Greater transparency in health care prices is coming; it’s badly needed
By Seema Verma
In today’s information age, the average person can empower himself or herself with knowledge like never before. But there is one notable exception: Most Americans have no idea what a health care service costs before they get it. If we expect to lower health care costs, that must change.
Companies in every other industry compete for consumers on the basis of cost and quality. Decisions made by informed consumers drive companies to deliver the products people want at prices they can afford.
Yet in health care, prices are intentionally hidden at the point of purchase. For too long, insurers and hospitals have dubiously claimed that negotiated prices are a strange variation of proprietary business secrets that they’ll share with you — just after you receive the service.
Remarkably, prices are even hidden from people with high-deductible plans who must pay for a substantial amount of services out of their own pocket before their insurance kicks in.
Imagine buying a car without knowing the price and then getting the bill two weeks later. Would the car dealership send you a bill with its best price?
Of course not. But that’s exactly how our health care system works.
Clearly, without first knowing the price, a patient cannot actively choose more affordable health care and, therefore, cannot put downward pressure on prices. It’s not surprising then that health care costs continue to outpace inflation and now account for nearly $1 in every $5 in the economy.
Moreover, without patient involvement upfront, health care prices can often vary widely. That’s in part why the average MRI price in the highest priced region of America is five times the average price in the lowest priced region. It also helps explain why patients get blindsided by surprise bills. You don’t hear about surprise car bills because car consumers are informed and prepared for such a large expenditure up front. The same should be true for health care consumers.
The Trump administration is unlocking health care prices. In June, President Donald Trump signed an executive order focused on eliminating unnecessary barriers to price and quality transparency to protect patients and increase competition, innovation and value in the health care system. The federal agency I lead, the Centers for Medicare and Medicaid Services, is taking swift action to implement it.
By January 2021, under the recently finalized hospital price transparency rule, hospitals will be required to post the negotiated rates insurers actually pay for services and the cash price the hospital is willing to accept directly from a patient. To further help consumers, hospitals will be required to share price information on the internet for common shoppable services, including more complex bundled services like joint replacements. All of this information will be posted in a common format that makes it easier for consumers to compare prices across hospitals.
CMS also has proposed new rules that would make prices more transparent for health plan members. These rules would require employer-based and individual market health plans to provide personalized access to pricing and out-of-pocket costs through a standardized web tool. Additionally, health plans would be required to make negotiated prices publicly available to consumers, researchers, employers and developers interested in developing new tools to help consumers.
Those with a vested interest in maintaining the status quo of preposterously high and unpredictable health care pricing will no longer be able to hide.
These powerful interests will complain that price information remains proprietary to their business. But their claims don’t hold water. This information is already available to patients in their explanation of benefits — but only after they’ve received care. These rules simply require that the same information be shared upfront.
They’ll complain that transparency will take away negotiating power and will increase health care prices. You’ll also hear services, especially emergency services, aren’t shoppable, and that patients don’t use shopping tools when available. Don’t be fooled. These complaints are all about protecting profits.
In industry after industry, upfront pricing is standard business practice — and rightly so. That’s because it is essential to an efficient and effective market. It feeds the competitive market forces that drive down prices.
The same economic principles apply in health care. When New Hampshire launched a website with health care prices for everyone with private insurance, prices for imaging services dropped, saving patients millions of dollars. Kentucky recently made pricing information available to state employees and offered rewards to employees who chose lower-cost options. As result, 42% of eligible shoppers looked up information on prices and rewards, and 57% chose a more cost-effective option. This is basic economics in practice.
For too long, the health care system has catered to the demands of powerful vested interests led by hospitals and insurers. The decadeslong norm of price obscurity is just fine for those who get to set the prices with little accountability and reap the profits, but that stale and broken status quo is bleeding patients dry. The price transparency delivered by these rules will put downward pressure on prices and restore patients to their rightful place at the center of American health care.