As of Jan. 1, 2019, hospitals have posted prices on websites. However, it turned out this change was of little value to consumers. Nevertheless, it is time for the next step: Soon, hospitals will be posting contractually agreed prices with payers.
“There is growing public outcry to disclose this information, both from patients and from self-insured employers,” says Ge Bai, PhD, CPA, an associate professor at Johns Hopkins Bloomberg School of Public Health.
An executive order from the Trump administration issued on June 24 directs the Department of Health and Human Services to require hospitals and insurers to disclose negotiated rates for services and provide patients with out-of-pocket costs before procedures.1 According to the order, “Shoppable services make up a significant share of the healthcare market, which means that increasing transparency among these services will have a broad effect on increasing competition in the healthcare system as a whole.”
Neither hospitals nor insurers want this information out there. “Both sides claim that it is proprietary information and it would put them at a disadvantage in negotiations if it became public,” says Lovisa Gustafsson, MBA, an assistant vice president at The Commonwealth Fund.
Making contracted prices public takes away hospitals’ competitive advantage to negotiate with insurers for higher reimbursement. For insurers, the opposite is true; it makes it harder to negotiate lower prices. For this reason, contracts typically bar either party from releasing the rates publicly. “A change in law would supersede this and force them to make it public regardless of the contract language,” Gustafsson says.
Disclosure of negotiated prices opens the door to comparison shopping. For elective procedures, patients can choose lower-priced hospitals. “Different insurers have different prices, and different self-pay patients end up paying different rates at the end of the day,” Gustafsson notes.
However, the difference between contracted rates and rates charged to uninsured patients always has been top secret information. Once the rates are posted, that will change. Then, says Gustafsson, “we can have a discussion about if legislation is needed to put protections in place for patients from exorbitant self-pay bills.” The contracted rates could provide a better benchmark for what reasonable prices should be for self-pay patients. “It would not, however, force hospitals to extend contracted prices,” Gustafsson adds.
Some ambulatory surgical centers are disclosing their cash prices to compete for cash-paying patients. “To our knowledge, no hospital has done this,” Bai reports. The executive order could change this. It is good news for some hospitals, the ones willing to compete with peers to provide patients with high-quality, low-price care. “But it’s bad news for those hospitals that have gotten used to playing the price-gouging game built on price secrecy,” Bai offers. Price transparency brings price competition, says Bai, “thereby reducing price, unless the hospital is a monopoly.”
Even armed with new price information, patients will not be able to compare hospital costs as easily as the cost of a pair of sneakers. “A patient’s visit to a hospital includes multiple services, what is customarily called an episode of care,” explains François de Brantes, MD, MBA, senior vice president of commercial business development at Remedy Partners.
Disclosed prices probably will be limited to individual procedures, according to de Brantes. “Hospitals should voluntarily post all-inclusive prices,” he says. This could occur for common services such as joint replacements. Yet hospitals probably do not know all the information they need to create packaged prices. “They could work with their largest payers to come up with estimates,” de Brantes suggests.
Ultimately, posting negotiated prices could work in the hospital’s favor. “In an age of greater transparency, the advantage goes to those who disclose the most useful information to support consumer decision-making,” de Brantes says.
Price transparency is popular among policymakers on both sides of the political aisle. The promise is that more competition will drive prices down. “It is a popular policy proposal being discussed on [Capitol] Hill during current cost control discussions,” Gustafsson notes.
The discussion draft of legislation released in the Senate Committee on Health, Education, Labor, and Pensions included the establishment of a nationwide claims database, to be run by a nonprofit and include all prices paid (). “It is unclear how much this would help patients directly, as they may not be able to access the data themselves,” Gustafsson says.
However, this proposal is one more step toward making the data available to policymakers, researchers, and purchasers. “Any efficiencies achieved through this would be passed onto patients through lower premiums or higher wages,” Gustafsson says.
Once they are made public, negotiated prices could drive down prices for an entirely different reason. “There is a certain aspect of public shaming for a hospital that is making far more than anyone else,” Gustafsson says.