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Hospital Price Transparency Is Necessary, but Not Sufficient

A new federal rule requiring hospitals to publicly share the secretive rates they negotiate with health insurance companies is unlikely to actually change high costs for patients.

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The Trump Administration’s latest effort to rein in skyrocketing medical costs is sparking anxiety and legal threats across the health care industry, but a fundamental question remains: Will the Administration’s new transparency regulations lower prices for consumers?

Under a new federal rule set to take effect in 2021, hospitals would have to publicly share the secretive rates they negotiate with health insurance companies for certain services and treatments — rates that differ widely, even within the same geographic area.

President Trump touted the decision as a way to put patients in control of their health care expenses after having “been ripped off for years” by hospitals, insurance companies, and special interest groups. The hospital industry is gearing up for a fight, and the American Hospital Association has already threatened to challenge the rule in court.

Despite the heated rhetoric, the new regulations are unlikely to result in any meaningful cost-savings for average Americans.

“This is a constructive idea, but just knowing prices won’t lead to cost savings — policymakers need to act on those prices.” said Mark Miller, Executive Vice President of Health Care for Arnold Ventures. “That’s because revealing prices doesn’t change the market power hospitals have to demand high commercial prices from insurers, employers, and ultimately patients. Transparency just makes it clear you’re being hammered.”

This isn’t the first time that hospital price transparency has been wielded as a way to protect consumers’ pocketbooks from sky-high hospital stays and doctor’s visits. A similar federal regulation that went into effect earlier this year has been widely criticized for being confusing and falling short of its aim to empower consumers with more data to make smarter choices.

The rule required hospitals to publicly post their chargemasters — lengthy lists of the different charges for procedures, tests, supplies, drugs and other services that hospitals use as a baseline to negotiate how much insurers and consumers will pay. While it was the first time such information had been disclosed to the public, the lengthy chargemasters were coded in industry jargon and indiscernible for most people. Even if you could understand the information in a chargemaster, it isn’t particularly meaningful, as it is not reflective of actual payment rates.

However, there does appear to be growing bipartisan support for efforts to shed light on egregious hospital prices. The Senate Committee on Health, Education, Labor and Pension led by Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.) passed bipartisan legislation out of committee to create a national all-payer claims database. The Lower Health Care Costs Act, which requires all health plans to disclose and report insurance claims across the country, could be a game changer for researchers and policymakers.

Ultimately, while such proposals won’t solve the problem of high health care costs, they could bring needed attention to the real drivers of those costs — high prices for hospital and physician services.