So, what can be done to control seemingly runaway healthcare costs? One frequently advanced solution is to make prices more transparent to the healthcare consumer—with actual hospital and physician prices (not raw charges or average payments) publicly displayed. After all, it's hard to comparison shop when you don't know what anything costs.
Having accessible price information would serve a second purpose, as well, by nudging healthcare providers to offer more-competitive pricing. With complete transparency, providers would have less ability to negotiate different amounts for delivering essentially the same services.
Will it work? Unfortunately, true healthcare prices are notoriously difficult to obtain. Because of confidential arrangements between payers and providers, getting at the difference between what hospitals charge (retail) and what is ultimately paid (wholesale) is a challenge. The California HealthCare Foundation last year worked with the Center for Studying Health System Change, or HSC, to examine the experience of one of the first states to publicly display payment amounts by health plan, by hospital, for specific procedures—New Hampshire.
HSC researchers worked with the New Hampshire Insurance Department to understand what could be learned through this real-life experiment in price transparency.
The program, dubbed HealthCost, has been in operation since 2007. For the first time, New Hampshire residents could comparison shop for healthcare services, but did they? And did it lead hospitals to be competitive in the pricing of their services?
The results of the study were somewhat surprising: It showed that transparency was no match (yet) for the market dynamics driving price variation. Though New Hampshire is a relatively small state, it has a number of distinct healthcare markets. Within each market, there often was a large, dominant hospital—considered a “must have” in the network for a health insurer to compete in that market. Such hospitals often have the power to command higher prices for their services, with little relationship to objective measures of quality. Hospitals of equivalent value—but with less of a market share—often had to accept lower rates to participate in a health plan's managed care network.
So, what can we learn from such price transparency efforts?
First, patients see and measure value in a much different way than health policy wonks do. Factors, such as reputation, historical use, convenience, proximity and recommendations of family members and friends often are considered before price. Despite changes in health plan benefit designs to promote cost-conscious decisionmaking, the tipping point has not been reached. Not enough patients have incentives to shop based on price, and for those who do, the incentives still are too weak. A $5,000 deductible becomes moot when any hospitalization is likely to exceed the deductible, regardless of the hospital chosen.
Second, market share and market position often carry more weight than cost-effectiveness. Hospitals with dedicated patient bases generally are in a much better position to command a higher price—regardless of what the standard rate is in a market. Though further research always is warranted, transparency of price has not yet had a measurable impact in reducing the variation in price. Though some may speculate that transparency may lead hospitals to moderate price increases in the future, evidence is scant. Presence (or absence) of competition is the critical element impacting negotiated prices in the managed care market place, and transparency is no match.
So, despite all of the clamor over the many perceived contributors to escalating healthcare costs and theories about how to make meaningful change in the nation's delivery system, it is still market conditions—specifically, the level of competition, and whether health plan benefit designs encourage consumers to be price sensitive—that tend to trump transparency as drivers of price.
Might long-term exposure to the sunlight of price scrutiny ultimately help mitigate the broad variation in what different hospitals in the same markets charge for the same services? As accountable care organizations form for Medicare, many will be monitoring how prices in the private sector are affected.
Maribeth Shannon is director of the California HealthCare Foundation's market and policy monitor program.