A bold proposal to publish tightly held secrets about health care prices could unleash the power of markets to lower health care costs.
The Department of Health and Human Services has released a request for information on a proposal to create public access to real price information in health care under the regulatory framework of the Health Insurance Portability and Accountability Act (HIPAA). Unlike the mandate earlier this year from the Centers for Medicare and Medicaid Services that requires hospitals to publish their so-called chargemaster prices, the HHS proposal would shed light on the secret negotiated prices insurance companies pay.
Making these prices public would infuse much-needed competition into health care’s bloated $3.5 trillion market.
Why hasn’t this happened already? Insurers and hospitals keep the prices they negotiate confidential. Insurers then sell these secret pricing deals to employers, who are also contractually bound to keep them secret. In the process, hospitals have become seasoned veterans in playing the sometimes absurd price markup-discount game that creates mirages of generous discounts.
This game gives hospitals a profit margin they can control. It also allows some hospitals to appear charitable when they offer a 20% discount to an out-of-network patient even though the bill may be marked up by 500%. For insurers, higher hospital prices are managed through the actuarial science of passing them on as higher premiums the next year.
To manage the impact of rising hospital prices on health insurance premiums, insurers design higher deductibles and copays. But that’s not real relief for everyday Americans. As these money games dominate health care, patients are getting hammered with egregious medical bills and left holding the bag. They are also flying blind, steered to one hospital or another by referrals from doctors who are often unaware of the extent of the price markups at their own facilities and those to which they refer patients.
Patients are stuck choosing hospitals based on which one advertises most effectively. For too long, the black box of real prices has been protected as a trade secret, resulting in medical centers competing on the level of better parking and NFL game day billboards rather than on value. If real prices were disclosed, we would see the same fierce competition that now dominates the airline industry change the business of medicine.
The absence of real prices also fuels the problem of price gouging and predatory billing. One in five Americans has had medical debt pursued by a collection agency, and medical bills hurting individuals’ credit scores has become a commonplace occurrence. These developments are particularly concerning in geographic regions where patients have limited options for medical care.
In contrast, predatory billing practices are rare in the health care sectors that have already adopted real price transparency, including cosmetic surgery, LASIK surgery, and in vitro fertilization. In these markets, true competition has resulted in a global reduction in prices over time and has appropriately rewarded high-quality physicians. As Congress and many states consider new legislation to rein in surprise bills, they should consider how transparent real prices could address the underlying root problem.
Critics of real price transparency have argued that patients do not use price information when choosing where to go for their care and, when they do, they may sometimes choose the most expensive service because they are not paying for it. But asking how many patients will shop for care using price information is not the right question because proxy shoppers — self-insured employers, health plans, and some patients who pay out of pocket — will use real price information to drive the market for everyone.
Proxy shoppers are common in other businesses. Think about what happens in the grocery business. Only some customers at a grocery store look at the price of produce and comparison shop, oranges to oranges, with other stores. Yet those who aggressively comparison shop create the demand for grocery stores to keep their prices competitive in order to retain the business of the small fraction who price shop, which in turn benefits all shoppers.
The debate over what percentage of patients will use pricing information has been a distracting argument used by special interests afraid of what competition over real prices could mean for them. The issue is not how many people will look at prices. It’s whether we as a country will empower proxy shoppers to drive value in health care.
Technology will play a key role in transparency. Once real pricing becomes public, this information will eventually be consolidated by tech companies seeking to help patients navigate the system with easy-to-understand interfaces. That will encourage more people to use real prices to make health care decisions.
The power of real price transparency to reduce price gouging in health care has significant implications for the 181 million people covered by employer-based health plans in the U.S. Savings achieved from competitive pricing would drive higher wages and, in turn, create more competition among businesses for better pricing. Some ambulatory surgical centers, such as the Surgery Center of Oklahoma, already disclose real prices for surgery. Their prices, which do not change depending on who is paying, are highly competitive and attract price-sensitive patients and self-insured employers from around the country.
When you go to a restaurant and ask for a menu, you might be alarmed if the waiter or waitress were to respond, “Who’s your employer?” If you then learned that the prices on your menu were different from those on menus given to other customers, you’d conclude it’s a dysfunctional market, especially if your prices were three times higher. Yet this is exactly what happens when you need care in a hospital.
In a study we conducted with several colleagues, surgery centers that switched to real price transparency — regardless of who’s paying — observed a 50% increase in patient volume and a 30% increase in revenue, dispelling the fear of some medical centers that making real prices transparent will result in immediate financial losses. Attracted by the concept of honest prices, some U.S. companies now provide complimentary transportation and lodging to have their employees travel for care to centers like the Surgery Center of Oklahoma that have transparent prices. This trend speaks to the enormous pent-up demand for honest pricing in health care today.
The disclosure of real price information would also create accountability for hospitals that have monopoly power in some regions of the country.
It’s ironic that the federal government already has a mandatory disclosure rule for the real out-of-pocket costs people incur at a vulnerable time in their lives. But it’s not a rule for health care — it’s for funeral homes. The Funeral Rule, enacted by the Federal Trade Commission in 1984, requires funeral providers to offer itemized pricing information to consumers before they purchase any services. The rationale is that consumers in a distressing situation should have honest pricing information, a rule that should also apply to the living, not just the dead.
We applaud the HHS proposal calling for disclosure of real prices in health care. Patients deserve a binding quote for predicable, defined services, inclusive of all providers involved in their care, in advance and at the point of sale. These simple provisions would finally address the underlying root cause of health care’s pricing failures by bringing market forces to health care.
Physicians, hospitals, insurance companies, and regulators should remember that price information is an integral part of health information, and that the “P” in HIPAA stands for portability, not privacy. The new HHS proposal would promote transparency and put power back into the hands of patients and their proxy shoppers — a bipartisan reform our health care system desperately needs.
Marty Makary, M.D., is the author of “The Price We Pay” (Bloomsbury Publishing, 2019) and a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. Ge Bai, Ph.D., is an associate professor of accounting at the Johns Hopkins Carey Business School and associate professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.