Last week, RAND issued its latest assessment of hospital prices concluding…
“In 2022, across all hospital inpatient and outpatient services (including both facility and related professional claims), employers and private insurers paid, on average, 254% of what Medicare would have paid for the same services at the same facilities. State-level median prices have remained stable across the past three study rounds: 254 %of Medicare prices in 2018 (Round 3), 246%in 2020 (Round 4), and 253% in 2022 (Round 5—the current study).”
Like clockwork, the American Hospital Association issued its “Rebuke” of the report:
“In what is becoming an all too familiar pattern, the RAND Corporation’s latest hospital price report oversells and underwhelms. Their analysis — which despite much heralded data expansions — still represents less than 2% of overall hospital spending. This offers a skewed and incomplete picture of hospital spending. In benchmarking against woefully inadequate Medicare payments, RAND makes an apples-to-oranges comparison that presents an inflated impression of what hospitals are actually getting paid for delivering care while facing continued financial and other operational challenges.
In addition to the ongoing flaw of relying on a self-selected sample of data, their analysis is suspiciously silent on the hidden influence of commercial insurers in driving up health care costs for patients….”
It’s the 5th Edition of RAND’s Employer Transparency Report, each featuring slight methodology changes using Sage Transparency Commercial Claims Data developed for the Employer Forum of Indiana.
The debate over hospital prices is not new nor is RAND the only investigator. Since the Trump administration enacted its Executive Order 13877 (Improving Price and Quality Transparency in American Healthcare) June 24, 2019, numerous organizations have introduced price transparency tools to enable hospital price shopping i.e. Turquoise, Milliman, Leapfrog et al. The Biden administration continued the rule increasing its penalties for non-compliance and Congress has passed 3 laws with bipartisan support widening its application.
However, best-case results reflected as articulated by Larry Levitt, senior vice president of the Kaiser Family Foundation, have not been realized:
“App developers will go crazy developing shopping tools for patients, and patients will use those tools to search for the best deals. The public availability of prices will shame high-priced hospitals into lowering their prices because they’ll be so embarrassed.”
My take:
Academic researchers and economists have concluded that hospital price transparency has not led to reduced heath spending overall nor lower hospital prices. Per a recent systematic review: “No evidence was found for impact on the outcomes volume, availability or affordability. The overall lack of evidence on policies promoting price transparency is a clear call for further research… Price-aware patients chose less costly services that led to out-of-pocket cost savings and savings for health insurers; however, these savings did not translate into reductions in aggregate healthcare spending. Disclosure of list prices had no effect, however disclosure of negotiated prices prompted supply-side competition which led to decreases in prices for shoppable services.”
Per Wall Street Journal actuaries, hospital price increases account for 23% of annual health spending increases but vary widely based on factors other than their underlying costs. Determining how hospital prices are set remains beyond the scope of conventional pricing models.
Nonetheless, hospital price transparency is here to stay: public attention is likely to grow and sources– both accurate and misleading– will multiply. It’s safe for elected officials because it’s popular with voters. Per Patient Rights Advocate survey (December 2023), 93% of adults think hospitals should be required to post all prices ahead of scheduled services. It’s clearly seen as foundational to the Federal Trade Commission doctrines of consumer protection and competition. And it’s important to privately insured consumers—the majority of Americans– since 73% of their claims are for “shoppable services” though they trust payers more than hospitals for estimates of their out-of-pocket obligations in these transactions (61% vs. 22%).
In July 2018, I wrote:” Arguing price transparency in healthcare is a misguided effort is like arguing against clean air and healthy eating: it’s senseless.” It’s still true. Making the case that price transparency has a long way to go based on current offerings and utilization is legitimate.
The price transparency movement is gaining momentum in healthcare: though it still lacks widespread impact on spending today, it soon will.”
Hospitals are 30% of total U.S. health spending and almost 40% of the population uses at least one hospital service every year. Promoting “whole person care,” while touting quality war while disregarding affordability and price transparency for consumers seems inconsistent. Enabling consumers to easily access accurate prices—not just out-of-pocket estimates– is imperative for hospitals seeking long-term relevance and sustainability. And state and federal lawmakers, along with employers, should structure benefits that reward consumers directly for shopping discipline instead of allowing insurers to benefit alone.
Is the Juice worth the Squeeze for hospital price transparency efforts? To date, proponents say yes, opponents say no, and each side has valid concern about use by consumers. But unless one believes the role of consumers as purchasers and users of the system’s service will diminish in coming years, the safe bet is hospital price transparency will play a bigger role.
HENRY KOTULA 