The U.S. has significantly higher prices for healthcare than other nations with advanced economies, and this applies to prescription drugs and diagnostic tests as well as surgical procedures. It is also one of the biggest categories of consumer spending and accounts for nearly a quarter of government spending.
The situation does not show signs of improving, with the Brookings Institute reporting that per capita healthcare spending in the U.S. nearly quadrupled in the years between 1980 and 2018. With health insurance representing the biggest component of nonwage compensation for American employees, the rising prices are also having a significant impact on many businesses’ bottom lines.
Some experts believe that price transparency could go a long way toward turning the tide. Being transparent about the price of healthcare services can help to define their value, enabling patients and care purchasers to better compare and choose providers.
Right now, health plans, their insured customers, and self-pay patients are given dramatically different prices to get the same service from different providers, and the higher price does not usually mean better quality. For example, one hospital association reports that their average hospital member has more than 150 prices for every procedure they carry out.
In addition, a recent article published by the Wall Street Journal showed that one California hospital charges between $89,752 and $515,697 for a billing code linked to a cardiac procedure; the actual price paid is determined by the patient’s insurance. A different hospital in the state charges anywhere from $16,922 to $29,000 for a C-section.
In light of this dramatic variation in prices that are not linked to value, many experts believe that being more forthcoming about healthcare-related prices and quality could lead overpriced providers to drop their prices or risk losing business.
What Is The “New” Hospital Transparency Rule?
Under a new hospital transparency rule, every hospital that operates within the U.S. is required to post accessible and clear pricing information for the services and items they provide as both a comprehensive, machine-readable file containing all the information and as a display of shoppable services that is presented in a consumer-friendly format.
The aim is to facilitate price comparisons across hospitals so customers can estimate how much their care will cost before they go to the hospital. The Centers for Medicare & Medicaid Services (CMS) will carry out regular audits of a selection of hospitals; those that fail to comply could face civil monetary penalties.
The first two hospitals have recently been fined for noncompliance of the transparency rule: Northside Hospital Atlanta and Northside Hospital Cherokee have been fined for $880,000 and $214,000, respectively. This may be the beginning of a growing trend of CMS keeping hospitals accountable for transparency.
Why Does The Hospital Transparency Rule Matter?
There are many ways that these new transparency rules could alter the dynamics in the healthcare market. For employers, it could give them the information needed to pressure their health plans to reduce their premiums or create tailored selective provider networks. They can also teach their employees to use the information to help in making healthcare decisions, which is particularly valuable to those who have healthcare plans with high deductibles.
Health plans, meanwhile, could refine their benefit designs to provide an incentive for members to use lower-priced providers. The rule could also enable lower-priced hospitals and physicians to increase their market share. In addition, hospitals may look for ways to reduce costs without compromising quality.
How Could This Lower Healthcare Costs?
Although the long-term effects of this initiative remain to be seen, there are strong signs that the outcome could be positive. Previous smaller-scale initiatives and studies have shown that price transparency can change the dynamics in a manner that helps consumers.
For example, in states with websites that post prices of hip replacements, the cost of these procedures was found to drop by 7.3 percent, with roughly half of this reduction attributed to providers reducing their prices and half coming from consumers choosing less-expensive hospitals.
Another initiative that involved informing patients who had received MRIs about imaging costs noted an 18.7 percent reduction in the cost to the insurer of subsequent MRIs, with the price variations among affected providers dropping by 30 percent.
While the new transparency rule is unlikely to dramatically change the state of healthcare in the U.S. on its own, it is an important step in allowing more transparency into an otherwise opaque market and encouraging more sophisticated consumer behavior to drive down inflated prices.