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Consumerism

Many CEOs say pricing in health care is too complex to be transparent

Gabriel Perna | December 2, 2019

Key Takeaway:
*Reaction from the industry to the Trump administration’s proposed final rule on price transparency has been negative and cynical.

*CEOs say the complexity of health care pricing will make these rules difficult to execute.

*On the positive side, experts say the rules could ultimately expedite? the creation of a consumer marketplace.

David Blumenthal, MD, president of the Commonwealth Fund, has an interesting analogy when describing the complexities of health care pricing transparency.

“When you go to buy a new car, how would you feel if you showed up at the dealer and you find the car in the color you want, and the dealer representative hands you a telephone book size listing of all the components of your car? They tell you, ‘You’ve got everything in there to make a good choice for this car,’” Blumenthal adds. “It’s a lot of information, but it’s useless. That’s the nature of most health care purchasing decisions.”

Late last month, the Trump administration finalized a price transparency rule for hospitals and proposed a new rule in this area for insurers. For hospitals, the rule requires them to list the prices they negotiate with insurers for 300 “shoppable” services, which patients can schedule in advance. For insurers, the proposed rule would require revealing to members? their expected out-of-pocket costs through an online tool.

[Related: Health Evolution Chairman David Brailer on why CEOs should support Trump’s price transparency rules]

Reaction from the health care industry has been mostly negative and cynical. Hospitals, led by the American Hospital Association, have announced they are suing the Trump administration over this rule, arguing that it goes beyond their authority.

To be certain, Blumenthal is a fan of health care pricing transparency and calls the movement a “positive development.” He says pricing transparency is a necessary pre-condition for the creation of viable markets. However, the complexity of health care pricing has some CEOs and experts hesitant to fully endorse these rules.

“The concept is absolutely the right thing to do, but we who run the hospitals and health care systems we know how complex that is. I can tell you an MRI is going to be X amount of dollars, but if there’s a complication…that price is going to be different. It’s going to be extraordinarily difficult and onerous to execute accurately,” says Karen Teitelbaum, CEO of Sinai Health System in Chicago.

Is health care pricing too complex to be transparent?

The loudest voices speaking out against the rules, such as the AHA, have said the rules will only “introduce widespread confusion, accelerate anti-competitive behavior among health insurers, and stymie innovations in value-based care delivery.” And even though the AHA called out health insurers in its statement, America’s Health Insurance Plans (AHIP), the largest lobbying? group representing insurers, agreed that this rule would confuse patients. So too, does the CEO of another large insurance association.

“The rule also has potential to add complexity and confuse consumers, who will not be able to determine their own out-of-pocket costs from this information,” stated Blue Cross Blue Shield Association President and CEO Scott Serota.

To this point, Teitelbaum says she is not sure how the administration envisions health systems easily putting this into place. According to one survey, a majority of executives in hospitals are so dismissive of the rules that they think the rules might? be indefinitely delayed in court due to the lawsuit.

The reality is that health care services are not only a composite of an enormous number of elements, many of which are just not predictable during the course of a treatment. Moreover, Blumenthal says the shoppable services, referenced in the rule, represent a small portion of health care spending.

percent of health care spending is done by 5 percent of the population and those are people who run through their deductibles very fast, if they have them, every year,” he says. “We’re not going to solve our problems making shoppable services shoppable, but it’s a helpful step to take.”

skeptics suggest that the rules could actually increase the cost of care. At least one research study backs this up—although other studies say price transparency could generate savings between 9% and 12% for patients. In consolidated markets, experts say, price transparency may not have a tremendous effect and could even backfire.

[provider and insurance groups] have said that these new rules will harm competition among health care providers and may ultimately raise prices when providers learn they’re being paid at a lower rate than their competitors. In addition, research has demonstrated that people mistakenly assume higher priced health care providers are associated with higher quality care, which is often not the case,” says Scott Flanders, CEO of eHealth, which offers a private online marketplace for health insurance.

A new marketplace

One area of transparency that has people buzzing with excitement is how these rules could create a new tech marketplace. Teitelbaum says that the concept will allow for entrepreneurial companies to find ways to present the data to consumers. She says that while the data is complex, if those companies could pull it off, it would be beneficial to patients and financially beneficial to the companies. Blumenthal agrees with this logic.

“[These companies will be] creating user-friendly and consumer facing apps that connect the sticker price at alternative places of care to your remaining deductible and to your network. I see this the beginning of a long process of creating a consumer-oriented healthcare advisory capability that could ultimately go through multiple channels. This data is the raw material for a vast array of applications,” Blumenthal says,

Flanders also sees the development of a tech marketplace as major benefit to the pricing transparency rules. He notes that because so many health plans require enrollees to meet significant deductibles before non-preventive coverage kicks in, this move could potentially save consumers a lot of money.

For many like Blumenthal, the price transparency rules are an important first step in the process. He suggests that any CEO who is not on board with the pricing transparency movement will get left behind. And by suing HHS over these rules, the AHA and other groups are suggesting they don’t believe in price competition at all, he says.

For Flanders, pricing transparency is about improving the patient experience, which is what CEOs need to focus on. “The public conversations about health care, including surprise bills and rising costs, make it clear that Americans are struggling and are demanding change. I think it’s to all of our benefit to embrace price transparency and to begin finding ways to serve consumer needs more effectively and efficiently,” he says.

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email or on Twitter at @GabrielSPerna