Price transparency – or making price information publicly available – is an idea that has gained steam recently as one more way to reduce health costs and improve quality. So far, that has taken the form of online tools to help private health plan enrollees choose providers. But states and the federal government can also take action to promote price transparency, says a new brief from the Robert Wood Johnson Foundation.

Opaque Health Prices Influence Spending:

Hospitals and physicians are paid different prices for the same services depending on the payor. Medicaid might give one price, Medicare another, employer-sponsored insurance (ESI) yet another. Patients, meanwhile, are rarely aware of what providers are charging or even of what they themselves will have to pay out of pocket. As a result, health prices are rarely apparent, and both patients and payors pay too much for health care.

To combat opaque prices, payors have looked for ways to reveal value for money in health care. Such efforts are somewhat related to, but not the same as, payment reforms that use data on cost and quality to inform provider reimbursement policies.

Transparency of performance and price instead tries to empower patients with cost and quality information about providers. A good example is in the online cost and quality tools health plans have created for enrollees to evaluate providers. Given such information, in theory, consumers make better purchasing decisions, market forces penalize high-cost and low-value providers, price irregularities fade away, and health costs and spending go down.

To read more on price transparency, see my previous post: “Price Transparency in Health Care: Guidelines for Health Care Purchasers from Catalyst for Payment Reform.”

Recommendations for States to Improve Price Transparency:

What can states and the federal government do to promote health care price transparency? A new brief sponsored by the Robert Wood Johnson Foundation (RWJF) has some recommendations. The brief’s authors, the Pacific Business Group on Health, say that governments have an important role in revealing prices to consumers and allowing them to be active shoppers for health care.

In health care, the word “prices” can mean many things, from the amount a provider charges, to the amount a health plan actually pays, to the amount a consumer pays for care. The RWJF brief focuses on the last of those three:

“Consumers and purchasers need access to information on the actual prices they would pay to providers for specific services to make meaningful distinctions among their options. … Consumers can best take advantage of price information when they are choosing a provider for a specific elective procedure that can be easily compared.”

State governments, the brief says, have three important levers for price transparency:

1) Prohibit gag clauses and anti-competitive prices.

Gag clauses” in contracts between providers and health plans prohibit health plans from publicly disclosing price information about the providers. Health plans also don’t generally like to reveal the prices they have negotiated with physicians, hospitals, and other providers. Those policies make it difficult for employers to get information about employee health care, not to mention individual consumers.

North Carolina is one example of a state that recently has taken a step toward forcing providers to reveal prices. In August, Gov. Pat McCrory signed H. 834 requiring hospitals to submit price data on the 100 most common inpatient procedures, by Diagnostic Related Groups (DRG), plus the 20 most common surgical procedures and the 20 most common imaging procedures. The N.C. Department of Health and Human Services will publish the data online. Prices will be listed by hospital and will include total charges per procedures, negotiated charges, and reimbursement amounts for Medicaid, Medicare, and the five largest health plans in the state.

2) Create All-Payor Claims Databases (APCD)

Require plans in state-based health insurance exchanges and the federally-run health insurance marketplace to submit paid claims to a formally organized private sector database.

APCDs allow states to gather health care service claims data to identify Medicaid fraud and abuse, evaluate disease trends, establish cost and utilization rates, and share price information with consumers. Typically such comprehensive data is difficult to gather because it comes from various public and private sector sources. For more information, see last year’s white paper from Milliman that gives states a few tips on how to establish APCDs.

3) Require plans in state and federally-facilitated insurance marketplaces to provide useful cost calculators.

Health plans began creating online cost and quality tools for enrollees before the Affordable Care Act (ACA) and the Health Insurance Exchanges (HIX). They will continue to do so.

Federal Government Actions to Increase Transparency:

The brief also has two suggested federal government actions to increase price transparency:

1) Assert employers’ rights to access and use their own medical claims data.
2) Use grants and financial incentives to encourage states to improve transparency.

Of course, some of these policy recommendations would be hotly opposed by health care provider associations or health insurers or both.

Read the full RWJF brief here.  For more information on what’s going on in the movement for price (and quality) transparency, visit the Consumer-Purchaser Alliance.