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Price Transparency (Alone) Is Not Enough

Summary: The New York Times recently posted a wonderfully produced video op-ed bemoaning hospitals’ failure to abide by federal price transparency rules. But price transparency is a market tool, and health care is far from a perfect market commodity. Other cost control tools are needed.

How Much Does Your M.R.I. Cost? Buy It First to Find Out. (video)
New York Times
August 2, 2022
By Martin Schoeller

A federal rule that went into effect last year requires hospitals to post prices for their services, with the aim of removing the element of surprise for patients and perhaps even spurring price competition among health care providers.

But a recent study by PatientRightsAdvocate.org, a nonprofit group that works for price transparency, revealed that only about 14 percent of the 1,000 hospitals it surveyed were complying with the new rule.

“We depend on hospitals in our communities to take care of us,” Mr. Schoeller said. “But our hospitals are putting profits before patients.”

The solution, he argues, is in stronger government enforcement of the transparency rule and stiffer penalties for those hospitals that don’t comply.

Comment by: Kenneth A. Colón

Price transparency is valuable, but by itself insufficient.

As a matter of principle, we deserve to know how much we will be paying for a particular good or service. This is the basis upon which all market transactions are built – learning the price for a particular item, and deciding if you are willing to pay that price.

The same must be demanded in healthcare, as long as we use a market-based system. I agree with the author, on principle, that we need stronger government enforcement and stiffer penalties for hospitals which don’t comply.

However, price transparency alone won’t produce the pressure on healthcare prices needed to bring them down.

Research shows that price transparency tools see low uptake and usage among patients when offered, with one study finding only 10% of those offered used the tools, and no overall reduction in spending. Furthermore, cost savings among tool users – where it was found at all – was limited to a few services, including MRIs/CTs and sleep studies.

This makes intuitive sense. You can shop around for prices only if the services you are shopping for are non-emergency. An MRI for your chronic knee pain? Sure, you may be able to shop around a bit. Surgery for your acute appendicitis? Not so much.

The Health Care Cost Institute estimates roughly 35% of out-of-pocket healthcare spending is spent on “shoppable” services, suggesting that roughly 65% of out-of-pocket spending would be difficult to alter.

There’s another issue. Higher healthcare prices are sometimes interpreted by consumers as a marker of high quality. This can mean that price transparency leads to higher costs.

So what’s the alternative? What should be done instead of or in addition to price transparency?

The Kaiser Family Foundation recently published a review of policy options to rein in healthcare costs. These include: price regulation (price setting, price caps, and price growth caps), global budgets, and spending growth targets. Ideally, these would be combined with a full transition to single-payer, which would shield consumers from substantial out-of-pocket costs.

Using any of these strategies alone or together is likely to have a far greater downward effect on healthcare prices and costs than price transparency alone ever could.

Kenneth A. Colón is a research affiliate at the Center for Infectious Disease Modeling and Analysis at the Yale School of Public Health. He earned his Master’s in Public Administration at the Maxwell School of Citizenship and Public Affairs at Syracuse University.

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