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Hospitals are complaining about the Trump administration’s latest proposed rule requiring disclosure of the prices they have negotiated with private payers. They say the burden is excessive and will undermine the ability of insurers to secure discounts for their customers. Lawsuits aimed at blocking the rule might be coming soon.

There’s a sense in some quarters that the whole effort is a waste of time and resources because the complexity of providing care to patients does not lend itself to simple, consumer-friendly pricing before services are rendered. That’s a mistaken sentiment. Meaningful and understandable pricing is not an impossible dream. That is certain because it already exists in small pockets throughout the United States.

One example can be found in the medical systems providing care to the Amish and Mennonites communities, as Katherine Hempstead and Chapin White noted in an article from earlier this year. Segments of these religious groups forgo enrollment in health insurance and instead pay cash for the care they need. Unlike self-insured employers, they do not contract with commercial insurers to administer claims on their behalf. Instead, they work with the hospitals and medical groups located near their homes and farms to secure transparent, all-in pricing for the services they may need.

For instance, a hospital system in Ohio responded to requests from these communities with bundled pricing for a list of 300 medical interventions, including childbirth and common surgical procedures. The cash prices, which the patients (or their religious communities) pay upfront or before a hospital discharge, cover all necessary services to successfully take care of the patient. There are no surprise bills after the fact. It took the hospital nine months to pull the price list together for services requiring inpatient care because of the effort required to properly understand its own input costs.

This cash pricing model is an important part of the hospital’s operations, producing nearly one-quarter of annual revenue. In 2018, the hospital provided over 3,300 services to patients paying for their care based on cash prices, which is double the number from 2013. The Ohio facility’s approach to cash pricing has proved so popular and successful that it has forced competitors to react and adopt the model as well.

Other hospitals have responded to the administration’s rule requiring the disclosure of chargemaster rates, or undiscounted “list prices,” online by creating tools that are easier to use and more relevant for customers. One hospital system has incorporated insurance coverage into its estimated payment system, which allows for more customization of pricing based on the individual circumstances of patients. Another facility, in Washington State, has posted its chargemaster rates with comparisons to the average market rates based on the prices of competitors. While the chargemaster is built around insurance billing codes and therefore is difficult to navigate, it is still possible with some effort for consumers to get a sense of what the total price would be for services from this hospital compared to other alternatives in the community.

There are several important lessons to draw from these isolated examples.

First, the Trump administration and Congress should ignore the criticisms coming from the hospital and insurance industries that price transparency efforts are not worth the trouble. These examples demonstrate otherwise.

Second, providers of medical services, including hospitals, are capable of producing clear and meaningful pricing when they are motivated to do so. The cash prices quoted to the Amish and Mennonite communities are all-in rates, covering full episodes of care. That is unheard of in most of America, but these hospitals have done it. It should be the norm nationwide.

Third, there is value in forcing providers to provide such prices instead of trying to assemble pricing based on chargemaster rates. Some price transparency tools try to help consumers by working with the price data that already exists. It is better to require hospitals and others to provide the prices they want to charge for services that are defined in ways that are consumer-friendly. This process of setting prices based on all of the services associated with an intervention is the first step in allowing consumers to make apples-to-apples price comparisons among facilities.

Fourth, hospitals and other providers will be motivated to cut costs and lower their disclosed prices only when doing so makes a difference to their business operations. The hospitals serving the Amish and Mennonites have a strong incentive to provide competitive cash prices because of the large number of patients such an approach attracts.  For price transparency to become effective in all communities throughout the country, it will be important to ensure consumers are price sensitive for a wide array of services, and thus eager to find the best deal for the care they need.

The federal government needs to assume the role the Amish and Mennonite leaders played in securing transparent and usable pricing for their communities. That means establishing rules ensuring patients have access to pricing for standardized services and interventions that lend themselves to consumer discretion. All hospitals, physicians, and providers involved in taking care of patients should be required to participate in such a pricing effort. That requirement needs to be paired with a reform that brings reference pricing to all insurance plans, which would allow consumers to benefit from selecting low-cost options.

Price transparency wouldn’t be an issue if health-care costs were under control. Unfortunately, prices remain high, especially for hospital care, and continue to rise rapidly on an annual basis. There are only two options for imposing more discipline:  stricter payment regulations or a better functioning marketplace. It is not possible to have a functioning marketplace without meaningful price information. To head off something that would be even worse for their bottom lines (such as applying Medicare rates to all payers), hospitals should be embracing the push for transparent pricing instead of resisting it.

James C. Capretta is a RealClearPolicy Contributor and a resident fellow at the American Enterprise Institute. This article draws from “Toward Meaningful Price Transparency in Health Care” published recently by AEI.

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