Price Transparency: Disclosing the Price of Care

This article discusses the current situation of price opacity and possible solutions to making the price of our healthcare services more transparent to our patients.(1)

Would you ever consider buying an airline ticket, buying a car, or using the services of an accountant without asking the price or the fee? Our patients don’t appreciate hidden fees for our services. This price opaqueness must end, and we must disclose our fees for our services. We have nothing to hide, and there’s no excuse for not sharing the cost of care with patients before they receive our services.

Just a few decades ago, patients had little concern about costs, because the employer paid the bills for medical care. Now patients have high deductibles and copays. As a result, they are now using cost as one of the metrics for selecting a physician or a hospital.

Patients are surprised when they find a price disparity in the cost of care in various regions of the country. It’s difficult to understand how a CT scan in New York City is worth 10 or 20 times the cost of the same imaging study in New Orleans.(2)

The theory behind sharing price transparency is that when consumers can compare prices for doctor visits, hospital stays, and other services, market competition will lower prices.(3) Doctors and hospitals have rarely competed on cost. Third-party payers still pay the bulk of healthcare bills, and many players in the healthcare industry benefit from keeping their costs and profit margins opaque. The pressure to post and share the cost of care is increasing, however. Consumers are becoming more price sensitive as they shoulder a growing proportion of health costs.(4) In 2018, 38% of Americans with employer-sponsored insurance had a deductible of $1000 or more — up from 10% in 2006.(5) Silver and bronze plans created by the Affordable Care Act carry average family deductibles of $6,000 and $10,386, respectively. More than half of bronze plans also require patients to pay 30% of doctors’ fees.(6) Hoping to shine a light on the variations in hospital charges, CMS released a list of the average prices that 3300 U.S. hospitals charged Medicare for the 100 most common inpatient services during 2020.(7)

The variations were startling. For example, the average charge for joint replacement surgery ranged from $5300 in Ada, Oklahoma, to $223,000 in Monterey Park, California. Even in the same city, there were wide variations. The charge for treating an episode of heart failure was $9,000 in one hospital in Jackson, Mississippi, and $51,000 in another hospital in the same city. A month later, CMS released a second database comparing average hospital charges for 30 common outpatient procedures, and the variations were just as great. A hospital in Pennington, New Jersey, charged $3,036 for a diagnostic and screening ultrasound, whereas one in the Bronx, New York, billed just $88.

Hospital administrators dismiss those list prices as meaningless and misleading, because only some patients pay them. Commercial insurers often use them as a starting point for negotiating large discounts. Medicare itself pays hospitals predetermined rates based on diagnoses, using CPT and ICD codes, regardless of what they charge. List prices also reflect all the costs of running a hospital, including keeping emergency departments, burn units, and other costly services open 24 hours a day. What’s more, many hospital executives say they must increase charges for privately insured patients because Medicare and Medicaid reimbursements don’t cover those patients’ costs — a shortfall the American Hospital Association puts at $46 billion nationwide 2013.(6)

Price transparency is well within reach of providers and hospitals. The anticipated cost is readily available information that, together with other information, helps define the value of those services and enables patients and other care purchasers to identify, compare, and choose providers that offer the desired value.

Benefits of Price Transparency

With price transparency, consumers can shop around for healthcare services, spurring competition among healthcare providers and driving down the cost of care. In theory, price transparency and access to quality information enable patients to shop for the most effective, lowest-cost healthcare available. It also drives prices down as healthcare providers compete for market share.

Discussing Price with Patients

There is a trend of informing patients what they will pay before they decide on a treatment. Let people know how much healthcare will cost — and allow them to find a better deal elsewhere. Consumers have difficulty trying to decipher their medical bills. An example is patients trying to understand explanation of benefits statements. This is compounded by patients facing a higher share of the costs with high deductibles and copays. As a result, there is momentum for making pricing more transparent.

Price transparency is common in most industries but rare in healthcare, where “charges,” “prices,” “rates,” and “payments” all have different meanings and bear little relation to actual costs. Unlike other industries, prices for healthcare can vary dramatically depending on who’s paying. The deals insurers and providers strike often are proprietary, making disclosures and comparisons difficult. Most doctors, myself included, need to be more knowledgeable about what the tests, drugs, treatments, and specialists they recommend will cost. The U.S. healthcare system has been compared to shopping in a department store blindfolded and months later being handed a statement that says, “Pay this amount.” The price transparency movement aims to lift that veil of secrecy and empower patients and other payers to be more intelligent consumers.

Federal and state agencies are collecting price information from doctors and hospitals and posting it on government websites to enable the public to have this information and compare providers and hospitals. Health plans are offering online tools that let members calculate their out-of-pocket costs. Startup companies are publishing the long-secret rates that providers negotiate with insurers.

Slow progress is being made in price transparency. Many hospitals favor price transparency, and they support a bill in Congress that would let states determine price disclosure rules. Hospitals would like to end the confusing chargemaster or the collection of standard list prices for hospital services. However, they will be able to do this only with big government and insurance industry changes in payment practices. A dissenting opinion from CMS states that chargemaster prices matter, particularly to uninsured patients, who sometimes get stuck with those inflated bills. Even doctors need to be made aware of the extent of cost variations. Traditionally, those rates have been proprietary. Neither insurers nor providers want competitors and other business partners to know what they’re willing to settle for. Some contracts include gag clauses barring disclosure of fees. But states are increasingly requiring payers and providers to reveal that information. A few states specifically outlaw gag clauses in healthcare contracts. Sixteen states have “all-payer claims databases” designed to collect insurance claims data and use it to monitor trends and identify high- and low-price providers. And some 38 states now require hospitals to report at least some pricing information, although only two — Massachusetts and New Hampshire — rated an “A” in payment reforms for making the information accessible and usable by patients.(6)

Meanwhile, entrepreneurs are discovering negotiated rates from claims data and making them available to consumers and employers. Healthcare Bluebook aims to do for healthcare what the Kelley Blue Book does for used cars: it analyzes negotiated rates that were paid for thousands of medical services in every ZIP code — supplied by employers and other clients — and posts what it considers a “fair” price so that consumers can evaluate what they’re being charged. Bluebook’s founder and CEO, Jeffrey Rice, says the rates insurers pay for an MRI or knee surgery can vary as much as chargemaster prices, particularly if a local hospital is dominant or prestigious. The difference may not be much between Nashville and Chicago — the big difference may be just a few blocks away. The Healthcare Bluebook has saved consumers 12% on healthcare costs by making price information available to their employees, with most savings coming from imaging studies, endoscopies, cardiac testing, and other outpatient procedures.(6)

Another service, PricingHealthcare.com, asks users to anonymously supply information from their own medical bills to help it amass the list prices, cash prices, and negotiated rates for common procedures. It currently shows rates for some 500 procedures in 11 states. Although some providers become upset when asked what their rates are, others are eager to share their entire price list.

Rather than adopting a defensive position, this is an opportunity to compete on quality of care, not price. Those in favor of transparency initiatives say they are eager to help plan members and employers cut their healthcare bills. Some 98% of health plans now offer their members some kind of online tool that lets them calculate their out-of-pocket costs, according to a survey by Catalyst for Payment Reform.(8) A few even allow consumers to compare providers in the same network. Members of the UnitedHealth Group Inc., with over 21 million members, can log into myHealthcare Cost Estimator and compare the negotiated rates for more than 500 individual services and providers nationwide. This cost estimator also shows the out-of-pocket costs for each service.(9) Thousands of plan members have used the tool since it launched in 2012. Unfortunately, only 2% of health-plan members with access to such cost estimator tools have used them. That number will rise as more patients become aware of the tools and see their out-of-pocket costs growing. Proponents say it is too early to tell how much transparency efforts will impact overall costs.

One approach, called “reference pricing,” has demonstrated some savings. Where local prices differ substantially for a service such as a colonoscopy, an insurer publishes a list of providers’ rates and agrees to pay a set amount. Patients must pay the difference if they choose a provider that charges more. One pilot project, the California Public Employees’ Retirement System (CalPERS), found prices for hip and knee replacements ranging from $15,000 to $110,000 in the San Francisco area. It agreed to pay up to $30,000, and some 40 hospitals cut their prices to match the $30,000 fee. In the past two years, such initiatives have helped CalPERS save nearly $3 million.(10)

For the most part, high cost does not equate to increased quality of care.(11) Experts say that as consumers increasingly compare prices, providing them with information about the quality of care is critical. A growing body of research has found no apparent connection between price and outcomes such as mortality rates, blood clots, bed sores, and hospital readmission rates.

Bottom Line: Price transparency alone cannot transform the healthcare system. It is necessary to help reveal which costs are excessive and let consumers make better-informed choices. At the end of the day, it’s their money. Patients have a right to know what their healthcare will cost.

References

1. Sisko AM, Keehan SP, Poisal JA, et al. National health expenditure projections, 2018–27: economic and demographic trends drive spending and enrollment growth. Health Affairs. 2019; 38(3):491-501.

2. Arenchild M, Offodile AC, Revere L. Do we get what we pay for? Examining the relationship between payments and clinical outcomes in high-volume elective surgery in a commercially-insured population. INQUIRY: The Journal of Health Care Organization, Provision, and Financing. 2020; 57: 0046958020968780.

3. Zhang A, Prang KH, Devlin N, Scott A, Kelaher M. The impact of price transparency on consumers and providers: a scoping review. Health Policy. 2020; 124:819-825.

4. Loewenstein G, Friedman JY, McGill B, et al. Consumers’ misunderstanding of health insurance. J Health Econ. 2013; 32(5):850-862

5. Emanuel EJ, Glickman A, Johnson D. (2018). Measures of the burden of medical expenses—reply. JAMA. 2018; 319:1621-1622

6. Beck M. How to bring the price of health care into the open. The Wall Street Journal. February 23, 2014. www.wsj.com/articles/SB10001424052702303650204579375242842086688

7. Medicare inpatient hospitals-by provider and service. https://data.cms.gov/provider-summary-by-type-of-service/medicare-inpatient-hospitals/medicare-inpatient-hospitals-by-provider-and-service/data/2020

8. Delbanco SF, Tessitore L. The payment reform landscape: where we started on transparency tools and where we need to go. Health Affairs Forefront. March 31, 2016. www.healthaffairs.org/content/forefront/payment-reform-landscape-we-started-transparency-tools-and-we-need-go

9. Overland D. UnitedHealth puts robust price transparency tools in consumers’ hands. Fierce Healthcare. September 8, 2014. https://www.fiercehealthcare.com/payer/unitedhealth-puts-robust-price-transparency-tools-consumers-hands

10. Markovich P. A global budget pilot project among provider partners and Blue Shield of California led to savings in first two years. Health Affairs. 2012; 31:1969-1976.

11. Beauvais B, Gilson G, Schwab S, Jaccaud B, Pearce T, Holmes T. Overpriced? Are hospital prices associated with the quality of care? Healthcare. 2020; 8:135.