Costs and Benefits: Price Transparency in Health Care

Abstract

On March 4, 2019, buried within a proposed Rule on "health care ecosystem interoperability" the Department of Health and Human Services sowed the seeds of a transformation in healthcare cost transparency in the United States.  The news of the proposal did not begin to spread for a few days as health care policy analysts and interest groups read through the nearly 200‑page draft rule.^[1]  Perhaps it should not have come as a surprise:  the summary of the rule indicated that it was intended to signal the Administration's commitment to "improve access to, and the quality of, information that Americans need to make informed health care decisions, including data about health care prices and outcomes, while minimizing reporting burdens on affected plans, health care providers, or payers."  The striking element of the proposed rule was the call for hospitals to disclose not only their master charge lists—a requirement that began earlier in the year—but also "the secretly negotiated prices they charge insurance companies for services, a move that would expose for the first time the actual cost of care."^[2]  

The fact that the actual cost of care is largely unavailable today is a result of the uniquely opaque system of health care costs and payments that developed in the United States over the course of the last half-century.  As health care costs climbed, policymakers and economists have touted price transparency as a means of influencing patients to behave more like consumers, and ultimately reign in rising costs.  While price transparency is a critical piece of controlling health care costs, relying on patients to use price data in a way that fixes structural issues with the health care economy is unrealistic.  This paper will discuss the origins of the current extra-market system of health care charges and payments, examine the implications of price transparency for patients and policymakers, and suggest some regulatory approaches to reduce costs and improve health outcomes.

Hear a brief interview with the author.

[1] 21^st Century Cures Act: Interoperability, information blocking, and the ONC Health IT Certification Program Proposed Rule, 84 FR 7424-7610 (Mar. 4, 2019) (hereinafter Cures Act Proposed Rule), available at: https://www.govinfo.gov/content/pkg/FR-2019-03-04/pdf/2019-02224.pdf;  https://www.federalregister.gov/documents/2019/03/04/2019-02200/medicare-and-medicaid-programs-patient-protection-and-affordable-care-act-interoperability-and

[2] Stephanie Armour and Anna Wilde Mathews, Trump Administration Weighs Publicizing Rates Hospitals Negotiate with Insurers, Wall St. J. (Mar. 7, 2019)