving into the ambulatory arena where pricing transparency may lower prices if purchasing behavior changes. Thus, if treatment is essential in a situation where I really could not choose, how does knowing the cost help me select a less expensive venue? Affordability is the major problem that faces the consumer. Truthfully, healthcare is too costly. As we implement price transparency as a lever to solve this issue, let us ensure we understand as many of the dynamics as possible and apply it in a way in which we can monitor for the intended effect. Let us utilize all our tools in our toolbox to lower unit costs, as well as ensure we are not using a hammer when a screwdriver is necessary.