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Hospital Price Transparency: Making It Useful for Patients

Hospital price transparency for patients

Price transparency is essential to a competitive, well-functioning market — and that includes heath care markets. When patients often don’t know what they will owe for their care until they receive a bill weeks later, you know that transparency is sorely lacking.

In theory, price transparency — in addition to access to information about quality — enables patients to shop for the most effective, lowest-cost health care available. It also drives prices down as health care providers compete for market share. This promise of cost control through consumer empowerment has made transparency a popular goal among policymakers on the right and left.

The Affordable Care Act (ACA) requires hospitals to make their prices transparent by publishing their “chargemasters,” or list prices, for all the services they provide. Congress included this provision in the law because it recognized that employers are increasingly offering high-deductible health plans to their workers, and because many plans sold in the ACA marketplaces — particularly bronze and silver plans — would have high deductibles, meaning that more people are exposed to high out-of-pocket costs. As of January 1, hospitals must publish this information on their website in a machine-readable, or computer-friendly, format, as required by the Trump administration.

However, what’s resulted — confusing, unwieldy lists of thousands of goods and services posted on thousands of individual hospital websites — is of dubious relevance to patients in its current form.

Crude versions of price transparency like the release of hospital chargemaster lists are unlikely to help patients get more value for their health care dollars. Here are a few reasons why.

First, the majority of health care is not “shoppable”: consumers don’t have the information to make an informed decision about which products and services to purchase, and from whom. That’s especially true for emergency treatment and much of the care provided to people with complex conditions. But even in cases where care is shoppable — think prescription drugs, MRIs, and elective surgery such as Lasik — patients rarely use the price comparison tools sometimes made available to them, even when encouraged to do so by their employer or health plan.

Second, list-price data, as reflected in hospital chargemasters, is usually not relevant to patients. That’s because patients don’t purchase individual services from hospitals and usually don’t know exactly what they will need during their hospital stay. In reality, patients receive a complex package of services during an episode of care, such as a knee replacement. Hospital-pricing information should be presented in the same way. In addition, patients covered by insurance rarely pay hospitals’ published list prices. While average list prices can be used by payers to distinguish high-cost from low-cost providers for specific services, patients pay a combination of insurer-negotiated rates, deductibles, and copayments or coinsurance.

Third, patients can’t properly interpret pricing information without also having information about the quality of different services. When purchasing a vacuum cleaner, for example, we might turn to Wirecutter or Consumer Reports to help us judge trade-offs like performance versus price. We know that, in some cases, a little extra money buys us a much better product. For most people, though, the most expensive option is often not worth it. High prices for health care are frequently construed as a marker of high quality by many people, even though evidence shows health care quality is often not correlated with price. Without corresponding quality data, as well as assistance with interpreting both quality and cost information, patients often default to the highest-cost provider.

The lesson: price transparency absent corresponding quality and out-of-pocket-cost data may lead to poor health care choices and higher costs, without improvements in the care provided.

Here are core elements of effective price transparency that Congress, the Trump administration, and private payers could consider in crafting policies that will effectively empower patients to be better purchasers:

  1. Focus transparency efforts on products and services that are truly shoppable, such as some prescription drugs or diagnostic imaging.
  2. Group health care products and services into units that patients can wrap their heads around, such as episodes of care, procedures, or the annual cost of care.
  3. Combine pricing data with data on quality or health outcomes.
  4. Present standardized data in the same format, in a centralized, convenient location — similar to the Medicare Plan Finder tool, which lets Medicare beneficiaries compare estimated total annual out-of-pocket costs for all Medicare Advantage and Part D plans available to them.
  5. Require price information be made available to physicians and other providers that direct patient care but rarely know the prices or quality of the services they deliver.
  6. Give patients the help they need — whether technology or care navigators or counselors — to weigh quality, cost, and convenience.
  7. Encourage more shared decision-making around treatment options, so that patients’ out-of-pocket costs become part of the equation.

Achieving effective price and quality transparency in health care is no small task. As policymakers advocate for greater patient empowerment, they should bear in mind that a fully developed solution to high health care costs is probably not a simple one — and must go well beyond greater transparency. They should be cognizant of consumers’ limited role in the dynamics of market competition in U.S. health care.

Publication Details

Publication Date: February 12, 2019
Citation:

Lovisa Gustafsson and Shawn Bishop, "Hospital Price Transparency: Making It Useful for Patients," To the Point (blog), Commonwealth Fund, Feb. 12, 2019. https://doi.org/10.26099/qacm-j392

Experts

Lovisa Gustafsson
Assistant Vice President, The Commonwealth Fund
Shawn Bishop
Vice President, Controlling Health Care Costs and Advancing Medicare, The Commonwealth Fund