David Edholm, MJLST Staffer
In 2019, the Centers for Medicare and Medicaid Services (CMS) promulgated the Price Transparency Rule in order to allow patients to access healthcare pricing information. The stated purpose of the Price Transparency Rule is as follows:
By disclosing hospital standard charges [including payer-specific negotiated charges and discounted-cash prices], we believe the public (including patients, employers, clinicians, and other third parties) will have the information necessary to make more informed decisions about their care. We believe the impact of these final policies will help to increase market competition, and ultimately drive down the cost of healthcare services, making them more affordable for all patients.
There is significant debate whether compliance with the Price Transparency Rule will actuate its intended purpose.
On the proponent side, economic theory to support this purpose statement comes from a market advocacy perspective. In order to drive down the cost of healthcare through competition, consumers must know the prices in advance in order to bargain between providers. By giving consumers the ability to shop around and barter, the thinking goes, providers will undercut competitors by lowering their own prices, even slightly below a competitor’s rate.
Another theory that supports price transparency is that shining light onto healthcare pricing will lead to more public outcry, guilting providers to lower overinflated or unconscionable gross charges or hospital fees. Public outcry may also compel states to create global healthcare budget caps, which have been shown to have positive price-lowering effects. A recent study from Rice University found that Maryland’s all-payer global budget policy reduces costs while increasing quality of care.
Skeptics of the rule, however, including the American Hospital Association (AHA), argue that price transparency will induce institutions that currently charge less than competitors to increase their prices to match their competitors, ultimately raising costs. In litigation, the DC Circuit responded to that argument, holding that, based on available research, this result is unlikely. Secretary Azar was not required to rely on definitive rather than predictive data in writing the requirements because of the novelty of the price disclosure scheme and the unique complexity of healthcare pricing. The DC Circuit held that relying on studies of similar price disclosure schemes in other industries was sufficient to inform a stable policy judgment.
However, the healthcare service market is of a unique nature in that quality of care may be a consumer’s primary consideration before seeking treatment, trumping price considerations. Alternatively, a consumer may assume that paying more means receiving higher-quality care. Quality of care is incredibly hard to measure and report, and unless a consumer has access to quality-of-care information alongside pricing information, they are more likely to make fallacious assumptions about this correlation. Another unique factor about healthcare shopping is that many consumers have a strong relationship with their physician, thus would base their decision primarily on receiving advice from one they trust, rather than the out-of-pocket cost of care, especially if the difference is negligible.
Last is the complexity of healthcare viewpoint. Opponents of the price transparency rule emphasize the nature of healthcare as an unpredictable trade. For example, if a patient consumer undergoes surgery to fix one problem, a surgeon may discover another problem amidst the procedure. The standard of care likely prompts the surgeon to correct both problems, thus the patient consumer will be charged an amount higher than they could have reasonably predicted. The AHA brought this argument to court to support its assertion that the price transparency rule violated the Administrative Procedure Act (APA) by overstating the rule’s benefits. The DC Circuit court responded that the rule did not require hospitals to publish every potential permutation of finalized charges, rather that the baseline charges are publicized. Thus, in the surgery scenario, a patient consumer should have access to the payer-negotiated rate to fix the initial problem.
The jury is out, so to speak, on the effects that Price Transparency Rule compliance will have on healthcare economics. But from a consumer perspective, rapidly increasing healthcare costs are at the forefront of relevant political issues.