Price transparency regulations are leveling the cost landscape for consumers, but that doesn’t always lead to lower prices, according to a new report from Turquoise Health.
Bipartisan transparency legislation and regulatory efforts were enacted to help lower ballooning costs for the patient no matter where a service takes place, because, often, the same service will cost vastly different, even in the same city, depending on the provider and the insurer.
Turquoise’s report suggests some prices are falling, but others are increasing, resulting in fewer outliers and more consistent pricing.
Since the regulations were established, and adjusting for inflation, the top 25% of prices fell by 6.3%. However, the bottom 25% of prices increased by 3.4%. Meanwhile, the middle 50% of prices decreased just 1.1%. Turquoise analyzed prices at 234 hospitals across the 10 largest U.S. metro areas to track changes across market segments, from December 2021 to June 2024.
“Economically, converging rates are an encouraging sign that healthcare markets are responding to price transparency with increased market competition,” study author Forrest Xiao, director of quantitative research at Turquoise, said in the report.
Though prices approaching a market equilibrium may signal that the healthcare market is finally maturing, that doesn’t mean the stated intention of price transparency—to lower prices for consumers—will be achieved, he added.
“Increases in bottom-tier prices raises questions about market dynamics and potential unintended consequences,” he said. “As pricing information becomes more widely available, some providers offering services at below-market rates may negotiate prices upward to match market rates.”
Turquoise then sorted 37 services across the metro areas and again examined negotiated rate changes. In 83% of those markets, prices were found to be converging toward the middle, while 17% of non-converging markets experienced price drops on average.
In non-converging markets, the bottom 25% of prices decreased on average by 5.3%, whereas prices increased by 4.5% in converging markets. The top 25% of prices dipped by nearly 7% on average in converging markets but just 1.9% in non-converging markets.
Greater price convergence was also found in outpatient services than inpatient services. Radiology services and lab results are more easily shoppable, whereas ICU beds and other inpatient services were less likely to converge.
When consumers have time to shop for the best items at a reasonable price, convergence is more likely, the report said. This is also true for goods and services that are easily replicated and not differentiated between providers.
The outpatient service market generally has more providers and there are fewer barriers to entry, and there were fewer negotiated rates available for inpatient services.
Hospitals and health plans are increasingly required to post, and comply with, pricing information for covered items and services. As data become more available, and as more requirements go online, it’s expected prices could change further, said Xiao.
“As rates continue to converge, we anticipate employers will be required to exert their collective power to force the market to define a ‘market rate’ for individual services,” he predicts. “With the right price for healthcare items and services identified, employers may lose their incentive to shop for plans.”
Large corporations, like Johnson & Johnson and Wells Fargo, are facing class-action lawsuits for alleged mismanagement of employee health plans, causing workers to pay excessive prices for prescription drugs.