Expert Insights
Health Care Price Transparency: Opportunities to Improve Affordability and Data Effectiveness
May 16, 2023
Price Transparency
Health care services and prescription drugs often don’t have a single, straightforward price tag. Instead, prices for the same service can vary based on several factors, including whether the payer is an employer, insurer, government entity, or a patient. The patient’s health coverage—whether it’s Medicare, Medicaid, or commercial insurance—also affects pricing. Prices can also differ depending on where they are measured within the delivery system and supply chain. Negotiations between payers and providers are key in determining the final prices paid. The size and market power of provider organizations and hospital systems also play a big role in these negotiations.
Recent policies have compelled some providers to publicly share their prices. However, much of the data released remains complex and hard to understand, making it difficult for patients to shop for the best price and for payers to analyze and compare prices for the same services. This lack of transparency allows health care prices to remain largely hidden. The experts at RAND navigate these complexities using innovative methods. By working with a wide range of data sources, such as insurance claims and proprietary pricing files, we analyze health care prices and make them more transparent and understandable. RAND experts are also exploring how health systems can deliver high-value health care and examining the impact of provider consolidation on health care delivery and spending.
Highlights
Bringing Transparency to Hospital Prices
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Employers spend billions of dollars every year purchasing health care for employees and their families. Yet the lack of transparency in prices paid to providers has limited the ability of employers to understand prices negotiated on their behalf by health plans and to develop strategies for controlling the growth in health spending. RAND has made a significant contribution to making these health care costs more visible, carrying out a multi-year study with employers across the country to leverage their hospital claims data to analyze the prices they pay compared with a publicly available benchmark: the prices paid by Medicare for the same service at the same hospital. In Round 5 of the study, which used 2022 data, the key findings were consistent with previous rounds: Median prices for hospital services vary substantially by state, from below 200% of Medicare prices to above 300%; overall prices nationwide are about 2.5 times what Medicare pays. Hospital market power, gained through consolidation, explains most of the observed price variation. These and other insights on price variations across hospitals, health systems, and states in this groundbreaking study have informed private employer rate negotiations and sparked other efforts to contain health care costs.
Comparing Prescription Drug Prices
Americans spent an estimated $603 billion on prescription drugs in 2022. Purchasers and policymakers consider this level of spending high, relative to what people pay in other countries for similar drugs. Accurately comparing drug prices is challenging without detailed analysis because in the United States there are many actors involved at different steps in the process of manufacturing, distributing, purchasing, and selling prescription drugs—all of which affect drug prices. To inform policymaking, RAND has created novel methods to make drug price comparisons. Our researchers have produced reports comparing drug prices internationally, including for all drugs, for categories of drugs like brand-name versus generic drugs, and separately for insulins. A new report also examines how, across the United States and several economically similar countries, the timing of a drug's launch affects its pricing.
Understanding How Consolidation Affects Care and Costs
Over the past decade, the health care market has significantly changed due to consolidation between hospitals and providers, and more recently between insurers and providers. Vertical integration of providers into health systems and insurer entities might lead to improvements in care and cost efficiencies, as proponents have asserted. RAND’s Center of Excellence on Health System Performance has been conducting research to understand health systems and the impacts of changes in the structure of the delivery system, yet no evidence has demonstrated that consolidation achieves those goals. Some forms of consolidation, such as clinically integrated networks, are not well-described, and their effects on health care delivery and cost are not well understood.
RAND researchers have shown in several studies that the vertical integration of previously independent physician practices by hospitals and health systems leads to changes in referral patterns, from the ambulatory setting to the hospital outpatient department, which in turn substantially increases spending. Ownership arrangements that involve private equity firms’ investments in ambulatory surgery centers need careful examination: A recent study found no delivery pattern changes after private equity involvement but did find a 50 percent increase in charges for services.
