Can transparency “make health care affordable again”?

Last month, doctor and Senator Bill Cassidy (R-LA) released a white paper called “Ideas to Make Health Care Affordable Again.” This policy wish-list includes dozens of ideas, ranging from progressive (having Medicare pay the same prices other countries pay for new drugs) to conservative (expanding use of short-term insurance plans) to centrist (expanding use of Health Savings Accounts).

The centerpiece of Cassidy’s vision is increasing price transparency in health care, to “empower patients to reduce their health care costs.” He proposes that Congress “require price transparency for elective medical services,” remove the “gag clause” that prevents pharmacists from telling patients about a cheaper cash option for prescriptions, and require insurers to pass drug rebates on to consumers.

Telling patients how much health care costs can save people a significant amount of money. For example, journalism start-up Clear Health Costs has saved people hundreds of dollars (sometimes thousands) by sharing crowdsourced pricing data in certain cities. 

However, “requiring price transparency” on a larger scale is easier said than done. Cassidy may assume that hospitals and clinics have set prices for health care services that they can make available to patients, but that’s not always true. In many cases, providers don’t know how much a procedure will cost until they negotiate with the patient’s insurer. According to a recent report on price variation from the Healthcare Pricing Project, prices for people with employer-sponsored insurance vary substantially, even for the same procedure in the same hospital. Hospitals may be able to provide the price Medicare pays them for procedures, which are similar across hospitals, but prices for privately insured patients bare little resemblance to Medicare prices. 

A recent research letter in JAMA Internal Medicine illustrates the difficulty in legislating price transparency. Researchers from the University of Toronto, Boston University, and Mount Sinai Hospital contacted 120 hospitals in 2011 and asked them their price for a hip replacement. Specifically, they asked for the “lowest cash bundled price” – the price an uninsured patient would pay for all hospital and physician fees. Only 19 hospitals could provide a bundled price; 84 hospitals could provide just the hospital fee or part of the price; and 17 hospitals gave no price at all. 

Then the researchers repeated the same experiment four years later, to see how the price transparency initiatives taken by national, state, and private organizations affected an average patients’ ability to find out prices of procedures from providers. What they found was depressing: In 2016, only 8 hospitals gave a bundled price and 53 hospitals offered no price at all. And this is for a cash price, not even asking what a patient would need to pay with insurance! 

Despite the fact that there are many state laws, report cards, and other private initiatives designed to promote transparency, there’s still no way to know what your procedure will cost you. In fact, hospitals’ ability or willingness to tell patients what an elective procedure will cost seems to have gotten worse. 

Part of the issue is that insurers have less incentive now to negotiate lower prices. As Marshall Allen writes in ProPublica, an Affordable Care Act regulation that limited insurer profits to a small percentage of their spending has had the unintended consequence of encouraging insurers to spend more, so they can make a larger profit. That’s what happened to Michael Frank, whose insurer paid more than $70,000 for a hip replacement – more than three times the Medicare rate – and stuck him with a $7,000 copay. Frank protested the bill in court, but was encouraged by his lawyer and the judge to settle for paying $4,000.

For patients to truly be “empowered,” we need to not only demand price transparency, but have a better method of enforcing transparency. Currently, patients have no recourse if a hospital won’t tell them what a procedure costs, or if insurers negotiate a much higher rate than expected. Even if patients ask for the “cash” rate, they will likely have a hard time getting a price estimate. And this is just for elective procedures! It’s not possible to “shop around” when you need a certain procedure or test immediately to save your life. 

For all the talk about using competition in health care to lower prices and harnessing the “power of the free market,” all we’ve seen so far in the so-called free market of health insurance is higher prices and unpredictability. If health providers and insurers won’t tell us what things cost, let’s tell them what we will pay, by implementing global budgets for hospitals or by making Medicare prices universal. At least then we would know what we’re paying – and likely pay less for it.