A patient with chest pain is not sitting in the back of an ambulance comparing hospital prices on her phone. Nor will most patients comparison-shop when an insurer or government program pays most of the bill. That is the basic limitation of hospital price transparency in America’s third-party-payer system.
That reality should temper some of the celebration surrounding the Trump administration’s renewed enforcement of federal hospital price-transparency rules. The administration recently warned more than 500 hospitals, including nine in Washington state, to provide required pricing information or face fines. Hospitals that remain out of compliance can face annual penalties based on their bed count, reaching approximately $2 million for the largest hospitals.
Enforcement is appropriate, but fines are not free. Hospitals may absorb some of the expense, but in a system financed by policyholders, employers and taxpayers, the cost of punishment does not simply disappear.
Hospital care is the largest component of health spending, and rising hospital prices are a leading driver of higher premiums, taxpayer costs and healthcare unaffordability. Hospitals should disclose their prices, but transparency alone will not produce the affordability gains its strongest supporters sometimes promise.
The central problem is not simply that patients lack information. It is that most patients are not spending money as consumers normally do.
An insurer, employer health plan, Medicare or Medicaid usually pays the provider most of the bill. Because patients do not directly bear the full price at the point of care, they have less reason — and often less ability — to consider care based on that price. Publishing more numbers does not change that underlying issue.
Price transparency can still help. Some patients paying cash or facing large deductibles might use it to compare scheduled services. More importantly, the information can help employers, insurers, lawmakers, journalists and policy analysts identify unexplained price differences.
Those comparisons must be responsible. Washington state hospitals face high labor costs and serve different patient populations. A major teaching hospital should not be casually compared with a small community hospital in a lower-cost state.
But hospitals can be compared with true peers — institutions with similar patient volumes, case mix and severity, services, labor markets and socioeconomic circumstances. When one hospital provides comparable care at a substantially lower price than a genuine peer, policymakers should ask what it does differently. Does it face more competition? Manage staffing, overtime and contract-labor expenses differently? Negotiate differently with insurers? Deliver services in less expensive settings?
Washington state’s Health Care Cost Transparency Board collects and analyzes extensive spending data. That work should increasingly produce clear, hospital-level comparisons adjusted for legitimate differences in costs and patient needs.
Yet better analysis will not substitute for competition. For starters, Washington lawmakers should repeal certificate-of-need (CON) laws that require government approval before certain healthcare facilities and services may open or expand, shielding incumbent providers from new competition. While other states have repealed anti-competitive CON requirements, our state is working to modernize and preserve its program. A recent report to the Legislature states that “potential solutions should promote the sustainability of the program over several years at a time.” That approach is difficult to justify when a growing body of research associates CON laws with fewer facilities, reduced competition and less access to care, including in rural areas.
We also need all lawmakers — both state and federal — to pursue policies that give employers, health plans and patients greater control over, and reason to care about, how healthcare dollars are spent.
The Trump administration is right to pull hospital prices into the light. But price transparency is not the same thing as price discipline.
