Transparency Is The Cure For What Ails American Health Care

A government shutdown has been averted—for now. Congress approved a continuing resolution this weekend that funds the government through mid-November. But the weeks-long fight put other important legislative work on hold.

Take the “Lower Costs, More Transparency Act.” Late last month, lawmakers pulled it from the floor ahead of an expected vote. The sponsors of the bipartisan bill—whose name is an apt summary of its goal—did so after a whip count revealed they would not have enough votes to pass it.

Whatever happens to the bill, lawmakers would be wise to keep alive the policies and principles undergirding it. The healthcare market is in desperate need of illumination. Increasing transparency in the space will empower patients and make it easier to find affordable drugs and hospital care.

Hospitals go out of their way to keep their prices secret. Rather than use actual cash prices, hospitals assign inscrutable codes to each of their services, which they use to bill insurers. These codes often carry a price nowhere near what patients actually pay, something familiar to anyone who has ever gotten an explanation of benefits saying they owe $50 for a $5,000 procedure.

Most patients have no incentive to shop around for care because they’re not paying for it anyway; their insurers are. So hospitals can get away with charging just about whatever they want. It’s no wonder that the cost of hospital services has climbed nearly 200% over the past two decades.

The Trump administration tried to address this problem with a rule instructing hospitals to post their real prices publicly and in an accessible way. But two years after this rule took effect, roughly two-thirds of hospitals have yet to fully comply, according to a recent survey.

If prices were transparent, patients and payers could weigh price and quality to determine which providers were offering the highest-value care. Using price transparency to foster even a modicum of competition among providers would lead to lower long-term costs and better-value care.

We’ve seen this happen among the handful of providers who post cash prices. The Surgery Center of Oklahoma has lowered prices four times since first posting a menu of its services online a decade ago.

Hospitals aren’t the only ones profiting off complexity in the healthcare market. Pharmacy benefit managers ostensibly work to help insurers design and administer their prescription drug plans. But three PBMs control nearly 80% of the market. They use that dominance to turn the screws to their counterparties.

Case in point—”spread pricing.” Under this practice, PBMs charge insurers more than they pay pharmacies for dispensing medicines and keep the difference. In some cases, pharmacies end up paying more for a drug than they receive from the PBM. That can put their operational viability at risk.

PBMs also derive revenue from discounts or rebates extracted from drug makers relative to a drug’s list price. So they have a perverse incentive to favor drugs with high list prices that they can secure a big discount on. Given the dominance of the big PBMs, drug makers have little choice but to play along.

Patient copays and coinsurance are typically based on a drug’s list price, not the lower net price that PBMs secure. So their interests are actually at cross purposes with those of patients.

The “Lower Costs, More Transparency Act” would ban PBMs who contract with Medicaid from engaging in spread pricing. Other legislation bandying about Capitol Hill would require PBMs to share savings with patients at the point of sale and provide insurers with information about their negotiations and discounts secured.

These are fine ideas. But laws and regulations can be repealed, abused, or—as we see with the hospital price transparency rule—outright ignored.

This is why transparency is essential. When Americans have access to relevant pricing information, they can shop for health care and prescription drugs with the same eye for value and quality that they currently do in every other sector of the economy. That kind of consumer discipline can help arrest our nation’s long-term health cost crisis.