Academic journal article AEI Paper & Studies

Toward Meaningful Price Transparency in Health Care

Academic journal article AEI Paper & Studies

Toward Meaningful Price Transparency in Health Care

Article excerpt

June 2019

Americans with private health insurance are increasingly enrolled in plans with high deductibles. (1) It was expected and hoped that a shift toward higher deductibles might help control costs in two distinct ways. (2) First, because patients enrolled in high-deductible health plans (HDHP) must pay directly for their upfront care each year, they might forgo using some less necessary services. Second, and more importantly, to become more attractive to price-sensitive patients, the suppliers of medical services might take steps to become more productive to cut their prices and remain competitive in the marketplace.

This latter effect--the supply response to cost-conscious patients--could make the shift toward consumer-driven health care an important development. The cost problem in American health care is driven by the high expense of medical care delivery. The processes hospitals, physician groups, clinics, and others use to take care of patients are often inefficient, with inflated prices. Further, too much care is provided that has no prospect of improving patients' health. (3) Consumers responsible for paying for their own care should be eager--at least in theory--to find the lowest-cost, highest-quality options available to them, which in turn should encourage those facilities and clinicians competing to provide them with medical care to set their prices as low as possible. This is how other markets deliver higher productivity over time and how consumer-driven health care could spur a higher-value, lower-cost health care delivery system.

Unfortunately, while research confirms that HDHPs have led consumers to use fewer services, there is less evidence of a significant, consumer-driven transformation of the medical services market (Bot-Goldberg et al. 2015). If such a transformation were taking place, one would expect to see more consumers engaged in active price shopping before deciding when, and from whom, to get care. Further, those supplying medical services to patients would be competing with each other by offering visible price concessions to consumers to increase their market shares. That has not occurred.

Fifteen years after the enactment of health savings accounts (HSAs) accelerated the shift toward higher deductibles, price shopping by consumers remains relatively uncommon and focused on a small percentage of overall medical expenditures. (4) A recent survey found that only 13 percent of enrollees who faced out-of-pocket costs for care they were receiving researched prices before getting care, while only 3 percent engaged in price comparisons among providers (Mehrotra et al. 2017).

Numerous efforts are now underway to make pricing clearer and more transparent to consumers, but those providing the services to patients are, for the most part, being pulled along reluctantly in this direction. As a general matter, hospitals and physician groups are not, on their own volition, offering consumers clear pricing information that would facilitate direct comparisons with competing suppliers of the same medical services.

It is not a foregone conclusion that strong price competition in the medical services market will never occur. Progress is possible, and some is occurring today, but a significant shift toward more aggressive price shopping by consumers is unlikely to occur spontaneously. Too many impediments are standing in the way. Policymakers need a clear understanding of those impediments and what might be done to overcome them, or at least to minimize their effect, so that consumers can become stronger catalysts for higher-value medical care.

The Context of the Challenge

Medical care has characteristics that limit the consumer's role, and government policy--aimed largely at protecting patients from medical expenses and low-quality care--reinforces the market's inherent tendencies. The overall effect is an environment in which it is rare for consumers to price shop like they do for other goods and services. …

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