Congress can finish the job on healthcare price transparency

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The House Energy and Commerce Committee is soon marking up healthcare price transparency legislation that could empower patients and employers with the upfront prices needed to avoid overcharges and choose affordable care.

Unfortunately, my new research suggests the price transparency legislation that recently passed a key congressional subcommittee and mostly codifies the status quo is insufficient. I cross-referenced healthcare bills with posted insurance prices and found that an exact or close price match occurred only 20.5 percent of the time. In other words, posted prices generally don’t match what patients pay.

Stronger legislation is needed. The full Energy and Commerce Committee can strengthen this legislation and finally make price transparency a reality by adding key provisions from the bipartisan Patients Deserve Price Tags Act.

These requirements include demanding all providers and insurers publish monthly price disclosures, including negotiated rates, for all services, with senior health executives’ attestation of accuracy and strong penalties for noncompliance.

Legislators must also require hospitals and insurers to give consumers the tools needed to make sense of these price disclosures, which are too often disclosed as formulas, algorithms, or fee schedules, so they can make accurate comparisons. Finally, they should require hospitals and other providers to give itemized bills so consumers can compare them with posted prices to detect overcharges, double-billing, errors, or fraud.

By incorporating these elements, which are missing from the current bill, Congress can allow consumers to overcome information asymmetries, benefit from competition, and substantially reduce their healthcare costs. Patients could finally compare prices and receive detailed bills that match.

Economists have long understood that markets act best when buyers and sellers have access to accurate information. When prices are hidden, as they are in healthcare, markets break down and rent-seeking proliferates.

Without prices, hospitals and insurers can charge essentially whatever they want. Countless middlemen take a cut in the dark, driving costs higher. The U.S. now spends $5.7 trillion annually on healthcare, amounting to 18.4 percent of GDP, twice the developed-world average.

Research suggests 25 percent of these expenditures are waste, fraud and overcharges. A joint letter I co-signed with 40 economists last year estimates that system-wide price transparency would significantly reduce these inefficiencies, saving the country more than $1 trillion annually in health expenditures.

These funds can be redirected from healthcare bloat and profiteering to the productive private economy, including workers’ wages and business earnings. My research suggests that lowering annual premiums by just $1,373 per employee can boost the profitability of retail businesses by 12.4 percent.

Transparency allows employers to spot wide price variations of nearly 200 percent in the same market for the same care. They can steer employees to less expensive options and fulfill their fiduciary duty to offer high-value benefits.

A recent Bloomberg Government piece profiles the growing number of employers using price disclosures to reduce health plan costs and premiums. One company saved approximately $3.5 million on a contract for orthopedic services by comparing rates. Broader price transparency will allow many more companies to follow suit, democratizing these savings for many more employers and the 180 million people they cover.

By incorporating key elements of the Patients Deserve Price Tags Act, Congress can deliver a rare, bipartisan win for the American public. Meaningful, systemwide price transparency can create a pro-consumer healthcare marketplace that significantly reduces costs on both the micro and macro levels.

Vivian Ho is the James A. Baker III Institute Chair in Health Economics at Rice University and a Professor of Medicine at Baylor College of Medicine.

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Employers

healthcare industry

Hospitals

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