Healthcare Transparency: May Not Work as Intended | Citizens Against Government Waste

Healthcare Transparency: May Not Work as Intended

The WasteWatcher

President Trump first called for transparency in healthcare in a June 24, 2019 Executive Order that he said would give patients more information about prices upfront from hospitals, insurers,  and providers.  On November 15, 2019, the Centers for Medicare and Medicaid Services released a proposed transparency in coverage rule and comments closed on January 29, 2020.  Unfortunately, the proposed rule has gone beyond the President’s EO to have insurers provide pricing information on “shoppable services.”  Insurers are encouraging the administration to scrap the rule and work with them and Congress to design alternatives that will accomplish the President’s objectives.

The rule is intended to require insurers to provide to consumers transparency tools that would provide immediate online access to their out-of-pocket costs and the negotiated rates for in-network providers would have to be made public.  For out-of-network providers, insurers would have to make public what they would be willing to pay.  The hope is these requirements would encourage competition, drive down costs, and encourage innovation, just like we see in the marketplace for other products we purchase.

While more market-driven forces in healthcare are needed, the proposed regulations may be confusing to consumers, fail to encourage competition, benefit competitors, and drive up healthcare costs unnecessarily.  Almost 50 percent of Americans get their insurance from an employer-sponsored plan, which are privately negotiated contracts among employers, insurers, and providers.  It is a third party, an insurer, negotiating and shopping on behalf their client, an employer.

When consumers are using their own money for a product, they want to know what they will pay for a product or service.  But the proposed regulations could be akin to a government mandate to department stores, like Walmart, Best Buy and other retailers, being forced to publicly reveal their privately negotiated rates for big screen TVs or computers.  What would consumers do with the information, demand a lower price?  Would there be tacit collusion by retailers and manufacturers to increase prices to make sure they make the profit they need to stay in business?

Most insurance companies have already created and continually improve their online tools for customers to provide information in a meaningful way.  But medical care is complex with many variables.  A May 19, 2017 study conducted by researchers at Harvard Medical School, “Who Uses a Price Transparency Tool? Implications for Increasing Consumer Engagement,” found that, “Despite the recent proliferation of price transparency tools, consumer use and awareness of these tools is low.”  The study found that offering the tools has not been associated with lower overall spending and that among the 70,408 families offered the tool within two large companies, 11 percent used the tool at least once and only 1 percent used it at least 3 times in the study period.  The people most likely to use the tools were younger, lived in a higher income community, and had a high deductible.

An August 2020 Mercatus Center policy paper, “Price Transparency in Healthcare: Apply with Caution,” looked at problems created by government transparency mandates developed in foreign countries and clearly explained why many transparency mandates fail to deliver on a worthy goal. It discussed alternatives and other ways to provide the information consumers would want and use effectively.

In markets like health insurance, where the number of sellers can be small and barriers to new competitors is high, knowing the competitors’ pricing can lead to tacit collusion, encouraging sellers to raise prices.  One study cited by the report described how Denmark’s antitrust agency went after domestic concrete producers where two companies had 50 percent of total sales.  The agency published the prices of concrete from every domestic producer hoping to increase competition and lower costs, but the result was manufacturers had enough information to engage in tacit collusion and prices went up.

In healthcare, one of the most common elective procedures is an MRI scan.  The Mercatus paper reviewed a transparency effort undertaken by AMI Specialty Health, a health benefit management firm.  Since MRIs can range in price from $300 to $3000, there was a potential for real savings.  When a customer scheduled an appointment for an MRI and another local facility was available for at least $400 less, an AMI representative called the patient and gave them the option to change the appointment location, while sharing pricing and quality ratings information.  The program led to an average $220 reduction in overall price per scan, even though the patient did not pocket the savings.

Another example of successfully lowering costs occurred when employees had to put “more skin in the game.”  Safeway provided a high-deductible insurance plan in 2010 with a price comparison tool that showed the negotiated price and expected out-of-pocket costs.  Researchers tracked laboratory and diagnostic imaging testing costs, but it wasn’t until Safeway implemented reference pricing a year later, under which patients had to pay all additional costs above a certain amount, that the employees truly began to shop around for a less expensive lab or diagnostic test, eventually leading to prices going down across the sector.

The Mercatus paper concluded that if regulators are going to require insurers to disclose pricing information, it should be “only for services that are shoppable and homogenous, and only if the insurer can entice its customers to use the price tools available to them, whether through easily comprehensible bundled care structures or through reference pricing.”

The best way to encourage a true market in healthcare is not with heavy-handed transparency requirements like the proposed rule, but rather to encourage the use of more health savings accounts where consumers would have more direct spending power or “skin in the game,” be incentivized to shop for pre-planned, routine medical care, and be encouraged to question their physician if a certain procedure is necessary to improve their health.  HSAs, coupled with high deductible healthcare plans that would cover unexpected, catastrophic events when there is little to no time to shop, will also increase transparency in healthcare because providers will want these consumers to spend their healthcare dollars with them.  It would encourage the development of more consumer-friendly “Consumer Reports” healthcare rating tools.  It does not appear that the CMS rule will achieve this objective.

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