Health Care Transparency Needs Literacy to Work

When President Donald Trump signed an executive order this past June that started the process of mandating health care providers to disclose negotiated rates for treatments and services with insurers, policy wonks lauded it as a panacea to drive down prices in the market and empower consumers to shop for the best price.

Many believed it would be something akin to comparing prices for televisions at Walmart and Target. That would be true if surgical procedures were widgets on a shelf, but they’re not. 

If shopping for health care services were this easy, we wouldn’t be in this cost dilemma to begin with. Although the intent is laudable, simply disclosing unintelligible rates doesn’t show consumers the full picture, nor does it empower them to make an informed decision.

The main problem lies in the fact that most of the cost definitions differ. Our $3.7 trillion U.S. health care system is laden with charges, prices and reimbursements that vary across different facets of the entire system. 

A hospital’s disclosure of its procedure costs for the purpose of what it charges will not translate to what a patient is ultimately billed in the end. In other words, publicly disclosing rates between providers and insurers would have little correspondence to what patients truly need to see to make an informed decision.

Studies have also found that consumers, when provided with pricing data, often don’t use it effectively. For example, a Journal of the American Medical Association report of employee health care decisions concluded that pricing tools made available to employees did not lower aggregate outpatient spending — they actually increased it. This could be because consumers equate low cost with inferior care, leading shoppers to choose more expensive options based on potentially flawed perceptions.

Even the Federal Trade Commission, the government agency tasked with protecting America’s consumers, has expressed concerns with health care pricing transparency proposals. When Minnesota proposed legislation to disclose the terms of the state’s public health care services contract, the FTC pushed back strongly against this action. It warned that disclosing the terms of health plan contracts would offer little incremental benefit to consumers but could pose a substantial risk of reducing competition in health care markets, especially in those with only a few providers.

Further, the benefits of cost transparency for the many Americans in rural areas with few provider options would be limited, and patients in an emergency situation do not have the luxury of shopping around. Disclosing the negotiated rates of medical care between insurers and providers in rural areas where hospitals are living on the margins could further limit access to quality care. Without proper planning of what goes into the cost and ultimately the price and then truly understanding the limits of rural America, the unintended consequences of these proposals could be detrimental both to American patients and the free market.

Throughout my tenure running health departments in two states, I was a strong proponent of disclosure and transparency in the system, but only when providers were able to include variables into rates to ensure that consumers understand what they actually might pay. For example, the cost of a knee replacement will vary depending on age, condition, complication or by location. 

In some areas of Alaska, roads are difficult to come by, and there may only be one hospital within hundreds of miles. In these areas, disclosure will not benefit patients, and the costs of complying with a new government mandate might actually increase costs to the hospitals and force them to close. America certainly doesn’t need more mandates.

The bottom line is this: While consumers will certainly benefit from an educated transparency system, including actual or predicted out-of-pocket expenses, co-pays, and quality and performance comparisons of plans or providers, the broad disclosure to the layperson of unintelligible data such as plan structures and contracted fee schedules between health plans, hospitals and physician service entities creates a large risk of harming competition without even helping the consumer.

The Trump administration should receive kudos for focusing on the need to drive down costs in the American health care system, but we should not hastily disclose rates that might confuse the average American. There are certainly benefits to providing transparency and disclosure, but we first need to determine how to translate the information into an intelligible format, educate consumers about variables that may change the overall price of a service and then set up a simplified tool to shop. 

Once these determinations are made fairly, the American consumer might finally be able to compare, shop and save. Until then, buyer beware. Health care is not a widget.


Gary D. Alexander served as Health and Human Services secretary in Rhode Island from 2006-2011 and Human Services secretary for the Commonwealth of Pennsylvania from 2011-2013.

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