Why hospital price transparency is not enough

About a year ago, a new government rule went into effect, mandating that hospitals make their prices for all services publicly available. While most hospitals had previously posted their “chargemaster” prices (the full price before any negotiations with insurers), that’s not very helpful information for the nearly 300 million Americans who have insurance. The new rule was designed to help solve this problem: hospitals are now required to publish the prices they charge for every payer for all services, and make the negotiated prices for 300 “shoppable” services available in a consumer-friendly format.

What “hospital prices” don’t include

Theoretically, this new rule should make it much easier for patients to shop for elective procedures. However, it still may not end the hospital price confusion. What patients may not know is that hospital prices don’t include charges from so-called “independent entities,” such as labs, imaging services, and physicians who are not salaried (which is most physicians). This is why you might get several bills for a hospital procedure, because doctors, labs, and others will charge insurers separately for their services. And these charges are no small potatoes.

In a recent study in JAMA Network Open, professor and health economist at Emory University Michal Horný and colleagues compared the hospital charges for services with the total cost of services including charges from “independent entities.” They used data from the 2018 MarketScan Commercial Database, a large national sample of commercial health insurance claims. They found that charges from independent entities were very common, especially for radiology and surgical procedures. These charges were minimal for lab tests but could be in the thousands of dollars for surgeon’s charges.

Overall, charges from independent entities were not strongly correlated with the hospitals’ charges. This means that even the most conscientious patient who took the time to shop for the lowest hospital price for their procedure, could still get hit with a high bill from an independent practitioner who works at the hospital. For example, according to the study, a patient giving birth vaginally would likely get charges from two physicians as well as the hospital, amounting to about $4,000 in additional costs.

“These findings suggest that prices disclosed under the new regulation may have limited value to patients attempting to make cost-conscious health care choices,” the authors write.

Where to go from here?

In an accompanying editorial to Horný et al in JAMA Network Open, health policy professor Ezekiel Emanuel and research administrative coordinator Amaya Diana, both at the Perelman School of Medicine at the University of Pennsylvania, point out potential changes to improve health care value beyond price transparency.

“To achieve transformation to higher value, the goal of price transparency, would require changes to incentives and infrastructure.”

Ezekiel Emanuel and Amaya Diana, JAMA Network Open

Currently, even with the new price transparency rule, it is incredibly difficult for patients to price-shop for elective surgery. Clearly we need better information on the real out-of-pocket costs that patients face when receiving hospital services. But we also need better incentives for patients to act on this information, and to integrate price information within delivery of care, Emanuel and Diana write.

Rather than ask patients to research the prices for their care, hospitals could include a “cost conversation” as part of the process of getting an elective procedure. Bundling hospital, clinician, and diagnostic charges into one payment for elective procedures would make it much easier for patients to compare prices. And employers could reward patients for choosing a cheaper hospital by having them share in the savings.

The value of transparency

The price transparency rule may be limited as a “shopping” tool without charges from independent entities, but that doesn’t mean the rule is useless. One large benefit of the rule is that, researchers and journalists have been able to use this information to hold hospitals accountable for arbitrary and excessive prices.

For example, a recent Wall Street Journal piece compared the price of a “level 4” ER visit at several Boston hospitals, using the pricing data made available this year. For a hypothetical patient with Blue Cross Blue Shield insurance, the ER visit at Massachusetts General Hospital would be $946, but it would be $467 for the same patient at Mount Auburn Hospital, which has equally good clinical outcomes. If that patient were covered by Medicare, it would cost $422 at any of the hospitals.

Price transparency data allows the public and policymakers to see which hospitals are raising their prices to the extreme– and can put pressure on hospitals to be more cost efficient.