Will Health Care Price Transparency Really Drive Down Costs?

Last Monday, there was an executive order signed that called for more transparency of pricing that hospitals charge for services.  You can read about it here if you missed the news. The order is said to help create more awareness and put patients in the driver’s seat when choosing where to have their care.  While I think it is great to see a focus on empowering patient decision making and to attempt to drive down health care pricing, here are a couple of my thoughts on whether this will truly drive down health care costs.

Just because they see doesn’t mean they understand

Have you ever seen a bill for a procedure you have had?

The itemized breakout can be confusing and lengthy.  Health and Human Services Secretary Alex Azar has said that the pricing outline will be in “an easy-to-read, patient-friendly format,” but I have a hard time believing that hospitals will go out of their way to make this easy for patients to read.  Even so, how much of the costs will they truly understand?  Even if the patient has reviewed the projected costs for services, physicians and other hospital practitioners barely have enough time to answer questions patients already have.

Does transparent pricing in health care change behavior?

It does make sense to me that exposing pricing may allow patients to “shop around” when it comes to a medical procedure, at least for those that are more elective in nature, but will this truly change patient behavior?  Let’s first take a look at what has occurred in the restaurant domain.  In 2010, the Patient Protection and Affordable Care Act included a provision requiring restaurants with more than 20 locations nationwide to report calorie information at the point of purchase.  If you think about it, this is similar to what this executive order is attempting to do, create more transparency to drive better decision making and change behavior, but does this mean that behavior will change?  If you look at the reporting of calories at point of purchase, the evidence shows that there is little meaningful change in behavior.  As with being transparent with calories, showing pricing will most likely create awareness, but no true change in behaviors.

One can see that there is some focus on attempting to drive down health care costs, but I am not convinced that this measure will make meaningful change any time soon.  So what about you? What are your thoughts on this recent executive order?

@ShepDPT

6 responses to “Will Health Care Price Transparency Really Drive Down Costs?

  1. Nick Maiers says:

    Hey Mark,

    Thanks for sharing this update and your thoughts related to it.
    I too am skeptical.
    Transparency in pricing, in theory is a nice start, how it is carried out will be critical to its potential for success.
    I’m not sure I agree with the conclusions you drew from the calorie transparency initiative. With food you are not exactly comparing apples to apples (no pun intended). The perceived value (taste) likely still outweighs the cost (calories) for those whose behavior did not change. They were not willing to sacrifice what they ultimately wanted.
    In the case of healthcare cost transparency, there may be no sacrifice, if quality is equal amongst options the consumer will likely choose the one with the lower cost. If it doesn’t drive cost down it at least has the potential to drive outcomes up.
    I must re-iterate though, I am skeptical in how this will be carried out. There are a lot of dollars at stake for hospital systems and many insurers will still dictate where patients can go. A nice additional step would be loosening insurance restrictions on patient access and opening up competition amongst healthcare systems.
    Like you stated above, anything which aims to empower patient decisions related to healthcare is a good thing. Only the future will reveal if this executive order actually accomplishes that goal.
    I’m curious to learn more about the how.

    1. Mark Shepherd says:

      Thanks for reading, Nick. Behavior change for anything is not always this easy. For some, this will be a welcome change, for others, nothing will change. I guess we will see if this even turns into a real policy.

  2. Jason Koenigs says:

    I believe that transparency is a crucial first step in reigning in costs. Since I have been a professional there has been talk of controlling costs in healthcare. Yet at the same time almost nobody, including the providers, know the actual prices. We have proxy of the prices based off our ever increasing insurance premiums.

    Healthcare is the only sector of the economy in which the service providers and the consumers are both ignorant to the actual total price of the transaction. Under these conditions why would we ever expect prices to drop? It is not possible to manage the cost of something without knowing the cost!

    I look forward to pricing transparency followed by a loosening up of access restrictions so that consumers at least have the option of driving competition.

  3. Allison K Suran says:

    Thanks for your comments and insights. However, price transparency needs to come from what the agreed insurance allowable is – which is different for each individual healthcare business (whether it’s a hospital our outpatient medical office). Healthcare businesses know that what a business charges has little to do with what any individual insurance company will pay. So the charge does not reflect the allowable. This is where consumers will still not have a clue as to where they stand with what their responsibility will be. Additionally, for consumers to figure out what does/does not go to deductible and what qualifies for copays vs co-insurance, is a complicated quagmire of confusion. They would need to know the codes that will be charged (which usually no one can tell them until the procedure is completed and billed by the physician or institution) then call their insurance company to find out their responsibility. This is simply too much for most consumers to figure out.

    1. Mark Shepherd says:

      Good points, Allison.

  4. Andrew Gase says:

    Nothing changes till the costs are directly felt. No one pinches someone else’s pennies

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