As private insurance premiums and out-of-pocket costs rise faster than wages, American consumers—both families and businesses—face the increasingly hefty burden of health care costs. One of the barriers to reining in rising costs is a lack of price transparency, which hinders consumers searching for low-cost, high-quality care. But thanks to recent federal and state requirements to promote price transparency, consumers in the United States have greater access to health care prices than ever before. Since the Hospital Price Transparency rule went into effect in January 2021, about two-thirds of hospitals have published their prices. Starting in July 2022, under the Transparency in Coverage (TiC) final rules, group health insurance plans and plan issuers began disclosing negotiated rates for all services and items. These disclosures represent the largest collection of health care cost data ever published.
Despite the proliferation of these data, the industry remains doubtful about price transparency as a strategy to curb the rising costs, citing evidence that patients often aren’t aware of price comparison tools, and even if they are, few use them. But when physician referrals strongly influence patients’ decisions and insurance plans cover most of the bill, patients have limited incentive to shop around. Even though individual consumers are only now adopting price comparison tools in their health care decisions, greater price transparency has the potential to promote competition and enhance regulatory oversight in health care markets, which might lead to lower prices for many health services.
Price transparency can spur competition among hospitals.
Hospital price is the largest driver of overall growth of health spending in the country. Until recently, hospitals had little access to information about how much insurance plans pay other hospitals in the market for the same service. In other words, access to information is asymmetric in hospital-payer negotiations. Savvy hospitals and health systems can compare their rates to their competitors’ rates to strengthen negotiation positions with the payer. For example, if a hospital provides equitable quality of care at a lower price for CT/MRI procedures, it may negotiate for higher rates. Conversely, if the hospital’s rates are higher than its peer hospitals for laparoscopic surgery, it may offer to reduce rates so that the overall rate proposal remains competitive. Using another example, if the hospital plans to open a new cardiovascular treatment center, analyzing market rates for cardiovascular procedures will help the hospital set competitive rates to gain a foothold in payers’ networks. In the long run, improved information symmetry between payers and hospitals will exert downward pressure on prices across hospitals and health care markets.
Price transparency can empower employers to help better understand rising prices.
Despite the fact that health care is typically the most expensive employee benefit, employers have long had trouble managing the rising prices they pay for their employees’ health insurance. Using price transparency data, employers can compare prices they pay for health care services against prices that other companies pay. Insurance companies may start to get questions from employers such as “Our plan pays 20 percent higher rates to providers than other employers’ plans in the local market. Can you do better?” For self-insured employers, who negotiate with health care providers directly rather than using health plans, price transparency data helps inform price negotiation. Some self-insured employers are adopting reference-based pricing strategies for certain health care services, under which they pay all providers, regardless of network, based on Medicare rates plus a percentage (for example, 200 percent to 250 percent of Medicare rates for outpatient services). Understanding the distribution of current rates among local providers in various networks will help employers (and their advisors) establish fair benchmarks that create a win-win arrangement between employers and providers.
Price transparency can help state agencies enhance regulatory oversight.
Although employer-led efforts to address the price issue have gained momentum, employers face significant barriers to negotiating lower prices in highly consolidated markets across the nation. Employers need policymakers’ help to tackle anticompetitive market conditions. A recent issue brief by Commonwealth Fund outlined 10 strategies for state policymakers to rein in the growth of commercial health care costs. Negotiated prices data are critical for developing strategies that involve market regulation, such as strengthening oversight of provider consolidation. For example, to prevent anticompetitive provider consolidations in local health care markets, state regulators would need commercial price data to analyze the potential impact of a proposed provider consolidations. Although some states have insights into commercial prices based on data from all-payer claims databases (APCDs), employer-sponsored plans are pre-exempted from APCD data collection under the Employee Retirement Income Security Act (ERISA). The federal TiC rules, therefore, complement state price transparency laws by disclosing prices that apply to 60 percent of employees who receive health insurance coverage through employer-sponsored plans. More comprehensive data on commercial prices will help policymakers to better understand the health care landscape and design cost containment strategies for their states.
Not as simple as we might think
Price data disclosed by hospitals and plans under the TiC final rules are vast and complex by design. Rather than simply unleashing the data to the general public, lawmakers expect that the final rules will “empower consumers by incentivizing market innovators to help consumers understand how their plan or coverage pays for health care and to shop for health care items and services based on price.” Mathematica is developing price transparency data sets and applications by collecting, processing, and enriching plan price data as part of our commitment to ensure that only the highest quality evidence is available for decision makers. The sizes of data files published by some insurers are so large that even opening the files requires computing power beyond that of most claims databases. In addition, differences among insurers, markets, and contracting arrangements add to the complexity of analyzing prices across files. Forthcoming work will propel us on our journey of price transparency, illustrating how our solutions provide action-oriented insights to organizations and individual consumers.