Prices for the most common medical services are once again making headlines – and producing sticker shock – with Medicare’s release in early May of what hospitals around the nation charge for the top 100 inpatient procedures. The government followed that up this week with the release of what hospitals charge for the 30 most common outpatient procedures they perform.
The decision by the federal government to publish the rates charged by more than 3,000 hospitals is just the latest in a steady stream of efforts around price transparency. State governments, health insurers, consumer groups and employers have also worked toward making the prices of medical services more public.
While experts say the actual prices customers pay for medical care are still shrouded in mystery and it’s unknown whether transparency will lead to lower costs, savvy payers and providers are working toward true price transparency to create meaningful change in the healthcare system and give themselves an edge in an increasingly competitive healthcare marketplace.
“There is no other major household expense that we can’t get estimates on in advance,” says Suzanne Delbanco, executive director for Catalyst for Payment Reform, a coalition of employers and health plans working towards quality and cost changes. “We are focused on price transparency because it is such a fundamental building block to getting better value of a healthcare dollar.”
States are failing to give consumers basic information about average or expected prices of common healthcare procedures, according to a March report card by the Catalyst for Payment Reform and Health Care Incentives Improvement Institute. Only two states – Massachusetts and New Hampshire – received an “A” grade for sharing price information with the public. Thirty-six states received a “D” or an “F” for price transparency, according to the report.
One problem is that many prices revealed to the public have little relevance. Chargemasters – or the sticker price for services – aren’t the negotiated prices that health plans and self-insured employers pay. And they typically aren’t what uninsured consumers pay, either.
“At the end of the day, what we mean by ‘price’ is the amount paid to the provider,” Delbanco says. “When price information is conveyed to consumers it should estimate out-of-pocket costs because that helps them make a more value-based decision.”
Some doubt whether consumers will use price information to choose lower cost providers – even as their deductibles, co-pays and co-insurance rise.
“A lot of Americans say better care is more expensive,” Delbanco says.
For instance, the majority of patients are unwilling to consider costs when deciding between comparable health services, and they tend to resist less expensive, marginally inferior options, according to a RAND study of more than 200 people convened in focus groups around the country, published in Health Affairs in February.
The jury is still out on whether price transparency actually lowers costs. The Center for Studying Health System Change and the New Hampshire Insurance Department issued a report in 2009 on New Hampshire’s price transparency program HealthCost, which launched two years earlier. The report concluded that price variation had not decreased over that time, citing weak provider competition as a key reason.
But because hospitals typically negotiate three- to four-year contracts with payers, it is possible price transparency is having a latent effect in New Hampshire, says Chapin White, senior health researcher at the Center for Studying Health System Change. The center recently obtained funding for an updated study on New Hampshire’s HealthCost, and it hopes to release a new report at the end of 2013 or early 2014, White says.
More broadly, revealing prices of specific procedures can be helpful, White says.
“It can put pressure on hospitals to justify why their prices are so high,” he says. “We are making policy decisions that support high prices all the time. So more information about pricing is key.”
The American Hospital Association says through a spokesperson that “more than 40 states already have some form of price transparency in place.” The AHA supports passage of the Health Care Price Transparency Promotion Act, which was introduced in March. That proposed federal legislation would require states to mandate that hospitals disclose their prices for care and that insurers disclose estimates on what patients’ out-of-pocket costs for care.
Some individual hospitals are pledging to be more forthcoming with their prices. After the release of the Medicare inpatient charges data, several hospitals in Florida said they would make public the contracted rates with private insurers, according to the Miami Herald.
Meanwhile, payers are taking on the issue of price transparency. For instance, Blue Cross and Blue Shield of North Carolina launched a “Let’s Talk Costs,” campaign in 2011. The campaign aimed to be “an open and honest discussion about medical costs in North Carolina,” according to a spokeswoman. The campaign is focused on educating consumers about how they can lower their own costs, as well as pointing out waste, hidden costs, new technology and other drivers.
But Delbanco sees room for improvement. For instance, by phasing out gag clauses that prohibit payers from revealing prices negotiated with providers, and allowing self-insured employers to publish claims data without restrictions from health plans. Databases should tie cost data with quality measures to present a more complete picture of services, she says.
“The tools are out there but in most cases they are an awkward attempt to get information to consumers,” she says.
Large purchasers of healthcare have leverage, adds White. “The motivation for price transparency is the sense that prices are too high and people are getting ripped off,” he says.
As we move more towards a system of paying for episodes of care, rather than fee-for-service, prices of those bundled services will inevitably become more transparent, Delbanco adds.
“Providers need to realize we are safely in the era of price transparency,” Delbanco says.