Healthcare price transparency: Are we getting closer?

April 5th, 2019 / By Steve Delaronde

Do patients have the right to know the price of healthcare services before they receive them? This is the question that the Department of Health and Human Services (DHHS) is asking in a recent proposal. The public has until May 3, 2019 to comment.

The DHHS has framed the question about price transparency well, although it is buried (pages 7513-7514 in Section VIII.C.3) within a 187-page Federal Register that was first reported by the Wall Street Journal. The rule acknowledges that healthcare pricing in the United States is “fragmented and complex” and has had a negative impact on patients, providers, plans and plan sponsors. However, the impact of price secrecy varies according to the stakeholder.

More than 40 percent of adults that receive health insurance through their employer are enrolled in a high deductible health plan (HDHP). This means that until they reach their annual deductible, they are responsible for the entire cost of their medical services. Therefore, not  only are they contributing to the cost of a rising premium, but over half of those enrolled in an HDHP have deductibles of $1,000 or more. This is concerning when 40 percent of adults report that they would not be able to cover an unexpected expense of $400.

Clearly there are some parties that benefit from healthcare price secrecy or it would not continue to exist. Economists use the term “perfect information” to describe a situation in which consumers and producers have the same information. When some participants have better information than others it is known as “information asymmetry” which leads to an imbalance of power. Currently, the power related to healthcare pricing rests with the provider and not the patient.

However, not all providers benefit from information asymmetry. Providers that can operate more efficiently, reduce costs and deliver superior outcomes compared to their competitors should theoretically be able to offer lower prices and enjoy greater market share. Unfortunately, health care in the United States does not operate in a truly free market, given the role of intermediaries such as government, private insurers, pharmacy benefit managers and insurance brokers. Tax exclusions, medical loss ratios, drug rebates, and broker commissions actually work as incentives to keep healthcare costs high.

Healthcare price transparency will address some issues, but it will not address everything. The best opportunity to reduce cost for a product or service is not to purchase it in the first place. Given that up to one-third of healthcare costs are wasted, it is critical to address the issue of medical necessity and quality along with cost. Unnecessary medical procedures are not only costly on their own but can also generate costs by encouraging additional unnecessary tests and procedures.

The U.S. healthcare system is gradually moving towards price transparency. The requirement for hospitals to make their charges publicly available that began January 1, 2019 is a positive, albeit insufficient, step. The request for public comment from the DHHS to address the issue of price transparency is even more encouraging. Ultimately, it is impossible to fix a problem that one cannot see. Price transparency is a critical step to addressing the high cost of health care in the United States.

Steve Delaronde is director of consulting for populations and payment solutions at 3M Health Information Systems.