Why Health Care Price Transparency Regulations Have Not Lowered Prices

In health care prices are difficult to obtain and often meaningless when they are available. There is not one price but many prices. There is a list price for uninsured patients. There is a cash price for uninsured patients who negotiate price prior to receiving care. There are numerous different prices paid by insurance companies. The list price often serves as little more than a starting point for negotiating insurance company discounts. 

In his first term, President Trump took steps to require hospitals, clinics, and health plans to post prices for common procedures. Not every hospital has complied with the regulation. When they do the data is often difficult to read and billing codes associated with a procedure are not bundled. For example, what does an appendectomy cost? There may be numerous services that go with a surgery, including anesthesia, surgical trays, surgical instruments, operating theater time, and numerous other expenses. Hospitals have no incentive to help patients navigate the system. A patient told to get an MRI, for example, cannot go online and easily find the lowest price in their community. Patients are reluctant to shop for medical care even though most would likely welcome lower costs. A study by a Yale University health economist Zack Cooper confirmed patients rarely compare prices. The following is from KFF Health News:

In 2021, Cooper co-authored a paper based on data from a large commercial insurer. The researchers found that, on average, patients who need an MRI pass six lower-priced imaging providers on the way from their homes to an appointment for a scan. That’s because they follow their physician’s advice about where to receive care, the study showed.

The above points to another problem. Doctors who work for hospitals likely refer patients only to their employers. Regulations should require doctors and their hospital employers to inform patients they have a right to choose another imaging center, and doctors honor their request.

The policy results thus far seem to put a damper on long-held hopes, particularly from the GOP, that providing more price transparency would incentivize patients to find the best deal on their imaging or knee replacements.

Most patients needing a knee replacement would welcome a cheaper price if the quality were comparable. A reference pricing experiment in California by CalPERS, the California public employees retirement system illustrated patients save month when they have an incentive to compare prices. It found educating patients, doctors and hospitals that putting patients on the hook for all costs above a benchmark resulted in more patients seeking out the lower cost hospitals. More from KFF Health News:

The top use for the pricing data for health care providers and payers, such as insurers, is “to use that in their contract negotiations,” said Marcus Dorstel, an executive at price transparency startup Turquoise Health.

Claims data from across the country has found that prices vary tremendously from one facility to the next. Economists have argued that huge price variations make little sense. In a competitive market any firm charging several times more for a service would quickly lose business. Health care is not competitive, however. Patients experience cost sharing but often the bill is paid by a third party. Third party administrators (TPAs) are reimbursed by plan sponsors (usually employers). For their part, employers do not bear the entire cost of employee health benefits: workers do. Yet workers often do not benefit from efforts to save money. Everyone’s incentives are reduced. 

Conclusion. It will take more than raw data buried on a hospital website to encourage patients to compare prices. Four things need to happen before patients routinely compare prices:

1. Patients need clear financial incentives.
2. Patients need the tools to compare prices.
3. Patients need to be trained on how to compare prices.
4. Providers must be forced to comply with regulations designed to facilitate price comparison. That means Health plans need to design benefits in ways that reward price comparison, such as using reference pricing.

Patients need the knowledge and the tools to easily compare prices. There are numerous examples of how to turn patients into shoppers. Stakeholders just have not been forced to take the necessary steps.

Read more at KFF Health News: Trump Required Hospitals To Post Their Prices for Patients. Mostly It’s the Industry Using the Data.