For American consumers, healthcare prices are rarely clear or consistent. According to a 2016 report published in Health Affairs, the ratios of average state prices to national costs can vary significantly across regions. Florida, the study notes, has a ratio of 0.79, while Alaska tops the high-price list with prices over double that of the national average (2.64). Moreover, these disparities were not limited to regional borders; researchers also reported two- or even three-fold cost variations within certain states.
Other research upholds these findings. Clear Health Costs, a price-comparison site that analyzes data gathered from consumers, doctors, and hospitals to create detailed cost insights into regional healthcare, has offered similar findings. Their data indicates that in California, the price of individual services can vary widely even among providers in the same community. Take lower-back, no-dye MRIs as an example. At the Castro Valley Open MRI, the procedure costs $475; at the nearby University of California, San Francisco at Mt. Zion, the same service bills patients $6,220 — a thirteen-fold increase.
Given the opportunity, most consumers would likely opt for the (significantly) cheaper provider. However, many patients do not know what they are expected to pay until they receive their final bill. While care organizations are currently required by law to post their list prices online, the information that they provide is often challenging to navigate, let alone understand. As a result, the “transparency” that facilities currently offer is usually less accessible than it appears.
Improved price transparency could — in theory — resolve America’s struggle with disparate care costs. If patients can shop their healthcare services, they would naturally gravitate towards more affordable providers, thereby pressuring other organizations to adopt lower and more competitive rates.
The argument for empowering patients through transparency is a compelling one. In recent months, legislators have taken steps to boost cost transparency in healthcare. In the fall of 2019, President Trump put forth two major regulatory changes. The first would require hospitals to share their confidential negotiated rates with patients as of 2021. It would also compel care facilities to make the information they post online easy to read and access. The second change would require insurers to prove patients with a quote of their out-of-pocket costs through an online tool.
In an ideal scenario, these two changes would improve cost transparency for patients and align care prices along a more affordable baseline. The issue, however, is that our transparency efforts are targeting the wrong audience.
Patients do not take advantage of transparency tools. One study published in Health Affairs in 2012 found that “consumers rarely use price transparency tools like public report cards with quality and cost information on physician, physician groups, and hospital providers. Furthermore, price transparency tools have not been found to influence consumer choices.”
When other researchers revisited the subject in a 2017 study, they found similar results. They noted that just 12% of employees who had access to a price-comparison service used it within the fifteen-month study period and that the tool “was not associated with lower prices for lab tests or office visits.”
Patients do not benefit from price-transparency measures, nor do they drive down healthcare prices by taking advantage of available information. Payers and providers, however, may make more use of transparency tools. In another 2017 study published in Health Affairs, market simulations indicated that using greater transparency to steer patients towards lower-cost providers could create savings of up to 12.8%. As the researchers write, “Marketwide price information at the insurer-provider-service level could help target policy interventions to reduce health care spending.”
If insurers do start guiding patients towards lower-cost care, organizations will eventually lower overinflated rates to match market expectations. Ironically, some hospitals have protested that the White House’s recent moves towards transparency will create a price floor, rather than a price ceiling, thereby raising prices overall.
The change’s proponents have been unmoved by this argument. “This is a canard,” Secretary of Health and Human Services Alex Azar responded in a press briefing. “Point me to one sector of the American economy where the disclosure of having price information in a competitive marketplace actually leads to higher prices as opposed to lower prices.”
The health sector needs to stop targeting transparency measures at patients and refocus their efforts on improving transparency at the payer-provider level. If it does, providers and payers will have the ability to both steer patents towards low-cost, high-quality care and realign prices along a reasonable cost baseline.
