Supporting Price Transparency to Reduce Health Care Costs

In their newly proposed Great Healthcare Plan, the Trump Administration calls for “maximizing price transparency.” This builds on recent efforts from the Administration and Congress to improve price transparency in health care, and has the potential to lower overall health care spending ­­­– particularly in combination with other reforms.

Currently, it is difficult and often impossible for consumers to know the price of basic health care services in advance. With clearer pricing information, consumers may choose cheaper services or providers – or may choose to forgo low-value services altogether – which could in turn reduce health care spending and put some downward pressure on health care prices.

Transparency is certainly not a panacea for solving health care cost growth, and may turn out to have a limited effect on its own. But more transparency is an important step for facilitating many new cost-cutting reforms, and a first step toward helping consumers play a better role in driving down costs.

What Is Being Proposed in Price Transparency?

In a summary of their Great Healthcare Plan, the Trump Administration says it would require all providers and insurers who accept Medicare or Medicaid to “prominently post their pricing and fees in their place of business” and to “answer to their patients up front on the prices they will be charged.”

The Trump Administration would also require health providers and insurers to comply with price transparency requirements – presumably based on a proposed rule they issued last month.

The proposed rule would build up and aim to tackle the shortcomings from a similar 2020 rule, which required hospitals to release data about the prices of items or services in a format that could be analyzed easily. In practice, hospitals failed to submit accurate data; they sometimes reported different rates for the same service, and non-standardized data made comparisons difficult. The proposed rule would improve completeness of the files and comparability of pricing data, while extending the requirement to health insurance plans.

Congress has also been considering price transparency efforts of its own. Earlier in the year, a bipartisan group led by Senators John Hickenlooper (D-CO) and Roger Marshall (R-KS) introduced the Patients Deserve Price Tags Act, which would increase the amount of price data that consumers have access to. Both efforts add to numerous efforts over the years to help consumers make cost-conscious decisions about their care.

Specifically, the Patients Deserve Price Tags Act would expand reporting requirements to clinical diagnostic laboratory tests, imaging services, and ambulatory surgical centers. These are some of the most “shoppable services,” and therefore ones where understanding the price might have the greatest potential to improve competition and impact behavior. Under the bill, providers would be required to disclose a plain language description of the item or service, billing codes, and cost information.

Would Greater Transparency Lower Costs?

As widespread, comprehensive pricing data has never truly been available, it is unclear how much these efforts might save. Looking to state efforts as a guide, the Congressional Budget Office (CBO) has estimated that wide-reaching price transparency efforts could reduce the price of hospital and physician services by 0.1% to 1%. Some additional savings could come from lower utilization.

This small reduction reflects many areas where price transparency is unlikely to significantly reduce prices, but some of the effects could be meaningful. In particular, the cost of non-emergency “shoppable services” such as colonoscopies or imaging service might fall considerably with stronger transparency rules.

The most significant promise of price transparency, however, is when it is enacted in combination with other reforms to benefit design or provider payments. For example, greater transparency might increase the effectiveness of higher deductibles and co-insurance in reducing costs and improving the value of health care.

Transparency is also an important component of any reference pricing proposal, such as the one we proposed for the Federal Employees Health Benefit (FEHB) program under our Health Savers Initiative. The combination of greater price transparency and reference pricing – where reimbursement for certain services is limited to a specific price – can significantly reduce overall health care costs.

Widespread price transparency for health care services has never been available, and efforts to increase transparency are a welcomed first step for policymakers looking to lower health care costs. This first step must be combined with other reforms to reduce waste, limit prices, improve payment policy, reform cost-sharing, and identify other reforms.

Policymakers should work together to begin reducing health care costs for the federal government and the country as a whole.