Congress Wants Hospitals to (Finally) Disclose Medical Prices -- Too Bad It's a Pointless Exercise

Last Updated May 13, 2010 1:45 PM EDT

Employers and health plans have long contended that if consumers were able to compare the prices and the quality of care offered by hospitals and doctors, they'd be able to make more informed decisions and would choose lower cost, higher quality providers. Meaningful price data, however, has always been tough to come by, largely because what hospitals and doctors charge is very different from what they're actually paid. So even if providers were forced to publish their charges, as current bills in Congress seek to do, it's hard to see how the information would have much effect on the medical marketplace.

A measure proposed by Rep. Steve Kagan (D-Wis.) would require hospitals, physicians, nurses, pharmacies, and certain manufacturers and vendors to publicly disclose their prices. Another bill, introduced by Rep. Joe Barton (R-Tex.) with some Democratic support, would require hospitals and ambulatory surgery centers to divulge their prices, and would also require insurance companies to disclose out-of-pocket costs for the services they cover. A third bill doesn't apply to providers. Proposed by Reps. Gene Green (D-Tex.) and Michael Burgess (R-Tex.), this measure would require insurance companies to publish out-of-pocket costs for a number of medical procedures. The bills are said to have some supporters in the Senate, but there's no actual Senate bill yet.

Rep. Frank Pallone (D-N.J.), chairman of the House Energy and Commerce health subcommittee, expressed a reservation about requiring providers to report their prices publicly. Citing a Congressional Budget Office report, Pallone said he was concerned about the "unintended consequences of too much transparency." The CBO report suggested that, in highly concentrated markets, publication of provider price information might cause some providers to raise their prices if their competitors were charging more than they were.

Balderdash. Provider prices are a polite fiction that means nothing except to the uninsured, who are often forced to pay full freight. The important number is what a hospital or a physician gets paid under their contracts with various insurance companies. And that amount is chiefly determined by the market power of the hospital, healthcare system, or physician practice. The more clout you have, the better payments you can negotiate.

But that has nothing to do with the polite fiction of official list prices. If a hospital raises those, insurers will just demand bigger discounts. If a provider-specific report card could influence patients' selection of hospitals or doctors, they would have an incentive to post lower prices. But it wouldn't affect most patients' out-of-pocket costs.

The other approach of the congressional supporters of disclosure is to have insurance companies publish the out-of-pocket costs of different providers. While Aetna experimented with this in a few markets, most health plans oppose the idea of revealing what they pay particular hospitals and doctors. America's Health Insurance Plans, the industry trade association, said that some of its members worry that this kind of price "transparency" could undermine competition by setting a "floor" for payments in particular markets.

It's unclear whether Congress could compel health plans to reveal this information, thanks to nondisclosure agreements in provider contracts. But even if it could, a far better approach would be to stratify providers in cost "tiers" that would indicate how much they're being paid without revealing specific numbers. That strategy helped steer consumers to more cost-effective providers in an experiment in Minneapolis more than a decade ago, and it could work today, too.

Image supplied courtesy of Wikimedia Commons.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.