New rules for healthcare price transparency launched into effect on Jan. 1.
So far, the results have been mixed. Only about a third of America’s 6,000 hospitals have fully complied. Among those that have, the approaches have been “scattershot,” according to Fierce Healthcare reporter Robert King.
At the root of this scattershot approach is a lack of compelling regulatory incentives. For a penalty of $300 per day—a cost easily covered by a single NICU visit—hospitals can avoid the overhead and expense required to create public data files disclosing service costs. This also allows hospitals to continue keeping their rates hidden from consumers—not to mention competing providers in their service areas—preserving their current pricing strategy and market dynamics.
While the Hospital Transparency Rule may not have the regulatory teeth to drive significant cost changes, the writing is on the wall for the healthcare industry.
With the Transparency in Coverage Rule passed last fall and additional regulations passed as part of Consolidated Appropriations Act in December, industrywide transparency is less of a choice and more of an inevitability. Beginning Jan. 1, 2022, carriers and group health plans will be required to produce and make available to the public a) negotiated rates for all covered items and services, b) out-of-network historical allowed amounts and billed charges and c) in-network negotiated rates and costs for prescriptions. In 2023, payers will also need to deliver a shoppable healthcare price tool. Group plans could be penalized $100 per person per day per violation, according to an advisory from Alston & Bird LLP.
That adds up quickly, which means insurers probably will comply, and puts more pressure on providers to do the same.
While it’s easy to focus on the tactical implications of these new regulations, it’s important to step back and understand the motivation behind these sweeping changes. The goal of price transparency is to help American consumers get the best bang for their buck. Cost, for better or worse, dominates today’s discourse about American healthcare.
Prior to COVID-19, about one-third of working Americans had some kind of medical debt—post-COVID figures will be even higher. And when publications like The Wall Street Journal allege that one hospital charges $6,241 to $60,584 for a C-section depending on the insurance plan covering the birth, consumers start to ask questions about how much things cost and why those costs vary so significantly.
However, while cost is important, it’s only one piece of the healthcare decision-making puzzle. If Americans are going to spend an average of $11,582 per person on healthcare every year, they not only want affordable care—they also want high-quality treatments, convenient options and a hassle-free experience. Price transparency alone can’t deliver that. In fact, research suggests that only displaying cost information may drive people to choose higher-priced options because they equate higher cost with greater value.
Think about it this way: If travel booking platforms like Kayak or Google Flights only shared price information—not the brand, route, fees, or amenities—many customers would end up on Spirit Airlines flights routed through Denver with a 10-hour layover. And many wouldn’t be happy about it. Price is important, but it isn’t everything—especially when you’re choosing a heart surgeon instead of an airline.
Although the push for healthcare price transparency won’t transform the consumer experience of healthcare on its own, it poses a very interesting opportunity for providers. Just like people searching for flights, healthcare consumers want the ability to make choices based on quality, value, accessibility, safety and convenience depending on their priorities and health needs. Some consumers will be concerned only with price, while others may prioritize convenience or quality—and which factors matter most can change depending on the type of service. The lowest-cost providers may win some business, but providers that deliver top-notch care at a premium won’t be hurt by price transparency. In fact, they may become more competitive while budget players race to the bottom. Prices negotiated behind closed doors will no longer be a competitive edge, but rather an inefficiency that hurts consumer trust, hinders competition, and invites more regulatory intervention.
If you run an innovative hospital system, you have an opportunity to change the narrative about costs. Wouldn’t it be great to read articles about how, in response to a more competitive and transparent marketplace, your hospital redesigned its labor and delivery center operating model to achieve the lowest C-section rates, best NICU survival rates, top-rated concierge birth plans and highest patient satisfaction rates for postpartum nursing staff? If that were the case, you could charge double the industry average. Patients would line up to give birth at your hospital, and payers would be clamoring to do business with you.
Instead of uniting to resist price transparency measures, providers and payers have an opportunity to join forces and go beyond simply sharing cost data, providing transparency around all aspects of care—cost, quality, convenience, patient experience and outcomes.
Focus on giving customers choices based on value, and your organization will be well-positioned for success in the consumer-centered future that awaits. You don’t have to be the cheapest option to retain business. With new, innovative strategies and service offerings that put patients first, you can earn the right to charge a premium for care—and differentiate your brand from other competitors.
David Vivero is the co-founder and CEO of Amino.