How Much Will Medical and Drug Price Transparency Help?

The truth is that there is no clear and concise way to explain how hospitals determine prices and negotiate with individual insurance companies. What you end up paying out of pocket has little to do with the price hospitals charge your insurer and more to do with how your insurance plan is built. For example, what the copays, deductibles, and out-of-pocket-maximums are, as well as how well the insurance company has negotiated with the facility. Most people don’t know anything about the cost of care until they receive their “explanation of benefits” days or weeks after the service.

Chargemasters Go Online

In January 2019, new rules under the Affordable Care Act went into effect that requires hospitals to post their “list prices” online. List prices are the prices before any hospital discounts or insurance payment. However, these complex spreadsheets and a mind-boggling number of footnotes have not done anything to improve the public’s understanding of pricing. 

These “chargemasters” (as insiders call the price lists) include wide variations in pricing, even hospitals located only a few miles from each other. When Kaiser Health News investigated the lists of the largest acute care hospitals in several large cities, they found that the list price on a liter of basic saline solution varied between $56 and $472. A brain MRI with contrast ranged from $1,720 to $8,800.

Perhaps luckily, the chargemasters are often buried on hospital websites and are nearly impossible to find. After all, services and products are identified in obscure abbreviations, billing codes, and complex medical terminology that is not accessible to the average person. Many hospitals are posting disclaimers stating that the information doesn’t reflect final charges and encourages patients to contact their insurers or the facility directly to get individualized, accurate cost information.

Hospitals Must Disclose Prices They Charge Insurers

The industry is in an uproar over the June 26th executive order from President Donald Trump that requires hospitals to disclose the prices that they charge insurers. After all, the cost is rarely considered during a medical emergency, and like so many things that people try to research and cost out, it’s not comparing apples to apples.

I consider it to be akin to what a bride-to-be encounters when trying to choose a wedding venue. This place has a cake-cutting charge, this restaurant includes non-alcoholic beverages in their price, and this hall doesn’t charge additional money for chair covers and table linens. Bridezillas exist for a reason, and I think that we can all agree that surgery to remove a brain tumor or to stem a blooming aneurysm is likely to be infinitely more stressful than the “best day of your life.” Maybe someone who wants breast implants will have time to get online and compare pricing at various surgical centers, but someone in the throes of a massive heart attack certainly won’t.

Will Transparency Help? 

Even if you can compare prices for an operating room, it will be tough, if not impossible, to calculate your total costs, including everything from the anesthesiologist to follow-up care. Hospitals could potentially bet on it being difficult to think of every eventuality, and might, for example, post a low cost for the operating room while increasing other expenses to make up for the reduced OR price.

Under the order, the rules only apply to hospitals and the staff that they employ; however, many hospitals partner with doctors not directly employed by them who would be exempt from the stipulations.

Reducing Competition Might Sound Better Than It Is

Health and Human Services Secretary Alex Azar has been given two months to come up with a draft of a regulation requiring hospitals to “publicly post standard charge information” to “meaningfully inform patients’ decision making and allow patients to compare prices across hospitals.” While proponents of the order say that it could encourage competition and lower prices, detractors point out that hospitals will have to be inventive in creating ways to shift their costs in other areas to make up for the disparity. Hospitals that discover their prices are lower than their competitors could raise their rates to be more in line with other institutions, and insurers might be handicapped in their ability to negotiate with medical facilities. The fear is that by reducing competition, consumers will end up paying more.

The List Price of Drugs Is Not Relevant to Most People

On May 8th, the U.S. Centers for Medicare and Medicaid Services (CMS) said that it would require drug manufacturers to include “list prices” in television ads for all medicines covered by Medicare or Medicaid that cost more than $35 for a one month supply or a full course. On June 14th, 2019, Merck, Eli Lilly, Amgen, and the Association of National Advertisers filed a lawsuit against Azar, CMS, and HHS, alleging that the government doesn’t have the license to require price disclosures in advertising. They stated that the rule violated the manufacturers’ First Amendment right to free speech. On July 8th, 2019, a federal judge stopped the Trump administration order, requiring drug companies to include prices in their TV ads. Again, what a consumer ends up paying for medication depends on their insurance plan and usually will have little resemblance to the “list price” that would be disclosed on TV commercials. However, many drug companies are voluntarily disclosing list prices and a range of expected out-of-pocket costs for their medications on websites and via dedicated phone lines.

In Summary

Perhaps the notion of “anything is better than nothing” applies here. With this raw data, analysts, app developers, insurers, and providers may be able to create tools that are useful to consumers and will help direct patients to the most cost-effective locations for the services that they need. Will price transparency lower health care costs? It’s anyone’s guess. It might be worth a try – let’s all remain cautiously optimistic.