The U.S. has significantly higher prices for healthcare than other nations with advanced economies, and this applies to prescription drugs and diagnostic tests as well as surgical procedures. It is also one of the biggest categories of consumer spending and accounts for nearly a quarter of government spending.
The situation does not show signs of improving, with the Brookings Institute reporting that per capita healthcare spending in the U.S. nearly quadrupled in the years between 1980 and 2018. With health insurance representing the biggest component of nonwage compensation for American employees, the rising prices are also having a significant impact on many businesses’ bottom lines.
Many proposals for improving the system have been put forth, but some experts believe that price transparency could go a long way toward turning the tide. Being transparent about the price of healthcare services can help to define their value, enabling patients and care purchasers to better compare and choose providers.
Right now, health plans, their insured customers, and self-pay patients are given dramatically different prices to get the same service from different providers, and the higher price does not usually mean better quality. For example, one hospital association reports that their average hospital member has more than 150 prices for every procedure they carry out.
In addition, a recent article published by the Wall Street Journal showed that one California hospital charges between $89,752 and $515,697 for a billing code linked to a cardiac procedure; the actual price paid is determined by the patient’s insurance. A different hospital in the state charges anywhere from $16,922 to $29,000 for a C-section.
In light of this dramatic variation in prices that is not linked to value, many experts believe that being more forthcoming about healthcare-related prices and quality could lead overpriced providers to drop their prices or risk losing business.
What Is The “New” Hospital Transparency Rule?
Under a new hospital transparency rule, every hospital that operates within the U.S. is required to post accessible and clear pricing information for the services and items they provide as both a comprehensive, machine-readable file containing all the information and as a display of shoppable services that is presented in a consumer-friendly format.
The aim is to facilitate price comparisons across hospitals so customers can estimate how much their care will cost before they go to the hospital. The Centers for Medicare & Medicaid Services (CMS) will carry out regular audits of a selection of hospitals; those that fail to comply could face civil monetary penalties. In addition, customers now have the ability to submit complaints to CMS if a hospital has not posted this information online.
Why Does The Hospital Transparency Rule Matter?
There are many ways that these new transparency rules could alter the dynamics in the healthcare market. For employers, it could give them the information needed to pressure their health plans to reduce their premiums or create tailored selective provider networks. They can also teach their employees to use the information to help in making healthcare decisions, which is particularly valuable to those who have healthcare plans with high deductibles.
Health plans, meanwhile, could refine their benefit designs to provide an incentive for members to use lower-priced providers. The rule could also enable lower-priced hospitals and physicians to increase their market share. In addition, hospitals may look for ways to reduce costs without compromising quality.
Will The Hospital Transparency Rule Help Consumers?
As promising as this rule sounds, some experts believe that it may not provide immediate relief to consumers who are not cash payers. Prices charged by facilities will continue to be determined by agreements with the patient’s insurer, which underscores the problem with having hospital pricing that does not align with a service’s actual cost or value.
There is no question that this greater transparency is a positive step, but system-wide changes are needed to empower the insured to be more conscious consumers and have a better understanding of how to make smart decisions with the information provided rather than simply letting co-pays and deductibles dictate their choices.
Consumers have not responded well to past initiatives offering price comparison tools, largely preferring to obtain care from wherever their physician recommends. While insured patients tend to be shielded from healthcare costs at the time of service by their healthcare plans, they indirectly end up bearing high costs through their premiums.
Nevertheless, recent surveys indicate growing interest among consumers in learning about the prices they pay for healthcare services. This sentiment, combined with the greater prevalence of high-deductible healthcare plans, has exposed more consumers to costs and driven an increased use of price shopping tools.
Will Consumers Be Misled By Using Price Information Without Corresponding Quality Information?
One concern about the new rule is that providing price information without linking it to quality could impair consumers’ ability to make good healthcare decisions. Many consumers erroneously believe that high prices equate to higher quality, and this is not necessarily the case in healthcare.
Quality information for providers can be difficult to obtain. In some cases, it is incomplete, exists separately from the price list, or does not align with the listed services. However, the new rules could eventually inspire the creation of tools that better align with information about quality and price.
How Could This Lower Healthcare Costs?
Although the long-term effects of this initiative remain to be seen, there are strong signs that the outcome could be positive. Previous smaller-scale initiatives and studies have shown that price transparency can change the dynamics in a manner that helps consumers. For example, in states with websites that post prices of hip replacements, the cost of these procedures was found to drop by 7.3 percent, with roughly half of this reduction attributed to providers reducing their prices and half coming from consumers choosing less-expensive hospitals.
Another initiative that involved informing patients who had received MRIs about imaging costs noted an 18.7 percent reduction in the cost to the insurer of subsequent MRIs, with the price variations among affected providers dropping by 30 percent.
Another reason to be optimistic is the innovation of new digital tools that could make it far easier for consumers to make comparisons with the price data. There has also been a rise in consumers opting for high-deductible health plans, which means that paying closer attention to the prices of services will have a direct impact on their personal spending.
Learn More From New City
With healthcare in the U.S. as a substantial share of the economy as well as government budgets growing in ways that appear to be unsustainable, the need for major changes in the system has never been more pressing.
Businesses across all industries can keep their healthcare costs down while providing their employees with attractive benefits with help from benefits consulting services. The benefits consultants at New City Insurance work with transparent vendors, which means clients know precisely where their money is going.
New City’s team has worked with countless businesses to develop customized plans providing them with excellent coverage at the best value possible. To find out more about obtaining comprehensive yet affordable group health insurance, call the experienced benefits consultants at New City today or request a consultation online.