RALEIGH — Since the North Carolina Department of the State Treasurer implemented the Clear Pricing Project a year ago, price transparency tools have begun to become an increasingly popular option for consumers across the state by allowing patients to shop around for health care services and know what they will be paying before receiving care.
The CPP is a policy effort led by Treasurer Dale Folwell that is aimed at providing more affordable health care costs to state government employees through the State Health Plan. Similar clear pricing initiatives were supported by the Trump administration in 2019, when the former president signed an executive order with the purpose of enhancing the ability of patients to choose health care based on informed decisions related to the price and quality of health services in advance of treatment.
On Oct. 29, 2020, the Department of Health and Human Services finalized its rule on health insurer price transparency, which requires most private health insurers to begin posting their negotiated rates by 2022. Additionally, last month a federal judge with the U.S. Court of Appeals ruled in favor of the Trump administration after its executive order was challenged by the American Hospital Association, which argued that the rule violated the First Amendment and went beyond the statutory provisions of the Affordable Care Act.
With the increasing inevitability that price transparency initiatives will become common for consumers, it begs the question: Can price transparency indeed reduce the cost of health care? According to a press release from the Treasurer’s office, state employees have already begun seeing savings.
Approximately 26,000 health care professionals have already signed on to the state Treasury Department’s new network, known as the NC State Health Plan Network, which has moved away from a commercial-based payment model to a reference-based, transparent pricing model. The result, according to the NC Treasury, is that State Health Plan members who use CPP providers will be able to visit a CPP Primary Care Provider for a $0 copay, compared to the current copay of up to $45. Meanwhile, they can visit a CPP Specialist for as little as $40, compared to the current copay of $80 to $94.
“We want to encourage our members to use CPP providers. People need to know what they’re actually paying for health care,” Treasurer Folwell said. “We cannot continue to spend trillions of dollars on something that we have no idea what it costs. The state and the country can’t afford it. Those that oppose medical price transparency will be on the wrong side of history.”
New tools like UNC Health’s “My UNC Chart” make it possible for consumers, including those with insurance and without it, to estimate how much an office visit, a simple procedure or other types of inpatient services will cost at UNC Health Triangle providers such as UNC Rex Healthcare and UNC Medical Center. While the application and website are still a work in progress, Treasure Folwell calls the initiative “a step in the right direction.”
Although Folwell touts the state’s CPP as already being effective, similar options are not yet as widely available in the private insurance market. Nevertheless, initial research on price transparency, albeit limited in scope due to the policy being relatively new, does in fact show some promise.
“One of the key motivations for price transparency policy is that hopefully through this type of policy, the policy maker can do something to encourage consumers to compare prices and active consumers or patients are going to select the lower cost provider. Essentially, they are going to shift from high-cost providers to low-cost providers,” Dr. Ji Yan, a professor of health economics at Appalachian State University, said. “To some degree, this may send some pressure to the supply side and those high price guys are forced to lower their prices, and in the end the overall price will go down.”
Dr. Yan earned his PhD in economics from Washington University in St. Louis in 2010. He has taught at Appalachian State University since 2010, where he researches labor economics, applied microeconomics and health economics, specifically among vulnerable populations such as infants, children, adolescents and pregnant women. During an interview The AJT, Dr. Yan shared a study from the Journal of Health Policy entitled “The impact of price transparency on consumers and providers: A scoping review.” The study takes scientific papers published in a variety of academic journals and databases and compiles the results.
According to the study, in the United States health care spending has grown faster than the Gross Domestic Product (GDP) over the past 60 years and is expected to represent nearly 20 percent of national GDP by the end of the decade. Similarly, the Centers for Medicare and Medicaid Services reports that National Health Expenditures grew 4.6 percent to $3.8 trillion in 2019, with expenditures related to Medicare, Medicaid, private health insurance, out-of-pocket costs, hospital expenditures, physician and clinical services and prescription drug costs all included as part of this increase in spending to various degrees.
In 2019, the largest share of total health spending was sponsored by the federal government at 29 percent, with households accounting for 28.4 percent. Health care spending by private businesses accounted for 19.1 percent, state and local governments accounted for 16.1 percent and other private revenues accounted for 7.5 percent.
Moreover, the COVID-19 pandemic has brought the issue of medical costs to the forefront yet again, as approximately 15.9 million people became unemployed between February and June in 2020, many of whom likely lost their employer-based health insurance as a result. In North Carolina, 10.7 percent of people fall into the health care coverage gap because they earn too much to qualify for Medicaid and/or not enough to afford private insurance.
In counties in western NC like Graham County, more than 50 percent of the working age population can be uninsured at any given point, with 18.9 percent of its population unable to afford private insurance, even with a subsidy from the Affordable Care Act. During the height of the pandemic, the NC Pediatric Society and the NC Academy of Family Physicians reported that 85 percent of primary care physicians reported a patient volume decline of 40 percent, which resulted in the reduction of salaries, staff and hours.
While much of the conversation involving the inability of working Americans to afford health care focuses around government-run solutions like the expansion of Medicaid and Medicare in order to shoulder the ever-increasing costs, policies like price transparency proposes to help alleviate the problem by tackling the root cause and lowering the prices themselves through a market-based approach.
Referring back to the study in the Journal of Health Policy, patients were able to shop around and compare prices through a variety of methods, including tools provided by insurance companies like Aetna Member Payment Estimator, commercial tools like the Truven Treatment Cost Calculator, mandatory state government disclosure websites like New Hampshire HealthCost, as well as through voluntary disclosure by individual facilities.
The study compared two control groups: One that simply had access to a price transparency platform, as well as another that had access to a platform and received care.
Within the first control group, there was limited use among consumers for the initial duration after the platform’s release, which ranged between 1 to 12.3 percent of usage within the first two years. However, usage increased by as much as 43 percent, as was the case with the Aetna Member Payment Estimator, as time progressed and patients became more accustomed to and aware of these platforms. Yet as the study points out, the overall rate of usage remained consistently low.
Among the first control group that simply had access to a price transparency platform, two studies concluded that the platform had no effect on average consumer spending over a period of time. Whereas, two studies found decreases in average total and out-of-pocket visit prices.
Meanwhile, in the second control group in which patients accessed the price transparency tool and then received care, prices for imaging services, such as MRIs, decreased by a range of 12 to 18.7 percent, according to one study. Prices for lab tests changed as well, with a price reduction of 15.6 to 13.93 percent. However, in the same study, the researcher found no change as it was related to office visits. Overall, across six studies, search was associated with price reductions across all services examined except for office visits, and one researcher estimated that price awareness reduced prices across a variety of services by 17 percent.
As the study suggests, price-aware patients are more likely to book relatively less costly services, despite the rather low rate of usage among these price comparison platforms.
“If the beneficial impact on the demand side outweighs any unintended consequences on the supply side, then I could argue that this policy would work and overall the price would go down due to the substantial increase with active consumer search. [The price] decrease is not very large, but it is encouraging. It’s better than nothing,” Dr. Yan said. “If in the future, we could do something to provide more incentive for consumers to use the online platform, like if 80 percent [instead of 10 percent] started to use this system, then the impact would be much bigger, I suspect.”
Dr. Yan points out that the U.S. health care system is indeed complicated. While some of the research in the study did conclude that price-aware patients chose less costly services and insurance providers even experienced a small reduction in prices as well, there was no reduction in aggregate healthcare spending, likely due to the fact that hospitals were able to adjust discounts to negate patient and insurance savings.
There are also further complications or unintended consequences that could arise through a competitive and transparent pricing system, one that has been common across industries like the railroad and airline industries throughout American history.
“Unfortunately, the market for hospitals is usually not very competitive, because there are just a few players in this market. It is pretty easy for (hospitals) to collude or work secretly together. If two firms collude, then they’re going to force a mechanism such that both of them raise the price or try to sustain the price at a fairly high level, and that would be good for both because they’re trying to avoid a price war,” Dr. Yan said.
Furthermore, price transparency may work for ordinary services, such as health checkups, imaging and test results. However, catastrophic services, such as cancer treatments, emergency room visits, or surgeries related to life-threatening conditions pose a whole other set of complications, since these services are “price inelastic,” meaning that people will burden the cost no matter how high as long as themselves or someone they love is cared for.
“There is a debate on whether this price transparency policy can work or not, especially with the concern on the supply side. People who do not like this type of regulation argue that there could be unintended consequences on the supply side or are worried about collusion or unintended price increase. So people have concern. The other explanation why this sort of approach has not been taken before is because policymakers have taken other approaches before. So we’re working on that, and this is approach is fairly new,” Dr. Yan said.
One of the fundamental problems that has led to the dramatic increase in health care costs and spending is the nature of how health care is paid for. As Nobel prize-winning economist Milton Friedman points out in his book “Free to Choose,” third parties, such as government programs, as well as employer-sponsored insurance programs are responsible for paying for other people’s health care, and third parties do not spend money as efficiently as an individuals spends their own money.
While a policy such as price transparency may produce those “unintended consequences” that has sparked concern economically, a more free-market approach to health care could potentially impact the health care system in the future.