For Price Transparency, the Outlook is Murky

Martin Moll, J.D., advises medical practices of all shapes and sizes in his role as founder and advisor at Breakaway Bookkeeping & Advising. When the topic of price transparency comes up, he immediately points out a fundamental problem.

“If you talk about price transparency, it actually requires transparency,” he said. “And at the end of the day, that’s the hard part for doctors, because they actually don’t know what things cost.”

Typically, doctors don’t calculate the individual costs of services, he said. Instead, they tend to add up their overall expenses and reimbursements and declare it a success if they end up in the black. Price transparency is another item on the miles-long list in healthcare for which the saying is far easier than the doing. Nearly two decades after the introduction of health savings accounts and high-deductible health plans and a full decade after the Patient Protection and Affordable Care Act (ACA), which required hospitals to publish their chargemasters, it’s more idea than actuality.

As an idea, price transparency is easy to grasp because it is so familiar to people living in an economy fueled by consumer spending. For decades, U.S. healthcare has been paid for primarily by third parties, insurers and public payers, and that makes people heedless of cost and not especially interested in shopping for less expensive care. But, the theory goes, if Americans knew the price of healthcare services and had to pay a substantial share of the cost, they would be more inclined to shop around, and expensive American healthcare would benefit from a healthy dose of market competition.

But pulling the curtain back on prices isn’t so easy. Despite efforts from presidents on both sides of the political aisle, healthcare prices remain obscure, confusing or both.

The Trump attempts

In November 2019, President Donald Trump signed an executive order that translated into two new price-transparency rules, one governing hospitals and the other, health plans. Both are scheduled to take effect next year. The hospital rule would require hospitals to make public their rates under negotiated agreements with insurers, as well as how much they are willing to accept in cash payments from patients for particular services. For 300 common “shoppable services,” hospitals would need to make such data available in a consumer-friendly format rather than merely a machine-readable file.

For insurers, the “transparency in coverage” rule would require them to provide cost-sharing information to members, including estimates for covered items and procedures. They would also need to publicly disclose negotiated rates for in-network providers and allowed amounts for out-of-network providers. According to CMS Administrator Seema Verma, the rules would give consumers the information they need to make practical and informed healthcare decisions — and more. “Today’s rules usher in a new era that upends the status quo to empower patients and put them first,” she said in a press release.

But the hospital rule quicky became ensnared in court challenges by the American Hospital Association. In June, a federal district judge ruled in favor of the administration and against the hospital association, referencing the argument that patients who know about prices will put pressure on providers to lower costs. The hospital association said it will appeal the decision. The insurance rule had yet to be finalized as of this summer; once it has been, there is little doubt that it too will face legal challenges.

Katie Keith, J.D., M.P.H., a healthcare consultant who blogs about the ACA for Health Affairs, said these rules are deeply unpopular among insurers and hospitals. “I don’t think anyone in the industry wants their prices — their negotiated rates — to be public,” she says. Brian Blase, Ph.D., a former Trump health administration official who was influential in developing price transparency polices, said in a recent Health Affairs blog that hospitals aim to maximize profits and they oppose price transparency because they believe it will reduce those profits.

Other Trump administration attempts at price transparency have also become bogged down. A 2019 executive order that would have required drug companies to disclose the wholesale acquisition costs of drugs in advertisements was blocked after a court ruling that the Department of Health & Human Services did not have the authority to compel such disclosures. In response, the president began calling on Congress for a bipartisan drug price transparency bill. A number of members have been working on such bills, but so far no major proposal has made it to the president’s desk.

Although the administration has moved to trim regulations in a number of different industries, Keith said healthcare is one area in which Trump has pushed to add new consumer-friendly regulations, even when that has meant going to war with industry. “They have really doubled down on interoperability too,” she says. “It’s not quite the same thing as transparency, but it’s kind of that same concept that they want patients to have access to (information).”

Does it even work?

Eric Ellsworth, M.S., MBA, director of health data strategy at Consumers’ Checkbook says many of the current forms of healthcare price transparency are not meaningful to consumers. For instance, although some insurance sites give estimates of costs, he says, “you still can’t really take that to the bank. You can’t do anything with that. It’s just sort of an awareness tool.”

In response to the proposed insurance rule, American’s Health Insurance Plans (AHIP), the main trade group for the health insurance industry, submitted a 57-page comment in which they assert that transparency could end up harming consumers. “It will undermine competitive negotiations and push healthcare prices higher — not lower — for patients, consumers and taxpayers,” wrote Matthew Eyles, M.S., AHIP president and CEO. The group argues that if a hospital suddenly found out it was receiving less than a competing hospital for the same procedure, it would demand a higher price. AHIP also criticizes the scope of the transparency, arguing that the rule should focus only on “shoppable” services.

Moll notes that although hospitals are better than smaller medical practices at putting price tags on services, those prices don’t necessarily translate into the cost of the service alone. Hospitals can have drastically different prices on similar services, in part, because they have unreimbursed costs, such as indigent care, that they must account for through billing for reimbursed procedures. The cost of the unit care is almost irrelevant, he says, because hospitals are focused on their overall hospital margin. Moll says there’s currently a gap between reimbursement and value. He described a scenario in which an orthopedic surgeon has significantly lower readmission rates. That surgeon may save the payer money but usually has had little luck convincing insurers to recognize such that with a higher reimbursement rates.

Ellsworth believes the fundamentals of the healthcare marketplace will need to be adjusted before price transparency works the kind of consumer empowerment magic that its proponents envision. He sees the episode-based payment models as a step in the right direction because they give providers an incentive to control costs. Such payment models would also help consumers to see their care for a particular medical problem as a unit, he notes. By choosing between packages of transparently priced treatment options, consumers could make informed decisions about what they are truly want to pay for , says Ellsworth. “People have to get a little more used to defining their own goals,” he says.

Keith says asking consumers to make decisions based on cost effectiveness might be a bridge too far. However, she believes that having price data publicly available could help improve the healthcare system in other ways by, for example, aiding cost-effectiveness research.“I don’t buy that it’s effective at the individual consumer level,” she said. “But for the system, I think it could be really valuable.”

Jared Kaltwasser is a healthcare reporter based in Iowa.