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One year on, hospital price transparency is still a work in progress

January 14, 2022, 2:29 PM UTC
Starting Jan. 1, 2021, the Centers for Medicare & Medicaid Services required U.S. hospitals to provide “clear, accessible pricing information online".
Spencer Platt—Getty Images

This month marks the one-year anniversary of a federal hospital price transparency requirement that has the potential to revolutionize the broken American healthcare system.

The rule clarifies an Obamacare provision requiring hospitals to publish their standard charges. It directs hospitals to post their actual prices, including their discounted cash and secret contracted rates, so patients can shop for the best quality care at the lowest possible prices.

Armed with real prices, healthcare consumers, including patients, employers, and unions, can enjoy much-needed savings and financial certainty. Unfortunately, the hospital price transparency rule has been marred by widespread hospital noncompliance.

According to a July study by PatientRightsAdvocate.org, only 5.6% of hospitals nationwide are fully following it. Hospitals routinely refuse to post their prices by insurance payer as required. They hide pricing information from consumers and search engines. And they violate the spirit, if not the letter, of the law by posting largely meaningless cost estimates in lieu of real prices. A forthcoming updated and expanded study in January will determine how many hospitals remain noncompliant one year after the rule’s implementation.

Recent reporting by the Los Angeles Times demonstrates why hospital price transparency is needed now. Drawing on leaked hospital pricing practices, the Times shows how hospitals can automatically mark up their prices by 675% of the cost. This anecdotal evidence confirms recent research published in Axios revealing that hospitals mark up their prices by an average of seven times their cost of care. Given this rampant price gouging, it’s no surprise that new government data shows that Americans spent more than $4 trillion on healthcare last year, 20% of GDP–and twice the developed-world average.

Hidden prices encourage erroneous and fraudulent hospital billing because consumers generally can’t contest bills that arrive in the mail weeks and months after they receive care. According to one estimate, three out of every four medical bills include errors. Opaque prices also allow hospitals to engage in pervasive waste and administrative bloat because they can pass along these costs to powerless patients after treatment. A 2019 JAMA study attributes approximately 25 % of U.S. healthcare spending to waste.

This opaque status quo places an immense financial burden on patients, employers, and workers. Roughly one-third of Americans carry medical debt, and two-thirds avoid care each year for fear of financial ruin. Small businesses have cited the rising cost of employee health coverage as their biggest concern for 30 straight years. The Kaiser Family Foundation recently revealed that the average annual employer-sponsored family health premium in 2021 is $22,221–a 61% increase since 2010. Rising healthcare costs suppress employee wages because they are paid from the pool of funds employers devote to employee compensation.

Actual prices–not estimates–prevent overcharging by enabling consumers to identify and avoid price gouging providers in favor of less expensive alternatives. When consumers can compare these prices, a competitive healthcare market will emerge, spurring quality and efficiency improvements and reversing runaway cost trends.

Real prices allow consumers to take control of their health finance decisions and enjoy peace of mind that their care won’t result in bankruptcy. Binding prices provide patients with immediate recourse if their final bills do not match–just like in every other economic sector where prices are known. Throughout the country, innovative employers have reduced their healthcare costs by 30 to 50% by directly contracting with price-transparent providers. They have shared these savings with their employees in higher wages and lower premiums.

The Biden Administration recently implemented a new order strengthening the hospital price transparency rule. As of Jan. 1, financial penalties for noncompliant hospitals significantly increased to more than $2 million per year. The order also standardizes data disclosures so that tech innovators can aggregate price information in consumer-friendly web applications.

In July, a separate health insurance price transparency rule takes effect, requiring insurers to publish their historical claims data and negotiated rates. This information will accelerate the transparency revolution by empowering consumers with actual prices wherever they receive care.

Patients have the legal right to know real prices before care is administered. Now they must step up and exercise this right by demanding actual prices as a condition of service.

Employers, who provide health coverage for nearly 160 million Americans, can demand this information to reduce their healthcare costs and raise wages. By acting together to demand the best care at the best prices, consumers can enjoy substantial healthcare savings in 2022 and for generations to come.

Cynthia A. Fisher is the founder and chairman of PatientRightsAdvocate.org and the founder and former CEO of ViaCord.

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