Trump Maps Path on Health Costs That Has Few Clues for Consumers

(Bloomberg) -- The Trump administration took a step toward making paying for health care more like paying for coffee, computers or clothing, by letting patients know prices up front -- but what consumers could do with that information once they have it is unclear.

President Donald Trump signed an executive order Monday that could require hospitals to disclose rates they privately negotiate with health plans for tests, surgeries and other procedures. Hospital care cost Americans about $1.1 trillion in 2017, accounting for one-third of all U.S. medical spending.

The administration also wants to make medical providers and insurers provide patients with estimates of their out-of-pocket costs before they receive care, a step to cut down on consumers being presented with surprise bills long after they’ve been sent home from the hospital.

Trump’s order, if it survives the federal rulemaking process and likely legal challenges, could reshape the way much of the industry does business. Employers and patients have complained that a lack of transparency helps keep costs high and makes it harder to shop around. The changes sought by the president could drag prices long obscured by layers of contracts into the sunlight.

However, industry groups warned that the plan could backfire and cause prices to climb. And some experts said that consumers aren’t armed with enough information or don’t have the right incentives to make financially sound decisions about their own care.

Health and Human Services Secretary Alex Azar touted the president’s directive as a way to “put American patients in control and address the fundamental drivers of high American health-care costs in a way that no president has ever done before.”

The text of the order leaves a lot of ambiguity about what prices will actually be published. It instructs Azar’s agency “to require hospitals to publicly post standard charge information, including charges and information based on negotiated rates” in a way that patients can digest. The regulations to do so should be proposed within 60 days.

Public Pressure

Making negotiated rates public could pressure pricier hospitals to justify charging more than lower-priced competitors, said Chas Roades, co-founder and chief executive officer of consultancy Gist Healthcare Inc. It might also show employers that they aren’t getting as good a deal as they thought from insurers hired to negotiate on their behalf, he said.

“There’s been sort of a big shell game going on inside the industry,” Roades said. “I think all of the industry players are rightly concerned that when the actual purchasers of health care see what’s going on, they’re going to demand some real change.”

Industry groups broadly oppose a government mandate to make prices more visible.

“Publicly disclosing competitively negotiated, proprietary rates will reduce competition and push prices higher -- not lower -- for consumers, patients, and taxpayers,” Matt Eyles, president and chief executive officer of America’s Health Insurance Plans, said in an emailed statement.

Eyles said insurers support giving patients accurate information about their costs, but publishing negotiated rates would create “a floor -- not a ceiling -- for the prices that hospitals would be willing to accept.”

Information Gap

The main trade group for hospitals, the American Hospital Association, didn’t immediately comment on Trump’s proposal. The group argued in a comment letter to regulators earlier this month that disclosing prices could inhibit competition and lead to price-fixing.

“Health plans would know what every other health plan was paying and could use that information indirectly to collude and drive prices below competitive levels,” potentially putting struggling hospitals out of business, the group wrote.

That risk is real, according to Craig Garthwaite, an associate professor of strategy at the Kellogg School of Management at Northwestern University.

“The public posting of prices makes it easier for firms to maintain tacit collusion,” he said. To avoid price wars, “you need some ability to monitor your competitor, that they’re not secretly cutting the price in order to gain more market share.”

For patients, price transparency may be less than meets the eye, Garthwaite said. That’s because they don’t have good information about the quality of different care providers. They also have little reason to shop around for the most expensive hospital services, because health plans pay most of the cost after patients reach their deductibles.

Existing tools that give patients price information are poorly used, Garthwaite added.

Direct Talks

When employers get a clear view of health-care prices, they’re sometimes able to drive them down. An experiment underway in Colorado is set to reduce insurance premiums in the mountain county of Summit next year, after large government and employer health plans decided to negotiate prices directly with the local hospital.

“Employers really don’t have a good sense of what prices they’re paying hospitals,” said Chris Whaley, a health-care researcher at Rand Corp. who recently co-authored a study on hospital prices. More efficient hospitals could “essentially use this information to say, if you want to save money on this care, come to us,” he said.

The Trump administration has advocated for bringing down health-care costs by making prices more visible, boosting competition and reducing regulation. The approach contrasts with proposals from many Democratic presidential candidates to expand Medicare, the government health-insurance program for older Americans, to the broader population.

The idea that patients could become shrewd health-care shoppers was the premise of conservative health policies in the 2000s that expanded the use of so-called consumer-driven health plans. Those paired high deductibles with tax-favored health spending accounts. Research on the effects of high deductibles has shown that patients cut back on care but don’t do a good job choosing between services that are beneficial and wasteful.

Other aspects of the order would attempt to simplify quality reporting requirements, expand access to de-identified medical-claims data and expand the use of health-savings accounts.

To contact the reporter on this story: John Tozzi in New York at jtozzi2@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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