Considering the Future of Price Transparency Initiatives—Information Alone Is Not Sufficient

The late economist Uwe Reinhardt, PhD, once compared the United States health care system to putting a blindfolded crowd of people in a store, instructing them to buy a shirt, and then billing them 6 months later for whatever they grabbed.¹ The apt metaphor describes the peculiar information asymmetry in the health care market, in which consumers make purchases unaware of the quality or cost of services.

In 2020, the Centers for Medicare & Medicaid Services (CMS) began to require hospitals to share payer-specific negotiated prices for selected shoppable health services to improve price discovery and increase price transparency for patients before receiving care. Beginning January 2023, private health plans must offer consumers an online tool to explore negotiated rates and out-of-pocket costs for the 500 most shoppable procedures.² But as Horný and coauthors³ point out, the inherent fragmentation of health care delivery and billing and design shortfalls in the CMS regulation suggest patients would receive incomplete information regarding the cost of shoppable health services. But even if patients had a more complete cost picture, that would not lead to greater use of lower-cost, higher-quality services. To achieve transformation to higher value, the goal of price transparency, would require changes to incentives and infrastructure.

The appeal of price transparency is based on the view that increased consumer choice and less information asymmetry will aid in achieving higher-quality, lower-cost health care. Transparency is meant to address Dr Reinhardt’s caricature of the health care system by empowering patients and consumers with the basic information they use in any purchase and allowing them to determine how quality and cost—as well as other factors, such as convenience—will influence their use of health care services. Politicians, corporate executives, and others hope transparency works. They tend to dislike the alternative—direct price regulation by the government—because they argue it would raise all sorts of challenges of interference in the market, even if those challenges seem unreasonable, given how much the government spends on health care and the many market failures of health care in the US.

Alas, these hopes for the power of price transparency remain unfulfilled and probably (somewhat) misguided. Extensive evidence to date has shown little to no benefit associated with price transparency initiatives directed at patients. A 2016 study of a price transparency tool offered by 2 large employers found limited uptake by employees and no reduction in spending.⁴ Similarly, a 2021 study found that only 1% of eligible New Hampshire residents used the state’s price transparency website in its first 3 years. An advertising campaign was associated with increased use of the website but not of low-cost health care practitioners.⁵ A similar study from 2017 of a price transparency tool for California public employees found limited uptake and no association with spending.⁶ Simply offering patients information on health care costs, as the CMS regulation requires, has not been shown to drive down health care spending.

Health economist Victor Fuchs, has delineated 3 components for successful health care transformation: information, infrastructure, and incentives. Price transparency initiatives up to now have focused exclusively on information. Many such tools, including the new CMS regulations, fail even on that component. As the study by Horný and colleagues³ shows, the hospital prices made available were an incomplete view of the total costs patients were likely to incur.

But even with an improved regulatory designed, CMS will not create worthwhile change with transparency alone. Publicly available price information must also be integrated into the current infrastructure of the delivery system and paired with meaningful patient incentives to shift behavior and reduce costs.

Horný and colleagues³ delineate the many limitations previous initiatives have had, such as supplying mean hospital prices that are irrelevant to individual patients with particular insurance coverage, publishing costs that do not reflect charges for insured patients, and offering costs of individual services rather than an entire episode of care. When the information gleaned from price tools is incomplete or irrelevant, it cannot be useful for decision-making under any circumstance. Price information is only useful to patients if it represents the costs they are likely to actually face after an episode of care.

However, patients should not and do not shop on price alone. Even accurate estimates of the cost of an episode of care must have relevant quality assessments for patients. When price alone is available, clinician loyalty and perceptions of quality of care play significant roles in decision-making and undermine the cost-saving objective of price transparency.⁷ Without access to rigorous quality data, patients may use proxy variables to determine what the highest-quality care option is, perhaps even falsely assuming higher prices correlate with higher quality, as consumers tend to do for other products and services. To create a more efficient market, information initiatives must combat both pricing and quality information asymmetries.

Another flaw with price transparency initiatives is that patients have few incentives to seek out lower-priced services, especially for surgical procedures, imaging, and other costly interventions. They will use up their deductible and be shielded from the full cost of these services. While many employers have introduced high-deductible health plans to increase patients’ sense of having “skin in the game” in an attempt to induce them to shop based on price, previous research has shown that high-deductible health plans create lower costs through reduced use of both high- and low-value services, not through price shopping for lower-priced services.^8,9

A more suitable incentive to increase the efficacy of price transparency efforts may be reference pricing. In reference pricing, payers or employers set a maximum payment allowed for hospital charges, where all charges above the maximum payment are the patient’s direct financial responsibility. This is usually accompanied by information on the price and quality of hospitals on that particular test or treatment. By increasing the incentives for consumers to engage in comparison shopping, reference pricing in conjunction with price transparency has been found to be associated with better consumer response than price transparency alone.¹⁰

Aside from reference pricing, we might try another incentive for patients: inclusive shared savings.¹¹ This approach would offer patients a carrot rather than a stick to use lower-cost facilities or drugs—a positive financial incentive rather than reference pricing’s negative one. Patients would receive financial rewards for selecting less costly treatments, say a $50 bonus card if they selected a lower-cost imaging facility for magnetic resonance imaging or an ambulatory surgical center rather than a hospital for a colonoscopy. If we want the information provided on costs to be of any use, we need to properly incentivize the people making care decisions to choose high-quality, lower-cost options.

Fundamentally it is physicians, not patients, who make most health care decisions around an episode of care. Physicians are the ones deciding which services are needed and which laboratories, hospitals, or other facilities to send patients to. And under a fee-for-service system, physicians face no financial incentive to promote quality over quantity.

Price transparency efforts that focus only on changing patient behavior fail to recognize or accommodate the role physicians play in deciding care options. Aligning physicians and patients in a goal to reduce overall care costs requires realigning incentives or changing payment infrastructure. The inclusive shared savings approach, for example, could introduce an incentive for physicians to advise patients to engage in lower-cost services. Transitioning to more value-based payment systems, such as bundled payments, could similarly realign physicians to engage in cost-saving behavior.

It is unreasonable to expect patients, if given an extensive list covering the cost of every individual service hospitals and affiliated physicians provide, to be able to estimate their own out-of-pocket costs for an episode of care. As Horný et al³ argue, the fragmentation of the current delivery and billing system make it nearly impossible for any patient to anticipate their costs; therefore, it is almost impossible for any patient to be able to price shop effectively.³

A potential solution would be to change the very infrastructure of the payment system and shift from diagnosis-related groups to more bundled payment arrangements. The most successful bundles to date are for largely shoppable services, such as joint operations, suggesting that bundled payment models could work well with price transparency tools.¹² And because bundles include hospital, clinician, and other diagnostic costs, the fragmentation that has hurt the CMS transparency effort would be resolved. Bundled payment arrangements have been championed for how they can reduce overall costs and improve coordination of care. But creating a defined episode of care could also allow patients and referring physicians to more easily compare total costs.

Rather than offering price information as an online tool that patients independently seek out, explaining cost and quality information could be built into patient visits with their referring physician before beginning an episode of care. A conversation on the value of different options, presented as a routine form of care, could allow for vastly more use of transparency tools.

Price transparency efforts have merit. Patients deserve to be aware of the cost and quality of the health care services they need, rather than continuing to be blind shoppers with open wallets over which they have no control. But information alone will never be enough for successful transformation to patients selecting lower-cost options, as demonstrated by many failed price transparency initiatives. To improve the efficiency and quality of the health care system, and to decrease costs, policy makers cannot turn only to price transparency models. Rather, a 3-pronged approach must be used to provide better information, align incentives, and remodel the pricing infrastructure.

Published: December 13, 2021. doi:10.1001/jamanetworkopen.2021.37566

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Emanuel EJ et al. JAMA Network Open.

Corresponding Author: Ezekiel J. Emanuel, MD, PhD, Department of Medical Ethics and Health Policy, University of Pennsylvania, 122 College Hall, Philadelphia, PA 19104 (zemanuel@upenn.edu).

Conflict of Interest Disclosures: Dr Emanuel reported serving as a partner at Oak HC/FT Partners, Embedded Healthcare, and COVID-19 Recovery Consulting; serving as a board member at VillageMD and Oncology Analytics; and personal fees from RAND Corporation, Medical Home Network, Healthcare Financial Management Association, Ecumenical Center–UT Health, from Associação Nacional de Hospitais Privado, National Alliance of Healthcare Purchaser Coalitions, Optum Labs, Massachusetts Association of Health Plans, District of Columbia Hospital Association, Washington University, Goldman Sachs, Brown University, The Atlantic, McKay Lab, American Society for Surgery of the Hand, Association of American Medical Colleges, America’s Essential Hospitals, Johns Hopkins University, National Resident Matching Program, Shore Memorial Health System, Tulane University, Oregon Health & Science University, United Health Group, Blue Cross Blue Shield, Center for Global Development, Informa–CBI, Galien Foundation, RightWay, Wellsky, Signature, and Healthcare Leaders of New York during the conduct of the study. No other disclosures were reported.