Q&A: Price Transparency – Texas, majority of states receive F on health care price transparency laws

Texas and 44 other states have received “F” grades on their health care price transparency laws, according to a recent report created by the Health Care Incentives Improvement Institute.

The report tracked whether states had passed laws or regulations requiring health care pricing information be made public. It also examined how well current laws were being put into action, including providing state residents with access to meaningful price information through consumer-friendly websites and the use of proper databases as sources for those websites.

The results of the report showed few changes since the 2014 report by the same organization. A staggering 90 percent of states failed to provide the proper amount of price information to consumers. We talked with Michael Morrisey, Ph.D., department head and professor of healthy policy and management at the Texas A&M Health Science Center School of Public Health, about price transparency and its impact on the health care industry following these latest findings.

Q: What is price transparency?

A: Price transparency is having relevant information on health care products and services. As a consumer, what it may mean is what I have to pay out of pocket if I have a colonoscopy, for example. If I’m insured, maybe it means I will pay $150. If I’m uninsured, what is the price the physician and/or the hospital will charge me? It’s that sense of complication that makes this both a fascinating and difficult topic.

Q: What has been driving the discussions about price transparency? Why should it matter?

A: Two big things are happening. On the employer sponsored health insurance side, we are seeing the emergence of health insurance plans that have pretty sizeable deductibles, and certainly in the exchanges we are seeing that, which generates demand for information on price. If I have a $6000 deductible, I’d like to know that I can get the same procedure, take a colonoscopy for example, for $200 less depending on which location I go to. We are in the beginnings of a consumer awakening for the need for useful kinds of price data because of the big deductibles consumers are increasingly facing.

Q: What benefits come from price transparency?

A: The idea is that if the consumer had better information about prices and quality, they would be able to make more informed decisions and purchase on value. This has the potential to really improve and reduce the cost of health services. At the moment, if you don’t have a good sense of quality across two providers, and one charges you $600 more than the other, does that just mean they are charging you more, or do they have a better product? In competitive markets, a higher price usually means a better product, but if you don’t have a sense of quality and a way to compare quality, then price alone takes on dimensions of quality as well.

Q: What are some of the issues being debated about price transparency?

A: There’s a question of who should provide the information. For example, requiring hospitals to post their list prices. Almost no one pays list price. Private insurers have negotiated different prices; and Medicaid and Medicare pay different list prices. From that perspective, if I’m a consumer, I don’t really care what the list price is. What I really care about is how much do I have to pay out of pocket? In that case, what I would like to have in a price transparency sense is the price and quality of procedures relative to each other.

And the same goes for primary care physicians. They should be able to knowledgably refer me to a specialist based on both my need and my ability to afford certain physicians.

One of the fears is that easy numbers aren’t very useful. Posting hospital list prices is counterproductive. First, it scares you away because those numbers are a lot bigger than what the insurance companies have negotiated, and it’s not really what you are going to pay. Very quickly consumers could start to dismiss all of these numbers, and so there is a fear that doing this wrong could be seriously counterproductive and scare people away from the idea altogether.

Q: What are the current barriers that prevent price transparency from being instituted in health care markets today?

A: One barrier is that the product is sometimes uncertain. For example, say you go to the emergency department for chest pain. It’s not quite clear what you’re buying, so it’s hard to quote a price. Are you going there for relief of heartburn or are you having a heart attack?

The field is beginning to talk about “shoppable” products. It’s difficult to shop around for pain in your chest, but it’s reasonably straightforward to shop for a colonoscopy or delivery and labor services. Both of those are relatively straightforward products.

Even procedures and services that seem straightforward may not be in reality. For example, an MRI for a particular body part may not be well defined, as there are different levels of resolution a physician may want to see.

Q: Is it possible for the health care industry to operate more competitively with price transparency?

A: The health care market could be a lot more competitive than it currently is. There are several levels where price transparency makes sense. At the consumer level, you want to think about “shoppable” products. For procedures that are well defined and meaningful at the consumer level – teeth cleaning, fixing a cavity, cataract surgery or a colonoscopy – price transparency will thrive.

Q: Are private insurance companies working towards price transparency?

A:  It seems to me that certainly private insurance companies can do this. There are companies, take Blue Cross Blue Shield of Texas, for example, where you can go to their website and put in a doctor or procedure and they will give you a range of prices that are available at different places, presumably that they’ve negotiated. I like to believe that if there is competition among insurers, and to some extent there is, that insurance companies put that information out there because they think they are going to put out a better product and attract me to them. Insurers are working on their own to improve the quality of both pricing information and quality information.

Q: What can the state governments do to encourage price transparency?

A:  State websites focused on price transparency is certainly one way to go. The thing that bothers me about government run programs is that I’m not sure that the prices are up to date. Price transparency can be encouraged on the government level, but it would be nice to see insurance companies engaging in it because of competitive purposes.

There is a role for state regulation here in pushing insurers to do this. You can make it a condition of being able to offer coverage in the state to provide a price and quality website to allow subscribers to compare. Even though prices are mostly negotiated at a local level, this can go a long way to encourage insurance companies to be more price transparent.

Dr. Michael Morrisey is department head and professor at the Texas A&M Health Science Center School of Public Health’s Department of Health Policy and Management. His textbook, Health Insurance, is the leading textbook in the field; his research has been extensively cited and includes five books, more than 160 peer reviewed papers on health economics and health policy, more than 45 encyclopedia entries and other publications, together with 45 technical reports. Previously, he served as deputy editor of Medical Care, one of the highest impact journals in health services research, as well as a member of the editorial boards of several of the most influential journals in the field of health economics and health policy. In addition, Morrisey played a pivotal role in the creation of the International Health Economics Association and currently serves as treasurer of the American Society of Health Economists.