Over the past few years, growing attention has been directed toward the difficulties inherent to healthcare delivery in the United States. Studies show that not only does the United States have the priciest healthcare system in the world, but also our healthcare costs are rising at a disturbing rate. The International Federation of Health Plans reveals that “between 2015 and 2025, healthcare expenditure will grow at 5.8% per year, and by 2025, it will make up 20.1% of U.S. GDP” (Hankin, 2016). Furthermore, with the recent rise of High Deductible Health Plan (HDHP), patients are paying larger deductibles and larger out-of-pocket health care costs (Kane & Harvey, 2015).
Unfortunately, these trend increases are not likely to die down. So, is greater price transparency the answer? According to investinganswer.com, “price transparency is the ability to know all of the bid prices, ask prices, and trading quantities for a given good, or service at any point in time” (Price Transparency, 2018). Proponents of the broader use of free market mechanisms in the healthcare sector argue that greater price transparency is the policy remedy for our country’s healthcare debacle. Others contend that the idea of price transparency as the silver bullet to our healthcare dilemma is a fallacy. The purpose of this paper is to shed some light on why opinions vary so wildly when it comes to the impact of price transparency on healthcare delivery system. Proponents of greater price transparency assert that “the historical opacity of health care prices is widely believed to be a major factor inhibiting the more efficient functioning of the delivery system” (Robert Wood Johnson Foundation, 2016).
The United States is the epitome of a capitalist economy which is characterized by, among others, prices and the distribution of goods or services that are determined primarily by competition in a free market. Moreover, consumers are aware of prices of goods or services before making a purchase. So, healthcare products and services ought to be no different. Moreover, since healthcare is like any other commodity to be traded in the free‑market, as some people have so eloquently stated (Perry, 2017), the free mechanisms and competition of the marketplace should allow patients to see and compare health care prices. Unfortunately, “patients are being asked to act as consumers in a marketplace in which price, a fundamental driver of consumer behavior, is often unknown until after the service they purchase has been performed” (Why Price Transparency Matters Now, 2015).
In addition, greater price transparency can boost the quality of our healthcare system. Americans love researching and comparing the prices from different vendors before buying. Indeed, from groceries to clothes and other products or services, consumers shop for the best value for their money. As patients’ financial burden surges, they will focus more focus on quality and make value-based decisions. Thus, greater price transparency allows consumers to clearly see the price of treatment and determine whether the quality it is worth their out-of-pocket expenses before receiving care. Ultimately, physicians and hospitals will compete on price and quality while insurance companies will compete, not just on the price of their premiums, but also on the reimbursement quota. In the long run, the object should be to “replace the nation’s reliance on fragmented, fee-for-service care with comprehensive, coordinated care using payment models that hold organizations accountable for cost control and quality gains” (Belliveau, 2018).
Greater price transparency can also lower healthcare costs by reducing charges for physicians, hospital stay, prescription drugs, medical devices and diagnostics, and other healthcare products and services. Studies show that, overall, patients are increasingly paying more for identical services depending on which hospital they go to. Indeed, “physician practices in areas with low competition charge more for office visits than practices in areas with high competition” (Potter, 2014). And since the opaqueness of hospital billing system in the U.S. is legendary, price transparency will give patients more access to prices and quality information thus putting them in a better position to choose their own provider. Ultimately, this transparency will drive competition and put considerable pressure on providers to control their costs rather than passing them onto the consumers. Consequently, there is a growing interest in the consumer-driven healthcare “to give workers greater responsibility for how they spend their healthcare dollars so they will have a stronger incentive to seek the most cost-effective care and reduce their use of unnecessary services” (Benko, 2016). Finally, healthcare providers also benefit from a greater price transparency.
As Cleverley & Cleverley point out, although “the competitive position of a business relative to its competitors has a significant influence on pricing policy”, there is a need to best communicate and justify the prices to the public (Essentials of Health Care Finance, 2018, pp. 154-158). Given that the healthcare industry is always fluctuating and evolving, the need for ongoing benchmarking cannot be overstated. Indeed, “benchmarking a facility in comparison with its market and competitors is critical to understanding current performance [and] uncover opportunities for improvements in productivity” (Myers, 2015). Thus, greater transparency can make the benchmarking process easier by giving healthcare providers the information needed for a speedy examination of their pricing policies compare to others in the healthcare market. By gathering pricing and other key management information on top performing medical facilities, providers can fine-tune their services and prices to align with other high performing firms. Granted, price transparency in healthcare is a commendable notion; however, its implementation faces many hurdles due to impracticalities.
Foremost, the healthcare industry is rather complex primarily because the comparison shopping that comes so naturally in other consumer markets is awkward in the healthcare marketplace. First, most patients are covered by insurance of some sort; therefore, they end up paying very little to none of the cost of their medical care. This radically declines or eliminates their enticement to shop around for a lower-cost health provider. Also, the healthcare market is far from being perfectly competitive where firms are price-takers and consumers have complete information about the products or services being sold as well as the prices being charged by each provider. By the same token, when it comes to health care decisions, time is often of the essence. As Dr. Peter Ubel, a physician and behavioral scientist at Duke University, puts it so well, “what works for toasters won’t necessarily work for MRIs” (Tillman, 2013).
Consequently, consumers may be unable or unwilling to waste time shopping around for the best and more affordable medical care as they would for typical products and services. In addition, prices in healthcare cannot be easily standardized. Granted, price transparency aims at “providing patients with what they need to understand the total cost of care, not just what they are going to pay for the procedure itself, but also the physician fees, medication, and follow-up” (Hegwer, 2015). But understanding the true price of health care can be complicated because rates and costs vary by insurance plan, patient, circumstance, and location. Simply put, the law of one-price, “the economic theory that the price of a given security, commodity or asset has the same price when exchange rates are taken into consideration” (Investopedia, 2018) cannot be applied to health care services. Moreover, given the practice of cost-shifting which is prevalent in the healthcare industry, prices listed on each hospital chargemaster often deviate from what the patient ends up paying.
Consequently, health care bills are bound to be confusing for patients because “few hospitals have managed to reduce the flurry of multipage billing statements and unintelligibly cryptic phrases and codes [and] haven’t replaced such statements with documents that are clear and easy to understand.” (Hofmann, 2016). Furthermore, transparency in healthcare has been proven to be a double-edged sword. In recent years, over 30 states have considered or pursued legislation to increase price transparency (Sinaiko & Rosenthal, 2014). Yet, the outcomes are as not as promising as one would have expected. As lawmakers and insurers are seeking to increase price transparency in healthcare, consumers don’t seem very interested in comparison shopping on a regular basis. According to the chart below, few Americans compare costs from providers before making a health decision. Perhaps, consumers find the process a bit too complex, or they don’t want to disrupt the rapport with their existing provider. Further, a comparative study on the association between price transparency and outpatient spending shows that “offering a price transparency tool was not associated with lower health care spending [and] those offered the price transparency tool did not shift their care from higher-priced HOPD settings to lower-priced ambulatory settings” (Desai, Hatfield, Hicks, Chernew, & Mehrotra, 2016).
Finally, as the debate on price transparency presses on, there is fear that greater price transparency may encourage patients to opt for the priciest services solely based on their perception that higher price equates higher quality. In conclusion, the need for price transparency in the healthcare industry is not without merit. Greater price transparency shows consumers the true prices of the products they’re buying, thereby driving competition. As a result, providers will be compelled to rethink their pricing policies and compete on quality. Price transparency, however, is no panacea because transparency alone will not solve our healthcare problem. Shopping for health care services is not as user-friendly and spontaneous as purchasing goods on a typical market. In the end, major changes in healthcare billing practices may need to occur before transparency aimed at consumers can be expected to improve our healthcare system. By the same token, mechanisms must be erected to ensure that required quality and pricing information does not place unnecessary or additional burdens on stakeholders.