What Is Price Transparency in Health Care?

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Historically, health care pricing has seemed anything but transparent. Most patients go into treatment with no clear idea what they'll be charged, what their insurance provider will pay and how prices may differ from hospital to hospital. According to a February 2020 survey by the Kaiser Family Foundation, 1 in 3 families had a surprise medical bill in the past two years. There is some good news, however. New rules from the Centers for Medicare and Medicaid Services, expected to roll out over the next few years, aim to provide greater health care price transparency to empower consumer choice and encourage industry competition.

"We've known that pricing is a pain point for consumers for years," says Dan Wiens, product director for Experian's patient estimates solutions, which helps hospitals deliver greater price transparency to patients. "Providing consumers with transparent pricing gives them information they need to plan," and ultimately pay, for medical expenses.

How will greater price transparency affect you? Here is a quick rundown on what's changing and how it might impact consumers, health care providers and insurance companies.

What the New Price Transparency Rules Do

In simple terms, new regulations will require hospitals and insurance companies to provide additional pricing data to the public. New rules begin in January 2021, with more rolling out each year through 2024.

  • January 2021: Hospitals will be required to post the rates they have negotiated with insurers online, along with a consumer-friendly list of 300 "shoppable" services.
  • January 2022: Insurance plans must make available data files that show their in-network negotiated provider rates, out-of-network coverage rates and in-network drug pricing.
  • January 2023: Health insurers must offer an online shopping tool for consumers that includes an out-of-pocket cost estimate and negotiated prices for 500 of the most "shoppable" items and services, including 70 specific services mandated by the government.
  • January 2024: Remaining procedures, drugs, durable medical equipment and other items or services must be added to the pricing tool created for 2023.

With this series of price transparency requirements, the federal government is hoping to not only provide consumers with additional access to pricing data, but also encourage new thinking around medical billing and the patient experience. Medical providers, insurance companies and third-party developers now have the opportunity to implement tools that will make medical expenses easier for patients and their families to predict and understand.

Can Price Transparency Help You Save Money?

The idea behind health care price transparency is to help patients better understand the costs of their treatment. Using newly created public databases, you could compare the costs of hundreds of non-emergency "shoppable" services to see whether you might save money by choosing a different medical provider. In the future, your insurance company might offer you a personalized estimate of costs in advance of treatment. These cost estimates could help you better plan for medical expenses, reducing the chances of being hit with a medical bill you aren't prepared to pay after treatment is already complete.

There are limits, of course. Most consumers aren't going to compare costs before heading to the emergency room with serious cardiac symptoms, for instance; there just isn't time. While comparing the cost of an MRI or medication might be relatively straightforward, it's not always possible to predict all the costs involved in surgery, for example. And switching from one hospital to another isn't an apples-to-apples choice if it means switching away from a trusted doctor or sacrificing quality of care.

Yet, the hope is that price transparency will encourage competition and discourage price gouging. By shedding light on what different health care providers are charging, these new rules can better equip consumers to understand—and negotiate—medical costs.

How Does Price Transparency Help Insured vs. Uninsured Consumers?

When hospitals release their data this January, patients will be able to look up pricing on any of 300 shoppable services, including common procedures and tests such as MRIs.

"For people who don't have insurance and are expecting to self-pay, this enables them to see what the cost of a procedure is and what insurance companies pay," Wiens says. Although insurance obviously won't cover costs for uninsured patients, he continues, "they may be able to say to the hospital, ‘I don't want to pay more than an insurance company would.'"

While price transparency doesn't fully solve the problem of affordability, it does give uninsured patients more information with which to plan their procedures, negotiate or search for the best value, and even shop for health insurance based on pricing.

For people who have insurance, calculating costs can be more complex. "The information they get [from a hospital website] won't show how their benefits will apply," Wiens explains. "They have deductibles, copays, coinsurance and out-of-pocket limits. So, a rotator cuff surgery that might cost one person $350 out of pocket might cost another person more than $5,000," based on their insurance coverage.

Regulations will require insurance companies to disclose pricing information and develop pricing tools over the next few years. Meanwhile, some hospitals have already put self-service tools in place to help patients accurately estimate what they'll owe—with or without insurance coverage.

"Pricing tools like the one Experian offers provide relevant information to consumers who may be less concerned about what the hospital is being paid and more interested in what their responsibility is," Wiens says.

How Does Health Care Transparency Impact Services and Providers?

As the January 2021 deadline approaches, hospitals are responding in a few different ways. Some are working to meet compliance. Others are using the deadline as an occasion to go beyond compliance by implementing self-service tools and rebooting the patient billing experience—over and above what the regulations state.

The revolution, if one can call it that, won't happen overnight. But Wiens believes the regulatory changes underway may spark real change. Hospitals that don't make their patient billing practices more transparent and user-friendly are likely to see pushback, he says: "Patients are going to say, ‘Look, I went to the website for the hospital down the road and they can tell me how much I'll really owe based on my benefits. Your website doesn't help me understand how much I'll owe.'"

When patients don't have that understanding, payment is difficult on both sides of the process.

"The hope is, by offering patients more transparency, they'll have the opportunity to plan for non-emergency treatment," Wiens says. "The goal is for patients to be fully informed and comfortable before they schedule a procedure. We never want to send them a surprise bill they aren't prepared to pay."

More preparation could mean more time to work out a payment plan with a provider, figure out low-interest loan options or even postpone treatment if necessary.

Changing the Patient Experience

The nuts-and-bolts changes that are coming starting in January 2021 will have some direct impact on the average consumer. Pricing information that wasn't available previously will begin to open up.

But the greater result for consumers just might be the indirect benefits that come from these new regulations. As a new landscape emerges, we may see consumer-friendly developments that could change the patient experience. Transparent pricing and a detailed, personalized cost estimate prior to treatment could help you plan for medical expenses and research cost options in advance. That, in turn, might eliminate some of the shock you experience when you receive a large medical bill after treatment, making medical expenses easier to stomach—and to pay.