After we get through the coronavirus crisis, many hospitals and healthcare providers will find themselves struggling to stay afloat. To make up the financial shortfall, they will be forced to raise prices. But by how much? And will patients have access to complete and accurate information about those prices?
That question is at the heart of a case argued just before Judge Carl Nichols of the U.S. District Court for the District of Columbia. In American Hospital Association v. Azar, three hospitals and four healthcare industry groups are challenging a rule finalized last fall by the Department of Health and Human Services, or HHS, that requires healthcare providers to disclose their cash and negotiated contract prices to patients in a clear, easy-to-access format. The transparency rule will ensure that patients know the price of the healthcare service or procedure they are purchasing upfront and will allow them to make better choices about their care.
Transparency is particularly important for the nearly 50% of patients with high deductible plans. If prices were available, many of these patients could shop around until their deductible is met. Research shows that such comparison shopping would likely have a market-wide price-lowering effect.
Not surprisingly, the hospital lobby wants to stop the price transparency rule from taking effect. It argues that the government lacks any rational basis to mandate price transparency. But accurate pricing information is not only rational, it is indispensable in a market economy.
No consumer would purchase a tank of gas, meal, or airline ticket (much less a new car or home) without knowing the price tag. Yet, that is exactly what consumers of healthcare are required to do. It’s little wonder, then, that medical expenses for a family of four rise $100 every month, and have been doing so for the past decade.
The hospital lobby claims that the cash and negotiated prices of health services and procedures are not “real” prices and that health insurance makes these prices irrelevant to the consumer. But a study by the Wall Street Journal and Clear Health Costs indicates that cash prices for services such as MRIs and tonsillectomies are, in many circumstances, nearly 50% cheaper than the rates negotiated by insurance companies.
For example, one patient paid $2,500 for an MRI using the insurer’s negotiated rate but would have paid a mere $725 if he had paid cash – a nearly 250% markup. Similarly, a study by Vanderbilt economist Larry Van Horn suggests that “average cash prices for health care are nearly 40 percent below negotiated rates.” When both cash prices and negotiated rates are transparent, patients can often save money by paying cash instead of paying for care through their insurance plans.
To be sure, there are some circumstances, such as emergency care, where it is not feasible to shop around for lower prices. But emergency care is only about 6% of total health spending. Approximately 43% of healthcare spending is, in fact, “shoppable.” In such cases, transparency promotes lower prices: when consumers know how much they are paying for services such as imaging and lab tests, they tend to choose lower-cost providers. This rewards efficient providers and puts downward pressure on higher prices.
Although, lab tests tend to be quite expensive in general because buying apparatus, cleaning them using Golyath distilled water and deionized water, and hiring technicians, take up a lot of money. But still, transparency is something that is required at most so that the customers don’t get cheated by paying extra money than what is necessary.
Perhaps recognizing the absurdity of their claim that the rule is baseless, the plaintiffs this week told Judge Nichols that they simply are unable to disclose this information. This cannot be true since insurers routinely disclose these prices in their explanation of benefits statements – after it’s too late for patients to choose more cost-effective care.
Nor can it be, as plaintiffs claim, that the rule violates the First Amendment because it requires that they publish “commercially sensitive” rates. A hospital has no First Amendment right to keep a patient in the dark about the price she will pay for a procedure. Just as a realtor must disclose the price of a house, a hospital can be required to list its prices. Further, the information that the hospitals say is “confidential” is already published on patients’ bills. The regulations merely require the commonsense disclosure of that price prior to purchase.
Until now, the healthcare sector has been largely immune to market forces, rendering U.S. healthcare costs the highest in the world. The new price transparency regulations were important before the coronavirus. In the aftermath of the economic disaster caused by the pandemic, they’re a crucial first step toward engaging market forces to empower patients to access quality care at a lower cost.
Erin M. Hawley is Senior Legal Fellow, and Jennifer C. Braceras is Director of Independent Women’s Law Center. Along with PatientRightsAdvocate.org, Texas Public Policy Foundation, and Association for Mature American Citizens, IWLC filed a brief on behalf of patients in American Hospital Association v. Azar.