- Since 1990, the average cost of a hospital stay has grown by 600 percent—five times faster than the average price of a new car.
- Runaway health care costs are undermining our country’s health and prosperity and the lack of transparency perpetuates delivery of unnecessary health care services.
- Price transparency refers to the practice of making prices available to consumers for them to identify, compare, and select the medicine that provides the desired value.
Most stakeholder agree that price transparency is necessary in health care and a critical first step toward a more competitive market and lower costs for consumers, but there is still much debate on the effectiveness, utilization efforts, and compliance. Generally, economists suggest eliminating boundaries to information can produce patient choice and promote marketplace competition based on price, quality, and innovation. With limited transparency in the United States health care system, patients and insurers have significantly higher costs for basic health services compared to the rest of the world.
While new price transparency rules are being implemented by the Centers for Medicare and Medicaid Services (CMS), the average consumer more than likely will not see the impacts for some time. Even with full compliance, consumers will not automatically have all the information they need, and the effects of the transparency are likely to be modest. While price transparency is not, in itself, a solution to rising health care spending, it highlights the realization that prices, not utilization, drive high spending in the United States.
Health Care System
It is no secret that the United States spends significantly more on health care compared to the rest of the world. American patients and insurance providers pay higher prices for essential health visits, pharmaceutical drugs, medical exams, and standard procedures. According to the CMS, the National Health Expenditure, a measure of total health care spending, both public and private, is projected to grow 5.1 percent per year from 2021–2030, reaching nearly $6.8 trillion by the end of that period. In 2020, national health expenditures accounted for 19.7 percent—$4.1 trillion or $12,530 per person—of the country’s Gross Domestic Product. Without market competition in our health care system, prices will continue to soar past the rates of other developed countries.
Typically, consumers expect to see prices before making a purchase and tend to shy away from the idea of purchasing something they do not know the price of until four to six weeks later. Health care remains one of the only industries in which this method of pricing information is consistently accepted. Consumers often do not know the cost of the service or item until after they have been treated. This is coupled with confusing medical billing, insurance companies as middlemen, and the fact that health care is personal, causing price opacity and complexity for the consumer. Although price transparency will not fix everything in the United States health care system, it will allow consumers to make more informed health care decisions based on prices and quality of care.
Political debates of the excessive growth of health care costs go back to the Nixon Administration, 1969, where steps were taken to contain Medicare spending. Half a century later, skyrocketing costs are damaging our social fabric and having major impacts on the lives of consumer due to hospitals, manufacturers, providers, and insurers putting profits before the health and well-being of consumers. While price transparency is not enough to lower health care costs on its own, it’s a necessary step for assessing the value of care and successfully reforming how we pay for items and services.
The main argument for expanding price transparency, whether it is through hospitals or health insurers, is that it has the potential to increase competition and lower health care costs which will then provide a more consumer-directed health care system. Since most patients do not know the cost of their medical care until the time of payment, they are incapable of making fully informed health care choices. Even consumers well-positioned to make a more informed choice often do not see the actual prices before receiving care and the consequences of this can be far reaching, even for the insured. Transparent and accessible pricing empowers patients and physicians, the joint stewards of the healthcare dollar, to make better decisions for patient welfare. If American consumers are sufficiently informed, they should be able to better navigate the health care system and pay out less money. The question that remains is whether or not patients will use price transparency tools and if they are able to understand the data.
While the notion is that there is a lack in transparency for health care services pricing, the reality is that price information already exists, and can be obtained from most health insurers and hospitals; but the process of understanding and analyzing this information can be confusing and vague, leading to little use to the consumer when inquiring pricing for a service or item. In a study done by the American Journal of Managed Care, more than 140 million health plan members across different commercial plans were surveyed. Of those 140 million consumers, only two percent used the price transparency tools. Although this is one study of possibilities, it does highlight the potential of price transparency being ineffective and a costly endeavor. The new CMS price transparency rules require a standardized set of price information in a user-friendly format that could ensure consistency and reliability while increases the chance of consumer comprehension. These requirements hope to eliminate the barriers of difficulty in health care shopping for consumers.
It is widely accepted that price transparency is a step in the right direction, but several critics still argue against its implementation. While price transparency in theory will decrease health care costs, health care is considered an unusual economic sector that potentially disobeys predisposed economic rules. Some economists and researchers argue that price transparency could ultimately increase costs, especially in those areas with lower hospital representation, due to the potential of collusion among them.
Many insurers and hospitals resisted the new price transparency rules with unsuccessful lawsuits against the CMS to prevent their implementation. The Blue Cross Blue Shield Association said that an economic analysis from the Bates White firm, found that the total setup and maintenance cost for an insurer to adhere to the new rules would be an estimated $13.63 million—26 times higher than the Trump administrations estimate.
With all of this being said, the main factor consumers will rely on are the health insurers and hospitals themselves. If these facilities and organizations do not publicize their prices, then consumers are no better off than before. While health insurer price transparency rules are only recently being implemented, according to a report from PatientRightsAdvocate.org, only 14.3 percent of all hospitals had fully adhered to the price transparency rules after the first 12 months.
Economics tells us that markets do not function well without good information. If consumers don’t know about cheaper options, those options might as well not exist. Greater transparency will aid in the value of care decision made by the consumer and provide a competitive market that will hopefully drive prices down, but only if these regulations are adhered to. Even with full compliance, consumers will not automatically have all the information they need, and the effects of the transparency are likely to be modest at first. While price transparency is not, in itself, a solution to rising health care spending, it highlights the realization that prices, not utilization, drive high spending in the United States.
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Centers for Medicare and Medicaid Services (2022) CMS Office of the Actuary Releases 2021–2030 Projections of National Health Expenditures
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Patient Rights Advocate.org. (2022). Semi-Annual Hospital Price Transparency Compliance Report.