Can price transparency meaningfully reduce the outrageous cost of health care and coverage? I believe it can. So do the last several presidential administrations, led by Democrats and Republicans, and nearly 90% of Americans, according to numerous recent polls.
The Congressional Budget Office, however, doesn’t seem to think highly of transparency. Its new report on strategies to reverse runaway commercial health insurance costs estimates that greater price transparency will lead to only “very small price reductions” of about 0.1% to 1% over ten years.
This conclusion is news to those of us who believe that providing consumers with actual, upfront prices will arm them with information they need to lower their costs through choice and competition. It overlooks how price transparency generates functional markets that keep prices affordable in almost every other economic sector. And it contradicts economic and anecdotal evidence that consumers can save 30% to 50% on health care costs when empowered with real prices.
The CBO’s pessimistic price transparency projection is based on numerous problematic premises. For instance, it heavily relies on a half-hearted price transparency effort in New Hampshire. It showcases a study showing that imaging prices included on a Granite State price comparison website fell by 4% between 2007 and 2011 compared to imaging prices not included on the site. It’s irresponsible to extrapolate this underwhelming finding nationwide. New Hampshire’s website offers price estimates based on historical claims data — not real prices.
It’s almost impossible to comparison shop based on estimates because these do not hold hospitals accountable for final bills that are far higher. This is likely why a mere 8% of those who received an outpatient imaging procedure in the state used the site. Only actual prices empower consumers to compare and substantially save with peace of mind that the final bill will match the quoted price.
The CBO also discounts price transparency’s potential for savings by claiming in its report that “many patients are insensitive to prices because insurance shields them from most price variation.”
This argument overlooks the recent explosion of people on high deductible health plans who receive no such insurance shielding until they’ve paid several thousand dollars out of pocket. it also overlooks employers, the nation’s largest private consumer of health care, who have no such protection from runaway prices. It is insulting to suggest these consumers won’t shop for the best care at the best prices when able.
The CBO claims employers won’t benefit from price transparency because they often rely on benefit consultants who “do not realize the full gains from negotiating lower prices, so they have little incentive to do so.”
To be sure, employers delegating responsibility for their health plans is a problem, and part of the reason for growing health care costs. Yet price transparency will empower them to elevate health plan decisions from human resources departments to the C-suite and treat these costs like any other aspect of their supply chain, with a keen eye toward price and quality.
The CBO also suggests employers will not shop for quality, less-expensive care because doing so “would upset their workers and make the employers less competitive in the labor market.”
This claim is based on the farfetched assumption that employers won’t share health plan savings induced by transparency with employees in the form of lower health premiums and higher pay. In the real world, that’s exactly what innovative employers nationwide are doing.
Consider the SEIU 32BJ, a union that represents more than 200,000 building service workers and their families across the Northeast. This year, it was able to offer its members their largest pay raise in history and $3,000 bonuses after analyzing its health claims data and excising the price-gouging NewYork-Presbyterian hospital from its plan. In today’s era of high inflation, employers and unions that can reduce employee and member health premiums and boost wages will be more competitive, not less, in the labor market.
The CBO also justifies its anemic price transparency projection by claiming that many services “are not amenable to price shopping, whether because consumers do not have time to consider the price before receiving care or because only one provider offers the service in their area.”
This perspective complete discounts how more than 90% of health care spending isn’t for emergencies. Nor does it consider how price transparency savings can be so significant it’s often worth paying for travel to access them. For instance, patients from all over the country fly to Oklahoma City for care at the Surgery Center of Oklahoma (SCO), which posts online its all-in cash prices — which are significantly less than major hospitals nationwide.
Consumers can also use lower prices in places like SCO and others to negotiate discounts at home. Keith Smith, the co-founder of SCO, tells the story of a patient in Atlanta who was able to get his local hospital to match SCO’s $3,600 price after initially quoting him $40,000 for the procedure.
Starting from the appropriate premise that health care consumers want to stop being overcharged and will shop for lower prices, it’s clear that health care price transparency can deliver high-quality care at substantially reduced costs. The CBO’s conclusion, by contrast, is a case of garbage in, garbage out.
Cynthia A. Fisher is a life sciences entrepreneur, founder and chair of PatientRightsAdvocate.org, and the founder and former CEO of ViaCord Inc.