The benefits of a government demanding transparency in healthcare prices
A major difference between the healthcare sector and other economic sectors is the opacity and complexity of the prices of medical goods and services. While in other industries, the prices of similar goods or services are generally similar, healthcare prices can vary widely depending on where the service is received and who pays. For this reason, health care shopping is more important than purchases in other economic sectors.
But purchases are limited in healthcare, in part because prices are usually hidden until after purchase. Over the past two years, the federal government has taken steps to force hospitals and health insurers to post their prices to enable better buying.
Some free market economists are skeptical that it will work. Their doubts are not unfounded: substantial third-party payments shield consumers from the direct cost of many of their healthcare consumption decisions, and government regulatory actions often produce unintended negative consequences. Some fear that convincing price transparency will allow âtacit collusionâ and push low-cost suppliers to raise prices. Such critics miss the mark by ignoring the evidence and disliking the mechanics of how transparency works.
First, the government’s transparency efforts have already increased purchases and lowered prices. More than ten years ago, New Hampshire was the first state to create a website with information on healthcare prices. Consumers in New Hampshire who used this information to shop saved a lot, with average savings of 36 percent for medical imaging services, for example. With the growth of high-deductible health plans, there is a growing incentive for patients to find low-cost providers for services such as laboratories, diagnostic tests, and basic medical care.
Second, focusing only on the direct effect of transparency on patient purchases ignores the more meaningful mechanism of how price transparency can help by facilitating the creation of benefit models for employers that encourage the use of high-quality, low-cost providers. Technology developers and entrepreneurial companies are beginning to develop applications that leverage pricing information to help employers improve benefit designs and âsteerâ plan members to higher value suppliers. In essence, making pricing transparent will alleviate the problem of third party payers by giving payers a reason to restructure their products to make consumers seek the best prices. As long as prices remain hidden, providers and insurers can more easily maintain negotiated deals that help themselves.
One way to do this is to use benchmark pricing where the plan pays a set amount per service, regardless of where it is received. Benchmark pricing models can dramatically reduce payments for medical services without negative effects on quality. Reference price structures will be easier to establish with more complete price information.
When California adopted the benchmark price for state employees ten years ago, consumption shifted from high priced facilities to lower priced facilities. This has caused the higher priced establishments to lower their prices to avoid losing customers. The overall price reductions have averaged 20 percent. The main advantage was the “ripple effects”: About 75% of savings from the California benchmark price model for people other than state employees because suppliers were lowering prices around the world.
The tacit collusion argument probably also fails. Hospitals generally know the prices of their local competitors. It is the patients and the employers who are in the dark. And hospitals and insurers, who both benefit from higher prices and higher spending, are the biggest political opponents of the demands for price transparency, turning the collusion argument upside down. It is the opacity of prices that has led insurers and providers to collusion.
Having more information on prices will allow employers to more effectively monitor the intermediaries – usually health insurers – that they have hired to negotiate the rates. Such monitoring is crucial because insurers typically realize higher profits on larger incomes as health care spending rises. In other words, the incentives of insurers may not currently match those of employers and employees seeking lower-cost care.
Improved pricing transparency tools and apps will help employers compare vendor rates between payers and regions. This will allow competition between insurers and other intermediaries and allow employers to replace inefficient ones and buy the best care at the best price.
More comprehensive pricing information will also allow employers to build models of âcenters of excellenceâ, where plan members are referred to higher-value suppliers outside of local markets. As an external benefit, the mere threat of consumers to leave a local market has been shown to pressure local hospitals to lower prices.
Greater attention to excessive prices can also create public pressure for lower prices. Indiana employers recently lobbied for more transparency in hospital pricing. For example, Parkview Health System in Fort Wayne negotiated prices for outpatient services with Anthem, the state’s largest insurer, that were more than four times higher than Medicare payment rates. When those rates became public, community outrage forced Parkview and Anthem to drop prices by 25%.
Government regulations always have unintended and sometimes negative consequences. In this case, however, the government intervenes to demand the sine qua non of the markets: transparent prices. Economic theory clearly indicates that prices are crucial to ensure the most efficient allocation of resources. But the current arrangement blinds buyers to health care prices. Price transparency is only one aspect of a health reform agenda that exploits choice and competition to improve the status quo. Recent federal rules that require hospitals and insurers to provide pricing information are an important step in helping patients and employers direct their resources in a way that allows buyers to reduce overbills, punish overpriced suppliers. high and low quality and ultimately generate better value. of the health system.
Brian Blase was a special assistant for President TrumpDonald Trump New York prosecutors investigating Trump organization as ‘criminal’ Cabinet behind Arizona audit says no data has been destroyed, contradicting GOP allegations Trump calls for the end of the committee’s debate on January 6 “ immediately ”. at the National Economic Council, 2017-19. He is president of Blase Policy Strategies. He wrote research on the benefits of healthcare price transparency for the Institut Galien in 2019.