Transparency. It’s a seemingly innocuous word used by companies and markets every day, as if everything will be fixed when everyone has access to all information.
While this may sound like a good idea, there are often unintended consequences to otherwise good ideas.
A few months ago, President Donald Trump announced an executive order that mandates the disclosure of negotiated rates for treatments and services agreed upon by health care providers and insurers. In line with this order, bipartisan leaders of the Senate Health, Education, Labor and Pensions Committee, Sen. Lamar Alexander (R-Tenn.) and Sen. Patty Murray (D-Wash.), released legislation that included a number of price disclosure provisions that require providers and health plans to give patients good-faith estimates of expected out-of-pocket costs for services.
These proposals are based on the belief that a greater amount of transparency leads to lower costs for patients. Makes sense, right? Well, unfortunately, the reality is more complicated than that.
Though well-intentioned, this legislation could lead to higher costs, limited access to quality care and adverse consequences to our nation’s health care system as a whole.
In an ideal world, one would assume that patients knowing the cost of treatments would lead to more informed health care decisions. However, the cost of a patient’s treatment is determined by a number of factors that are completely unaffected by the price that was negotiated between the insurer and provider, so the information is not as valuable as one may think. In practice, the disclosed information, assuming one can decipher the meaning, is most helpful to competitors, some of whom will discover they’re now able to raise their rates.
Not only would the disclosure have potential adverse effects on the costs to patients, at its core, forced disclosure is in direct opposition to our country’s free-market health care system.
Once competitors are able to see that other providers are getting paid more for the same services, it would strip them of any incentive to offer lower prices. This leads to the potential for price collusion and higher reimbursement rates.
According to the Federal Trade Commission, “it is illegal for businesses to act together in ways that can limit competition, lead to higher prices, or hinder other businesses from entering the market.” Forced disclosure creates such an undesirable pathway.
“Price transparency” could also create a precarious situation in which providers try to match each other by continuously reducing prices to attract business. Contrary to what you may think, those decreasing costs wouldn’t lead to lower prices for consumers.
As competition forces price reductions, the provider will reach a point where their own costs must decrease to remain profitable. As their prices decrease, they will naturally have to seek out lower-quality and less-expensive outputs, ultimately flipping back on the patient, who receives a lower standard of care.
Let’s play out the scenario. These providers are constantly battling it out for the lowest costs. Eventually, one by one, they start to go out of business because their costs simply aren’t bringing in enough revenue.
What are we left with, then? One winner. And what does that mean? A dangerous monopoly that controls 100 percent of pricing, so those patients who are seeking out lower prices are ultimately left with no alternative options.
While I respect the good intentions of the executive order and the legislation, I urge people to take a look at the possible consequences of forced disclosure. Under the surface of what is a seemingly patient-forward concept, there may lie unintended effects that would be felt by patients all over the country.
Former Rep. Ryan Costello (R-Pa.) is a former member of the Committee on Energy and Commerce and served in the United States House of Representatives from 2015-19.
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