How Hospital Price Transparency Impacts Healthcare Costs

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Hospitals must post standard charges and payer-negotiated prices in machine-readable files to make it easier for consumers and researchers to compare costs. However, the data could be more organized and clear. Practical transparency tools require significant investments in staff time and other resources, which hospitals prioritize when facing pressing challenges such as the COVID-19 pandemic.

Increased Efficiency

Hospital price transparency impacts healthcare costs by reducing information asymmetries and providing tools for consumers to compare prices. It also allows for benchmarking and may reduce negotiated prices. Consumers respond to prices when those prices are meaningful to them. While many healthcare services are bundled into episodes of care, patients still need to know the cost of individual services for their specific scenario. It requires unit-based pricing data rather than aggregated to an episode of care. Hospitals have made substantial progress in complying with the federal price transparency rule enacted in 2021. However, the quality of the data available varies significantly from one hospital to another. Moreover, some third parties had mischaracterized compliance with the hospital price transparency rule by reporting that hospitals had not fulfilled the requirements when they did not fill in an empty cell in their machine-readable file (for example, because a negotiated rate does not exist for a particular service because of how the service is bundled and billed). More standardization in the format and content of these files would help drive the value of this new data.

Increased Competition

To reduce healthcare costs and strengthen consumers’ sovereignty over healthcare decisions, authorities and insurance companies have implemented hospital prices [3, 4, 5, 6, 7, 8, 9] and quality transparency tools worldwide. However, the results of these tools have been mixed. Generally, price transparency in healthcare, price transparency tools decrease the prices of laboratory and imaging tests but not patients’ private payments for these services. Under current law, hospitals must publish their standard charges and negotiated discounts online in a machine-readable format. It allows consumers and researchers to compare prices for traditional health services and procedures. However, the data hospitals have shared so far could be more precise and more complete, according to a new KFF analysis. In addition, the lack of consistency in how each hospital marks its charges can skew search findings. It’s problematic for insurers and self-insured employers seeking to develop networks of high-value providers and reference pricing.

Reduced Out-Of-Pocket Costs

While hospital price transparency may reduce information asymmetry and allow benchmarking, it’s unclear whether it will reduce overall healthcare costs. Existing research suggests that hospitals’ pricing policies—including contracting with vertically integrated health systems and their willingness to cross-subsidize care for the uninsured —play a critical role in determining prices for different payers, including patients.

In addition, many challenges have plagued the new law’s implementation, including data inconsistencies and confusing formats, multiple costs listed for a single service, and different codes used to refer to the same item or service. Moreover, the lack of immediate consequences for noncompliance has led some hospitals to prioritize other areas of compliance or investment over price transparency. Hospitals argue their pricing policies give them a competitive advantage with insurer negotiations. However, such claims should be taken with a grain of salt as all rational economic actors seek to maximize their profits.

Increased Access To Care

Price transparency initiatives that publish hospital list prices, also known as chargemasters, are widely viewed as one of the most powerful tools to address rising healthcare costs. Hospitals’ ability to make pricing data readily accessible will enable patients to compare shops for services and items, driving prices down as providers compete for business. Unfortunately, the crude version of transparency — published list prices in machine-readable files — used by hospitals to comply with ACA mandates provides little insight into the actual cost of care. The reason is that patients covered by insurance do not pay a hospital’s listed charges. Instead, they spend a combination of insurer-negotiated rates, deductibles, copayments, or coinsurance. The need for relevance of list-price information for many of the services and items most often billed to patients highlights the need for additional policy measures to contain rising healthcare costs. In particular, market competition is essential to limit the growth of high-cost service categories.

Jess Allen
Jess Allen
Aloha Everyone I am Jess a vibrant writer fuelled by wanderlust and a passion for diverse subjects. From the thrill of travel to the intricacies of business, music, and tech, I like to crafts engaging content that reflects their zest for life and curiosity about the world

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