Price Transparency’s Illusory Promise

July 20, 2021

Hospital Prices Must Now Be Transparent. For Many Consumers, They’re Still Anyone’s Guess
KHN
July 2, 2021
By, July Appleby

The Health 202: Biden Says He’ll Enforce Trump-era Rules Requiring Hospitals to Post their Prices
Washington Post
July 12, 2021
By, Alexandra Ellerback with Paige Winfield Cunningham

“Ultimately, the unanswered question is whether price transparency will lead to overall lower prices.” – Appleby

Comment by Hannah Leibson and Allison K. Hoffman

Efforts to increase price transparency in health care have become a policy obsession of academics and policymakers alike, despite little evidence it provides any benefit to patients.

On January 1, 2021, the Trump Administration finalized the Transparency in Coverage final rule and drank the Kool-Aid. This rule requires hospitals to disclose publicly what they charge uninsured patients for items and services as well as the rates they negotiate with insurers. The Administration hoped that the rule would force insurers to compete with each for lower priced items and services, driving down the overall cost of health care.

The rule’s roll out has not gone as anticipated. Up to 83 percent of hospitals are not fully complying with the rule. For hospitals that have disclosed prices, they are often hidden deep on their websites – shielded from patients’ view. This week, the Biden Administration urged the Department of Health and Human Services to boost their enforcement of the rule.

But as Appleby and Ellerback have highlighted, the rule overlooks a key reality. Even when consumers have greater access to information, they generally do not use it to shop medical care as policymakers imagine. Empirical research has shown that consumers are unwilling to price compare, and even when they do, it does not drive their choices.

Instead, the role of referring physicians plays a far greater role in patient choice and decisionmaking. This is unsurprising. Price data says little about quality, which is just as or more important to people, and assessing quality and making price/quality tradeoffs is a herculean task for most of us. Various studies have shown that giving people price information, even in a fairly digestible form and even with regard to reasonably fungible services, does little. Consider just two:

One study examined the consumer choices of people with easy access to price shopping for lower-leg MRIs, where quality does not vary wildly. The researchers concluded that only 14 percent of consumers went to the lowest-cost MRI provider within thirty minutes of their home, often bypassing six lower-priced providers between their home and location of their chosen scan. They went to the location their doctor suggested.

Another recent study assessed whether consumers changed their behavior after a transparency tool was introduced in the California Public Employees’ Retirement System (CalPERS). The interface showed consumers the prices for lab tests, office visits, and imaging services. The researchers found that only 12 percent of people used the interface in the first fifteen months after it was introduced, and most did not choose a lower-priced service after use.

Given this reality, it is likely that the Transparency in Coverage final rule will have a trivial effect on lowering the overall cost of health care through consumer-driven behavior. Regulations like the Transparency in Coverage rule are rooted in a fallacy that when we make the market work better, patients can navigate in the front seat. And they perpetuate that fallacy.

More direct price regulation or central budgeting, like what occurs under the Medicare program, is the only way to rein in escalating prices going forward. Without such measures, we will continue to face rapidly rising health care costs.