Healthcare price transparency in 2020: Is it enough to control prices?

August 7th, 2019 / By Steve Delaronde

A proposal was issued by the Centers for Medicare and Medicaid Services (CMS) on July 29, 2019 stating that hospitals must make public the payer-negotiated price for 300 common shoppable services beginning in 2020. This is a bold move in the effort to achieve price transparency, but will this be enough to control healthcare prices and benefit patients?

Price transparency is certainly a step in the right direction of reigning in the high cost of health care. There is often no way for a patient to know the price of an elective service prior to receiving it. This means there is no way to compare two or more facilities or physicians on price, never mind quality and outcomes. The problem is that only one-third of total inpatient and ambulatory services, such as knee and hip replacements, physician office visits and imaging and laboratory services, are consider “shoppable.”

The more challenging issue is the false assumption that healthcare prices behave like prices for other goods and services. There is no copay, coinsurance or deductible involved when purchasing a car, groceries or electronics. Most Americans rely on a third party, i.e. a private insurer contracting with their employer or the government, to negotiate and pay part of their healthcare expenses. This makes the purchase of health care unique and misaligns incentives.

Even the 40 percent of employees in high deductible health plans who are covered by employer-sponsored health insurance pay only a fraction of the total cost of a joint replacement or outpatient procedure after meeting their deductible. This reduces the incentive for patients to price shop for procedures that exceed their deductible or services obtained after their deductible has been met.

While premium payments are certainly an issue, it is the out-of-pocket expense incurred at the point of service where patients feel the pain of sticker shock. Surprise bills for preventive care visits or care received in a hospital have two-thirds of Americans worried. The very terminology used to describe these bills as “surprise bills” means that knowing the price of a diagnostic or out-of-network service that was not expected would have no benefit to the patient.

The list price of healthcare services from a hospital charge master is notoriously overinflated and not helpful to most patients. This is why the Department of Health and Human Services (DHHS) requirement for hospitals to post their list prices online beginning in January 2019 was not helpful. However, the recent announcement by CMS for hospitals to post the price that is actually negotiated with insurers will address this issue for the limited number of services that apply to this rule. This will help change the reference point used to compare prices from the list price to the actual cost of performing a service. This shift could mean that the posted price of a knee replacement may be closer to the $10,500 that it actually costs, rather than the list price of $50,000.

Ultimately, the regulation of healthcare prices that occurs in other developed countries would not be well-received in the United States. This means that the U.S. will have to rely on gradual steps to keep prices from interfering with a person’s ability to pay, such as improved price transparency, addressing surprise billing and adopting reference pricing based on costs rather than charges.

Steve Delaronde is director of consulting for Payer and Population Health Services at 3M Health Information Systems.