How California Can Finally Close In on Meaningful Health Price Transparency

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For more than a decade, many state and federal policymakers have argued for greater health care price transparency, and their efforts received a push in recent weeks. In late June, President Donald Trump signed an executive order that would publicly disclose the prices paid by insurers to health care providers for “shoppable services.” A few days later, a key US Senate health committee voted to send a bill with several major price transparency provisions to the floor for consideration. Here at home, the stakeholder committee tasked with developing California’s cost transparency Healthcare Payments Database neared the halfway point in its yearlong deliberation on what data to collect and how to distribute it. (The state’s effort is part of a category generally referred to as all-payer claims databases.)

What Is Becoming More Transparent?

Efforts vary on what type of prices would be made more transparent. In some cases, policymakers have pushed health care providers to publish their chargemasters, or list prices for services. (While few patients pay these prices, they are far from meaningless.) Most private health insurers and vendors such as Castlight now provide patients with estimates of out-of-pocket costs for different services. And some state and federal efforts have promoted disclosure of the rates negotiated between providers and insurers.

Support for this last type of transparency is the most controversial. Some stakeholders argue that negotiated prices are proprietary — that is, legally protected trade secrets. Other observers maintain that publishing these secrets could foster collusion among providers, enabling competitors to tacitly work together to boost negotiated rates. This tactic is known as “shadow pricing.” “Publicly disclosing competitively negotiated, proprietary rates will reduce competition and push prices higher — not lower — for consumers, patients, and taxpayers,” said Matt Eyles, president and CEO of America’s Health Insurance Plans.

What Should Become More Transparent?

A new CHCF report from legal and policy experts at UC Hastings School of Law, The Secret of Health Care Prices: Why Transparency Is in the Public Interest, examines this debate. After a thorough review of federal and state legal precedent, the authors found that no court has definitively held that negotiated rates between health care providers and insurers constitute trade secrets. Even if a court did find price data to be a trade secret, that protection is not absolute. States are legally permitted to disclose information in the public interest if they establish the conditions and policies for disclosure at the time of data collection.

Currently, 14 states collect and disclose price information in some form in publicly available databases that policymakers, researchers, and other parties can access. In all cases, data include prices negotiated between health plans and providers. States such as Maine and New Hampshire operate consumer-friendly, publicly accessible websites that list the amounts that specific plans and providers have agreed on for the most commonly used health care services.

In practical terms, the report authors find that price transparency does not automatically lead to collusion among companies. In contrast to commodity markets, health care prices are set annually, negotiations are complex, providers compete on more than cost, and patients often remain loyal to their providers. Economists argue that collusion — if any were to occur — would show up in the data being collected by the absence of evidence of inflationary pressure in other markets with databases.

To date, no state with a health care price database has experienced the feared competitive harms. In fact, a decade of public disclosure of negotiated rates in New Hampshire resulted in increased competition and reduced prices for “shoppable” health care services. University of Michigan economist Zach Brown (PDF) found that five years after prices for services like x-rays, CT scans, and MRIs were published on New Hampshire’s HealthCost website, patient out-of-pocket costs for these services declined 11%. Individuals and insurers in the state collectively saved an estimated $44 million over the study period.

Transparency as Cost-Containment Strategy

Californians are desperate for relief from the high cost of health care. Health insurance premiums now consume one-third of the state’s median family income. Premiums have increased 234% for the average family since 2002, while workers’ wages have increased only 30%. Californians are now more worried about paying for health care than for housing, transportation, and other necessities. While not a panacea, increased price transparency can be part of the solution to our health care cost conundrum.

Many different stakeholders would benefit from increased transparency. When consumers know how much providers charge for services, they may be able to make more value-based decisions. When researchers know what happens to prices charged by expanding systems, that information can help inform antitrust law. When regulators know where patients are getting care and what they are paying, they can ensure that insurance companies have adequate networks. When policymakers know exactly where dollars are flowing within the system, they can better target cost-containment efforts.

A major step toward greater price transparency is California’s Healthcare Payments Database. The Office of Statewide Health Planning and Development has brought together providers, payers, consumers, and other stakeholders to help make important decisions about which spending data will be collected, who must report, and how much of it will be publicly disclosed.

To ensure that California implements its database in ways that advance the cause of price transparency, the authors of the CHCF report made a series of recommendations based on the experience of other states with price transparency initiatives. These recommendations include:

  • Developing clear policies regarding data release prior to data collection
  • Establishing a committee to create guidelines, policies, and agreements for data access that balance competition and the public interest
  • Monitoring annual claims data for anticompetitive behavior

With the right policies, governments can shine a light on the prices being paid by various stakeholders in our health care system. Such transparency could finally help achieve the holy grail of more accessible and lower-cost health care for all Californians.

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