Price transparency may raise health costs

Health care pricing reform laws may pose risks for patients.

A number of state legislatures have passed price transparency laws to combat the hidden and variable costs of health care. The pricing laws are intended to make pricing more fair for patients but some analysts fear the policies may not have the intended effect. Health care procedure costs are difficult to standardize in part because of the multitude of variables that affect pricing including hospital and health insurance coverage and the long term effects of the policies are uncertain.

“The more expensive health care option [is chosen] because the people who are choosing are often the doctors,” said Peter Ubel, Madge and Dennis T, McLawhorn University professor of business, public policy and medicine at Fuqua School of Business.

Even when patients are aware of the cost of a procedure, they may still equate more costly procedures with quality, Ubel said.

“Many times people don’t know what their options are,” he added. “Doctors don’t know the cost and patients don’t know the cost.”

Ubel added that doctors usually direct patients toward procedures at hospitals where they have practicing privileges or know the physicians.

The prices charged by hospitals and physicians is often a behind-the-scenes negotiation between health care providers and insurance companies. Hospitals often charge patients different rates based on their insurance and their ability to pay Ubel said. Transparency laws will give patients access to information about potential overcharging.

“Hospitals can charge what they can get away with or what insurance companies will pay,” he said. “Insurance companies are one group with an incentive to lower health care costs. If one insurance company gets too stingy then the hospital can decide to not treat patients covered by that company.”

Rises in hospital costs in the United States also depend in part on demographic shifts and technological advances, said Ken Morris, senior vice president, chief financial officer and treasurer of the Duke University Health System. Nationally, costs have gone up for commercial payers to compensate for the increasing number of people on Medicare, which does not fully reimburse health care providers for their services. Hospitals that treat patients on Medicare and Medicaid are sometimes at an economic disadvantage in comparison to independent providers that can decline to treat Medicare and Medicaid patients and thus charge lower rates. The new state policies could have the effect of reducing the quality of care offered at hospitals that treat those on Medicaid or Medicare.

“Hospitals may need to lower costs to remain competitive which may mean that hospitals may need to stop doing expensive but also cutting-edge procedures, such as bone marrow transplants,” he said.

New advanced technological procedures tend to be expensive, Morris noted. With transparency laws, hospitals that are currently charging low prices might have to negotiate with companies to be able to charge higher prices but conversely, those that are currently getting a higher rate might see the rates other hospitals are getting and push to lower their rates, wrote Martin Gaynor, E. J. Barone professor of economics and health policy at Carnegie-Mellon University in an email Apr. 17.

“Most of health care spending is accounted for by a small percentage of very sick people,” Barone added. “These patients have very high expenses and most of them are beyond the point where they pay part of the bill—insurance is picking it up.”

DUHS has been proactive in taking efforts to reduce costs for patients through charity and discount programs for those who can not afford to pay for essential medical services, Morris said. He has also organized meetings with Duke health care providers and insurance companies to review cost calculations and discuss improving patient options.

Ubel, who is also a physician and faculty member at the School of Medicine, said the number of people without health insurance is likely to decrease with the implementation of the Affordable Care Act, so the only people without insurance will be undocumented immigrants, low-income people in states that did not expand Medicaid coverage, and people who choose to pay the fee for not having health insurance.

“[These groups] will be very price sensitive and will only seek treatment when it’s necessary and get to the point where they don’t care about the cost and the hospital has to eat the bill,” he said.

Gaynor stated that even if consumers had access to full pricing information about procedures, some patients may still prioritize other factors such as location, quality and reputation when choosing health care options.

“This doesn’t mean we shouldn’t care about price transparency, but we should be realistic about what to expect from it,” he said.


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