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Price transparency has benefits, but doesn’t necessarily lower medical costs

Price transparency has benefits, but doesn’t necessarily lower medical costs

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As health care price transparency efforts intensify nationwide, a new report details how publicly posting medical costs changed New Hampshire’s market — even though many patients weren’t directly price shopping.

“The state initiative didn’t so much have a direct impact, spurring consumers to shop, which is what we would have expected,” said Ha Tu, an author of the April 2014 report and a senior researcher at Mathematica Policy Research in Washington, D.C.  But “having it in place, and the tension it generated, focusing on hospital price disparity, really did make an impact indirectly. It helped create the environment.”

These findings are especially relevant as the health care price transparency movement picks up steam nationwide. Under the Affordable Care Act, many newly-insured patients are enrolling in high-deductible plans that encourage cost sharing. That’s leading to “a greater demand for meaningful price information for insured patients,” according to the American Hospital Association.

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Earlier this month, Medicare furthered the price transparency movement with its release of physician payment data.

Back in 2007, New Hampshire was a forerunner of price transparency efforts with the launch of HealthCost, a website that displays facility and physician payments for about 30 common, mostly out-patient procedures. At the time, the site was innovative for providing the median amount specific insurers actually paid out for those services, not just the often-higher hospital retail prices.

One key finding from the April report was that price comparisons had a sunshine effect on contract negotiations between hospitals and insurers. That knowledge made it harder for outliers such as Exeter Hospital, the most expensive in the state, to stay insulated, especially when the price battle played out in the public eye. “When negotiations are conducted in the dark, it’s much easier to play hardball on prices,” Tu said.

Many of the 22 local health experts interviewed in the report said price transparency accelerated the development of new insurance plan designs, such as high-deductible options (available under the Affordable Care Act’s bronze plans) as well as financial incentives for patients who price shop.

New Hampshire’s transparency effort — and the public scrutiny on price variation that followed — likely made employers more receptive to different insurance plan options, even if employees initially resisted those changes, the report found. Those new offerings included high deductible plans, which encourage cost sharing, and plans that provide financial rewards if patients choose lower-priced providers.

That impact, though, wasn’t immediately visible in the couple years following the 2007 implementation of HealthCost, said Maribeth Shannon of the California HealthCare Foundation, which funded the report along with the Robert Wood Johnson Foundation. A 2009 report found that neither the average nor the median prices of procedures had decreased since the site’s launch. In the years following that initial analysis, though, public awareness of procedure costs may have risen due to other nearby states’ efforts and the media buzz that HealthCost’s implementation generated, Shannon suggested.

The new study also pointed out that state policymakers had issued several reports since 2009 that analyzed health spending and price transparency efforts. Those reports and the public scrutiny that followed helped make price variation part of the overall health care conversation. 

Efforts to boost transparency in health care pricing beyond New Hampshire could shine a spotlight on hospitals, such as Exeter, that charge much higher prices than nearby competitors. “There are [hospitals] across this state that are shockingly expensive,” Shannon said, referring to the California market. “That’s why having this resource in California could drive prices down. People would start to say, ‘Why is this small hospital charging so much?’”

Still, Shannon acknowledged the extremely local nature of the findings. While transparency may bring down prices in some regions, hospitals with already low margins could be squeezed to the point of shuttering. Many of the report’s respondents also thought the increased price competition could eventually lead to the demise of hospitals that already have low or negative margins.

The report also mentioned the lack of meaningful information on the quality of care and the potential for consumers to be steered financially toward lower-cost providers, regardless of quality.

Nationwide, many states have launched price transparency initiatives, although some critics have questioned their effectiveness. While some experts believe broader implementation would be largely beneficial, researcher Tu cautions against generalizations. Even in a state as small as New Hampshire, the analysis revealed distinct geographical variation.

“Health care pricing is very local and each market is different,” Tu said, adding that shining a light on prices doesn’t necessarily entail lower prices. “Many conditions need to be right to have the effect hoped for.”

In addition to geographical distinctions, patients’ awareness and engagement play a key role. In New Hampshire, Tu observed a large, tight-knit patient population that read similar publications, keeping themselves abreast of news such as health insurance contract negotiations.

“I think public transparency efforts have less promise of making an impact in a community that is fragmented and isn’t much of a community,” she said.

All these factors suggest that price transparency projects need to be undertaken with a lot of thought. 

“Policy makers need to look at the whole picture,” Tu said. “It’s a lot more complex than a lot of policy makers and others make it out to be.”

Photo by Ted Eytan via Flickr.

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