A year of hospital price transparency offers hope for affordable care
The Hospital Price Transparency Rule was implemented by the Trump administration on January 1, 2021, (based on a provision in the Affordable Care Act) and has been supported by the Biden administration. The rule requires hospitals to disclose their charges, cash prices and prices negotiated with commercial insurance plans for all services. The rule was opposed and legally challenged by the hospital and health insurance industries.
What secrets do they try to hide from the public? Here are three main revelations from the data:
First, commercially negotiated price varies dramatically across hospitals. For example, a colonoscopy, with a median price tag of $1,644 (Medicare pays $793), is priced at more than $3,600 in the top 10 percent of hospitals; the price for a head CT scan and the price for a prostate biopsy range from approximately $200-$1,900 and $400-$5,800, respectively, among 80 percent of disclosing hospitals.
Hospitals’ ability to extract a very high commercial price for these routine generic services reflects the limited competition in the market and the inefficient price negotiation of insurers. Commercial prices are fully paid by patients enrolled in high-deductible plans before reaching their deductibles. For other patients, the prices are shared by both patients and their insurance plans. In the end, higher hospital prices lead to higher premiums for all beneficiaries and their employers.
Second, as of January 1, only 2,996 hospitals (53 percent) have disclosed a commercial price for some services, based on data from Turquoise Health, a healthcare transparency data company. The remaining 2,712 hospitals (47 percent) hospitals still hide their pricing information from the public. Also, the lower the price of a service, the more hospitals disclose their prices. Hospitals might be strategically hiding prices for lucrative services to avoid competition.
Hospitals’ reluctance to comply with the rule is in sharp contrast to some ambulatory surgical centers’ voluntary, consumer-friendly price disclosure. Focused on price-sensitive patients, these ambulatory surgical centers post competitive prices with graphic illustrations to help patients understand price and purchase services, all in the absence of any mandate. Besides imposing noncompliance penalties, policymakers should consider structural reforms to the third-party payment system to make hospitals more interested in setting and posting competitive prices to attract patients.
Third, hospitals’ compliance displays a strong peer effect. A hospital is 42 percent more likely to disclose its prices if all other hospitals in the same region disclose. Focusing the limited enforcement effort on large noncompliant hospitals might bring the biggest bang for taxpayers’ buck — once the large ones reveal their prices, their regional peers will likely follow.
The Hospital Price Transparency Rule has exposed the vast spread of hospital service prices and disclosing decisions. Using the limited disclosed information, some self-insured employers have already put pressure on hospitals to lower prices. Americans deserve to know hospital prices because they eventually foot all hospital bills.
2022 might be the year in which we start to witness market forces containing hospital commercial prices and making a dent in runaway healthcare spending.
Ge Bai, Ph.D., CPA, is a professor at the Johns Hopkins University Carey Business School and Bloomberg School of Public Health. John (Xuefeng) Jiang, Ph.D. is the Plante Moran Faculty fellow, professor of Accounting and Information Systems, professor of Finance (by courtesy), and Law School Faculty Affiliate at Michigan State University Eli Broad College of Business. Twitter: @JohnXJiang1
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