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Hospital Price Transparency: Will It Lead to Lower Prices?

The New York Times partnered with Hilltop senior data scientist Morgan Henderson, PhD, and policy analyst Morgane Mouslim, DVM ScM, on an August 22, 2021 front-page article on hospital pricing. The article highlights variations in the prices some of the largest hospitals in the country charge different insurance companies for the same procedure. What is more, the “cash price” for uninsured patients can be higher or lower than the negotiated rates charged to insurers. A companion article shows just how difficult it can be for consumers to find hospital pricing information. This is despite a January 2021 federal rule requiring hospitals to make pricing information accessible to consumers by posting it on their websites. Research conducted by Dr. Henderson and Dr. Mouslim earlier this year and published in Health Affairs found a lack of compliance by many hospitals.

Some Historical Context

More than a decade ago, a series of exposés in the Wall Street Journal featured consumers with rapidly mounting hospital debts who were hounded for years by debt collectors hired by the hospitals where they or a family member received care. In some cases, the patient was deceased. Oftentimes the debts were initially just a few hundred or thousand dollars. Some of the patients were uninsured; others had deductibles or copayments they could not afford. Still others were billed after-the-fact for services by a provider affiliated with the hospital but not in their insurer’s provider network. This is now termed “surprise billing,” and Congress is working to address it.

Presently an estimated 79 million Americans are struggling to pay their medical bills and have accumulated medical debt. The 2010 Affordable Care Act (ACA) sought to address the crushing medical debt experienced by many consumers by expanding coverage through Medicaid and the marketplaces. The ACA also required hospitals to have financial assistance policies that are widely publicized. However, 12 states have not expanded Medicaid, plans on the ACA marketplaces remain unaffordable for many, and eligibility for hospital financial assistance policies varies widely across the states and from hospital to hospital. Hilltop’s review of hospital financial assistance policies found that 21 states have their own requirements, but only 9 of these mandate income-based thresholds for patient eligibility.

The U.S. spent $1.2 trillion on hospital services in 2019. To better understand the drivers behind hospital spending, health economists have turned their attention to the prices charged for hospital services, comparing commercial health insurance rates to Medicare and examining the rates that commercial insurers negotiate with hospitals. A study examining prices paid in 2018 by private health plans to 3,112 hospitals across the U.S. found that prices for hospital inpatient and outpatient services for commercially insured patients averaged 247% of what Medicare paid. In five states, hospital prices for commercially insured patients were in excess of 325% of Medicare prices. A study of hospital prices for patients enrolled in large employer plans found that prices can also vary substantially across and within smaller geographic regions. For example, in 2018 the average price for knee and hip replacements—a common surgical procedure—was $58,193 in the New York metro area, more than double the average price of $23,170 in Baltimore, Maryland.

Maryland is an exception, however. Maryland regulates hospital prices as part of its “all payer” rate setting system that dates back to the 1970s and operates under a waiver from CMS. Each hospital must charge the same prices to all payers, with public payers receiving a small discount. While variations in within-hospital pricing are minimal, price variations across hospitals do exist since rates are set for each hospital independently.

The Road Ahead

The new federal reporting requirements became effective on January 1, 2021, and we are learning more about hospital pricing. Hospitals are required to post online for each item and service they provide the gross charge or “chargemaster;” the discounted cash price for patients who pay cash; payer-specific negotiated charges negotiated with a third-party payer; and de-identified minimum and maximum charges. The cash price applies to self-pay patients (whether uninsured or not) and is intended to be “unrelated to any charity care or bill forgiveness that a hospital may choose or be required to apply to a particular individual’s bill.” The WSJ conducted a preliminary review of hospital prices posted online for 17 services often used by uninsured patients in an emergency. Half of the cash prices were at or above the 60th percentile of the rates disclosed by the hospital and 23% were at the 100th percentile, higher than the negotiated rates. This suggests that uninsured patients are paying some of the hospitals’ highest prices.

Dr. Henderson and Dr. Mouslim will further investigate hospital pricing in the coming months. With a Hilltop Challenge award, they are collecting pricing data for “shoppable services” from the websites of hospitals around the country in order to explore the correlates of hospital pricing. They will link pricing data to hospital- and area-level characteristics to determine the extent to which factors such as the patient population, the hospital’s size, and its competitive environment are associated with variations in pricing at both the hospital and procedure level. Findings should help policymakers and ultimately consumers interpret the abundance of hospital pricing data that is now publicly available.

Cynthia H. Woodcock
Executive Director

 

Photo of Morgan HendersonMorgan Henderson Morgane Mouslim

 

08/23/2021

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