COVID-19 and the need for price transparency
When paired with provider quality information, price transparency allows people to become true health care consumers.
An ongoing dual crisis in the U.S.—the COVID-19 pandemic and its accompanying economic contraction—has put even greater pressure on benefits advisors and their employer clients to rein in health care costs and ensure employees are good stewards of their benefit dollars.
The pandemic has also brought into public focus the potential for unfair health care pricing. The CARES Act, passed by Congress in March, requires all private health insurers to reimburse providers for COVID-19 tests based on the in-network rate in place prior to the pandemic. If the provider is out of network, health plans pay the provider’s “cash price” (or a lower price, if the plan can negotiate one). As long as the public health emergency continues, this price must be publicly available. The requirement to publish the price of the test is intended to keep prices reasonable.
Related: RAND stokes hospital pricing transparency fire with new report
Because the law allows out-of-network labs to set their own price and expect full payment, providers have an incentive to increase prices. In some cases, labs charge insurers several thousand dollars per test, while major in-network labs charge between $100 and $200. Insurers forced to pay high out-of-network prices pass these costs along to consumers. One recent story in the New York Times described a consumer paying close to $1,000 out-of-pocket for COVID-19 testing.
The birth of health care price transparency
Ten years ago, the phrase “price transparency” was rarely uttered in health care. Health plans had simple cost calculator tools and provider directories that offered little specificity or customization. As a result, employers increasingly turned to private vendors to fill the void, which in turn motivated health plans to improve their own tools.
Because of this, health care prices are more readily available to consumers today. Employer-purchasers and consumers can access prices from many health plans, health systems, independent vendors, as well as some state entities, though this varies by state.
On November 15, 2019, President Trump issued an executive order to expand price transparency. Under this order, hospitals must publish negotiated rates for in-network providers and allowed amounts paid for out-of-network providers. The order has been met with resistance from hospitals and health plans. In June, a federal judge upheld the order, despite a lawsuit brought by the major national hospital trade associations. The associations plan to appeal.
Goals of price transparency
In theory, price transparency encourages consumers to choose lower-cost options for shoppable health care services. As a result, high-cost providers would lower prices to remain competitive.
To achieve these goals, consumers need access to relevant information, such as their estimated out-of-pocket expenses for specific services. When paired with provider quality information, consumers can also shop for the highest value.
Price transparency in practice
In 2018, the Centers for Medicare and Medicaid Services issued a rule requiring hospitals to post chargemasters on their websites. However, this information is neither easily accessible nor useful for consumers. Once located, it may not reflect the payments health plans negotiate with hospitals; furthermore, chargemasters do not identify a consumer’s share of the costs.
Many insurers and other vendors offer consumer tools to calculate expected out-of-pocket expenses. Unfortunately, these tools are underutilized. The majority of consumers believe price shopping is important, but in one study, only 13% of respondents who had out-of-pocket spending in the prior month had sought price information, and just 3% compared costs across providers before receiving care.
Research suggests that greater use of transparency tools can be found in markets with greater price variation, implying that consumers who could save more money are more engaged. Younger consumers, those living in higher-income communities, and those with higher deductibles, use transparency tools the most.
In practice, transparency tool use does not always correlate with lower spending. When CalPERS offered a tool to beneficiaries in an Anthem PPO plan that provided customized price and select quality information, 12% of consumers used the tool over 15 months, but their use was not associated with lower spending on lab tests or office visits.
Considerations for the implementation of price transparency
To increase use of transparency tools, targeted engagement of older and sicker consumers could be the most effective strategy. These individuals use tools offering price information less than younger, healthier consumers but are also more likely to be more frequent users of care.
Reaching out to consumers with integrated cost and quality information specific to the care they need is more likely to persuade them to use price information. Providers can also be empowered to assist consumers with price shopping tools. Finally, combining price information with benefit designs, such as reference-based pricing, can provide an incentive to price shop. In one case, reference pricing resulted in a 27% reduction in the average price paid per laboratory test and a 13% reduction per imaging test.
Where do we go from here?
Employers and benefits advisors who implement benefit designs that depend on transparency should focus on teaching consumers how to access and use this information through websites, health coaches or navigators. Using price information could become increasingly common as consumers become more tech-savvy and information-driven.
On the legislative side, price transparency has bipartisan support. The COVID-19 pandemic, coupled with a poor economy, will increase scrutiny of health care prices. The right public policies could help both employer-purchasers and policymakers address costs and introduce greater competition among health care providers.
Emma Wager is project and research assistant at Catalyst for Payment Reform. Previously, she was on the policy and research team at the New York State Health Foundation.
Suzanne Delbanco, PhD, is executive director at Catalyst for Payment Reform. She helps CPR members and employers collectively push for improvements in the quality, affordability, and transparency of health care.
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