In the KBGH Book Club we’ve gone through the “What’s wrong with this situation?” phase, and we’re just entering the “What can we do about this?” phase. A solution that is proposed again and again in this book and in the benefits world in general for controlling costs in medical care is price transparency.

In theory price transparency works like this: since most of the medical care that we receive is non-urgent, we should have time to compare prices. So if only the price of, say, an elective knee MRI at several locations was published on a website, we could simply compare the different radiology practices, choose the lowest price, and go to that practice for our MRI. There is some evidence to support that this works. My favorite study, which I wrote about in a previous blog post, showed that parents choosing a treatment for their child’s appendicitis still mostly chose the cheaper option when they were given cost information, even though it affected their insurance payment more than their out of pocket cost.

Because of this, and because of an Executive Order President Trump signed on October 29, 2020, CMS and the Departments of Labor and Treasury have issued a final rule that will, for the first time, require most private health insurance plans to do two things:

1. They will have to provide personalized cost-sharing information to patients.

2. They will have to publicly report negotiated prices for specific health care services through an online tool. The tool initially will be required to have the ability to compare rates and out-of-pocket expenses for 500 of the most common labs, visit codes, and procedures (deadline January 1, 2023). Starting January 1, 2024, these tools must report this cost information for all health care services. Legal challenges to these rules will undoubtedly continue (not everyone believes, as we do at KBGH, that transparency = trust). But barring a truly explosive set of judicial rulings, we can expect a great deal more price transparency moving forward than what we have now.

Unfortunately, as Jeffrey Kullgren and Mark Fendrick note in a recent editorial (paywall), transparency tools have not yet been shown to reduce overall spending, even when patients are paying pre-deductible prices, when they should be most sensitive to prices. Multiple phenomena may account for this. Patients may simply have too many choices (the old “too much jam” phenomenon). Some patients may assume that less expensive options are of lower quality. Patients may simply not know when more than one option is available. Kullgren and Fendrick make several suggestions on how to make the new price transparency rule work:

1. Make sure employees know that health care services are “shoppable.” We’ll all have to sell patients on the idea that the information is “trustworthy, reliable, and worth using,” as the authors say. This will mean working with our insurance partners to make sure those things are true. Relying simply on the fantasyland “chargemaster” prices for hospital services, for example, will undoubtedly make employees skeptical or cynical about the process.

2. Many employees will need guidance on how to best use the transparency information. A specific example given by Kullgren and Fendrick is direction on when prices could be most helpful. Planning a knee replacement in a few weeks or months, for example, is a good use of pricing information. Trying to price shop after a diagnosis of a potentially life-threatening cancer requiring urgent treatment, though, is clearly not a good practice, in spite of what my favorite parents-cheaping-out-on-their-sick-kids study above may say.

3. On the provider side, we need to continue moving away from fee-for-service reimbursement models and toward quality-driven, alternative payment models. Much of this movement is happening on the public side in Medicare and Medicaid. On the employer side, a move toward more direct contracting with providers could be a good way to accomplish this.

4. Employers need to work with professional societies (like the Medical Society of Sedgwick County, with whom KBGH is allied) to continue to advocate that cost containment is a core professional responsibility of modern medical providers. Integrating cost information into the medical record like the Veteran’s Administration does for drug pricing may be a good practice.

5. We need to pressure different health systems to adopt electronic health record interoperability standards so that, when patients use price information to seek services at alternate facilities, their care won’t be fragmented between doctors that can’t access the same information.

How do you propose we nudge our employees toward taking advantage of price transparency moving forward? We’d love to hear your ideas!

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.