Hospital cost transparency is the necessary first step

Shining a spotlight on opaque hospital billing structures may not be a miracle cure for the rising cost of health care. But medical cost transparency is worth pursuing on principle, alone.

No one would buy a car without knowing the sticker price. Few would hire a house painter without getting an estimate — or several — first. Yet, hospital patients usually don’t learn the cost of their medical care until after they’ve been treated and receive a bill.

A new Centers for Medicare & Medicaid Services rule could change all that by demanding price transparency of every U.S. hospital. By January 2021, the federal agency will require hospitals to disclose charges for every service they provide, including cash discounts and rates negotiated with third-party payers, such as insurance companies. Additionally, they’ll be required to publish plain-language estimated costs for all associated charges for 300 “shoppable” services, such as joint replacements and other common treatments.

The intent is to enable patients to make informed decisions and to promote competition between providers. However, some hospital groups are objecting, saying the new rule will confuse patients rather than clarify potential out-of-pocket expenses. They suggest costs could actually increase by making it more difficult for providers to negotiate with insurers. They argue providers could just as easily decide to raise rates to meet competitors’ charges as they could decide to lower them to remain competitive. Four major provider associations — the American Hospital Association, Association of American Medical Colleges, Children’s Hospital Association and the Federation of American Hospitals — announced they will sue CMS to stop implementation of the new rule.

The Washington State Hospital Association shares many of those concerns, encouraging CMS instead to encourage care providers to voluntarily adopt user-friendly cost-estimator tools.

Certainly, pricing information should be user-friendly, says the leader of the Washington Health Alliance, a nonprofit organization that shares the data on health care quality and value. “Transparency is foundational to helping improve the market. That said, it’s tricky to talk about price in a way that’s approachable for people,” executive director Nancy Giunto said in an interview.

As two Washington peerclaims databases have shown, it is possible. The nonprofit Washington Health Alliance compiles and reports on health care costs and spending. Launched last year, WA HealthCare Compare. com aggregates hospital, clinic, dental and prescription claims and eligibility data from the state’s AllPayer Claims Database.

Researchers, policymakers and state agencies can tap into the robust pool of data to identify potential system improvements. Patients can look up quality data and average costs for dozens of common services, and generate an estimate of their out-of-pocket expenses based on their insurance plan.

The change won’t be a panacea, but it will be an important step. Whether a critical mass of healthcare consumers will “shop around” for a hospital the way they do a car or contractor — many more factors go into medical decision-making — understanding the drivers of health care costs is a necessary first step toward reining in runaway costs.