Transparency alone won’t change behavior: Health care quality data is key

(Editor’s note: Be sure to read the first article in this series, Bringing pharmacy costs into the light: Transparency is key to capping costs.)

To spend your money wisely, you need to know how much something costs before you buy it. Right?

That is the thinking behind the Transparency in Coverage Rule, which took effect on July 1. The rule, issued by the Centers for Medicare and Medicaid Services (CMS), requires U.S. health insurers and group health plans to post cost-sharing data in machine-readable files online. Insurers must include the rates negotiated with providers for covered items and services, as well as historical billed and allowed amounts for out-of-network care.

The mandate is one of several legislative attempts in recent years to curb the opacity of pricing that pervades U.S. health care — a largely for-profit system that incentivizes providers to bill at the highest prices they can. 

Providers have free rein to charge arbitrarily high prices for services precisely because it is not common practice to discuss billing and cost sharing with patients prior to providing care. In turn, insurers do not feel pressure to negotiate competitive prices with providers and hospitals. The “discounted” prices that private health plans negotiate with hospitals actually average 241 percent of Medicare’s reimbursement rate. 

In theory, the Transparency in Coverage Rule rectifies this. With access to public cost-sharing data, consumers can make informed decisions when choosing providers and lower medical costs by simply avoiding the most expensive providers. 

But in practice, the law is unlikely to lead to changes in consumer behavior necessary to achieving the goal of reduced medical costs.

For one, as others have pointed out, the machine-readable data files mandated by the law are just that: readable by machines, not regular people. All insurers had to do by July 1 was publish indecipherable lists of individual billing codes and their corresponding prices, many of which are outdated. 

While these files provide the data needed to create user-friendly shopping tools in plain English, such tools do not yet exist.

CMS has plans to fix this. Beginning January 1, insurers must provide a digital tool that allows consumers to determine their financial responsibility for one of 500 common services from a specific provider. Beginning in 2024, all items and services must be shoppable on price comparison tools.

While these tools will be a step in the right direction, they will not give consumers a comprehensive estimate of what many procedures will cost. Take a knee replacement, for instance: It is not a single searchable service, but a basket of myriad items and services, many of which the average consumer cannot predict. Eventually, it will be possible to look up member-specific price estimates for the surgical procedure itself,  but many components such as anesthesia, hospital stays, pain medication and post-surgical rehabilitation and doctor visits may not be included in that price. 

Even if consumers are one day given the opportunity to compare bundled prices for entire episodes of care, that may not be enough to drive medical cost reduction, because consumers tend to use price as a proxy for quality.

The truth is, price is a poor indicator of quality. Studies show that, when it comes to health care, “higher pricing compared to cost does not necessarily associate with higher quality and, in fact, might indicate the opposite.”

Erin Fuse Brown, associate professor of law at Georgia State University and director of the Center for Law, Health & Society, calls U.S. health care “a failed market.” She describes it as “highly consolidated, composed of monopolies with very few competitive forces at play. It’s a system without equity, where consumers are vulnerable, barely in the position to execute their purchasing power.”

Nonetheless, consumers treat it like a market in which higher prices imply greater quality. 

To test the effect of price transparency on patient decisions, Health Affairs used a Google Ads campaign to increase traffic to a publicly available, user-friendly transparency tool revealing providers’ prices. Once people were made aware of the tool, they used it: utilization increased by 629 percent. 

But the study found that, after consulting price information, patients tended to stick with the same providers or switch to more expensive ones. Either cost was not the primary driver of their decision, or they were reluctant to choose cheaper doctors due to the perception that lower prices equaled worse care.

Transparency may be enough to tackle a commodity-based problem, such as out-of-control prescription drug prices. A drug is equally effective at any cost, but transparency alone is not enough to solve a service-based problem. Just as most consumers don’t choose the cheapest mechanic with no reviews on Yelp, they do not want to risk choosing a cheap but poor-quality clinician.

Consumers’ tendency to conflate price and quality in medical care can only be challenged by adding quality-of-care data to price transparency tools. If consumers are expected to make value-based decisions about their health care, both sides of the value equation must be made accessible to them: cost and quality. 

Some companies are trying to do just that. Health care data platforms are emerging that help consumers make informed health care decisions by centralizing comprehensive, current information about providers and payers. Such platforms include cost and quality solutions that allow customers to see quality and health outcomes indicators alongside cost information.

As tools like this gain traction, only time will tell if they will be sufficient to solve the value crisis in American health care.

In the meantime, there is hope for the Transparency in Coverage Act to positively impact the health care value equation in a different way than intended: Holding insurers accountable.

With standardized data files containing negotiated rates for all plans, providers and codes available, software could compare not just the prices across providers within a plan, but prices across plans for any given set of claims.

That would enable benefits advisors and employers to compare prices between two insurers. Perhaps sooner and more directly, it allows insurers to see their competitors’ negotiated prices. The hope is that this leads to competition in securing better rates for care — even if those lower rates don’t immediately alter consumer behavior. Will Young is the co-founder and CEO of Sana Benefits.