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Defining the Goals of Health Care Price Transparency: Not Just Shopping Around

Article · June 26, 2018

Who can argue with price transparency? As with any other good or service, it makes sense that people should know the costs of their health care before they spend money on it. Alex Azar, recently appointed as the Secretary of Health and Human Services, articulated this vision nicely: “You ought to have the right to know what a health care service will cost — and what it will really cost — before you get that service.” But dig beneath the surface and you will be surprised to find controversy. Skeptics have judged price transparency ineffective and possibly even a fool’s errand.

We believe this skepticism stems from there being no single answer to the question of whether price transparency “works.” There are multiple goals of price transparency. We have identified four goals, each driven by a different purpose. The specific goal dictates the audience, how and where price information is disseminated, and what type of price (reimbursement, charge, out-of-pocket cost, spending per capita) is used. Judging the success of price transparency depends on which goals it is designed to achieve (See Table).

Goal #1: Doing Right by Patients (and Helping Them Avoid Sticker Shock)

The cost of health care is now the greatest financial concern for Americans. In survey after survey, Americans consistently express a desire for greater transparency, with almost two-thirds reporting there is not enough information on how much medical services cost.

Providing patients with knowledge on their out-of-pocket costs before they get care can help people decide whether they want to receive the care or to prepare for the financial impact of that care. Transparency could also help patients avoid exorbitant surprise bills. Arguably, such transparency can also build public trust in the health care system.

When it comes to achieving the goal of doing right by patients, price transparency has been minimally successful. With some exceptions, Americans by and large don’t know how to find prices, and when they do find price information they don’t find it all that meaningful.

Many roadblocks constrain price transparency efforts. For example, gag clauses or nondisclosure agreements in provider and insurer contracts prevent insurers from sharing those providers’ prices on their online price look-up tools for plan members. Ohio’s price transparency law requires providers to give patients a good faith estimate of a procedure’s costs before care is received. Yet it hasn’t been implemented because of provider resistance.

Making progress on this goal will require political will and mandates that providers and plans provide patients a good-faith estimate of out-of-pocket costs. The involvement of providers is critical, because patients often turn to their providers for guidance. The involvement of plans is equally critical because they have the data necessary to accurately estimate out-of-pocket costs.

Goals for Health Care Price Transparency and How to Measure Its Success

  Click To Enlarge.

Goal #2: Lifting the Veil

Another goal is motivated by the idea that “Sunlight is said to be the best of disinfectants.” By making provider prices public, the hope is that providers with excessively high prices will be embarrassed by public outrage, this will combat their market power, and this will put downward pressure on prices.

To achieve this goal, prices must mean the total price, i.e., total reimbursement from the insurer and patient, which should be made transparent for a set of common procedures on a website that policymakers, employers, journalists, researchers, and consumers could easily access. Success would mean there are fewer high-priced outliers and average health care prices grow more slowly or even fall.

Has price transparency achieved this goal? It’s hard to say. Reports from New Hampshire suggest that in some instances, transparency has spurred providers to re-open contracts and reduce prices for imaging. However, there are concerns that transparency could have the unintended consequence of encouraging lower-cost providers to increase their prices.

To make progress on this goal, more needs to be done to address the myriad barriers to putting price information in the public domain. Several states have been on the forefront in this area using price transparency websites that are based on all-payer claims databases. More states and even the federal government would need to join their efforts.

Goal #3: Facilitate Price Shopping

Consumerism is also a goal of price transparency. Under the consumerism model, patients are expected to compare prices (and quality). Success means more patients would compare their out-of-pocket prices across providers and shift their care to lower-priced providers.

Has price transparency advanced this goal? Twenty percent of Americans report having tried to compare prices and those who compare prices using a price transparency tool often save money. Websites such as ClearHealthCosts, which largely crowdsources price information, are filled with testimonials of satisfied users. But while there is some movement in this direction, rates of price transparency tool use are not yet high enough to make a dent in prices or overall health care spending.

Many issues need to be addressed to make price shopping a reality. These include making comparison tools more easily accessible and user-friendly. Currently, the tools can vary substantially in quality, function, and reliability. Some forms of payment reform should also facilitate price shopping. For example, with bundled payments, patients are better able compare their out-of-pockets costs across providers for the entire illness.

Goal #4: Helping Providers Ensure Their Patients Can Afford Care

Price transparency also has the potential to help providers discuss affordable care options with their patients. While 70% of Americans would like to discuss costs with their providers, only 28% of them say doctors or their staff have brought up price in conversation with them. Campaigns such as Costs of Care argue that price transparency tools and training for clinicians can help providers and patients have honest conversations about alternative courses of treatment — if alternatives exist. This requires provider-facing price transparency tools that allow providers to see their patient’s out-of-pocket costs for a service or an entire episode of care. Success would be more patients reporting discussions with clinicians about prices, which could lead to reduced low-value care and increased compliance with medications and treatment recommendations.

So far, price transparency has had little success in achieving this goal. Research has found giving providers total price data at the point of care does not influence ordering habits. And as referenced above, most patients do not report discussing price with their providers.

To further this goal, we need to make it easier for providers to determine their patients’ out-of-pocket costs for services across difference providers. This might require a legislative mandate. Availability of information is not enough. New initiatives are studying how health care cost discussions and use of tools can be brought into the clinical encounter and practice workflow.

Price transparency itself is not a goal — it is a means toward multiple goals including helping patients avoid sticker shock, facilitating shopping, lifting the veil on high prices, and ultimately making care more affordable. Being clear on the goals is critical to assessing whether price transparency “works,” and even more important, to implementing policies that will make price transparency successful.

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