PRESIDENT DONALD TRUMP has been promising to bring down health-care costs ever since he announced his campaign for the White House. So far his policies have had the opposite effect. As contenders to stand against him in 2020 have begun to refine their pitches on health, he has at last done something to keep his promise. On June 24th Mr Trump signed an executive order requiring hospitals to disclose the (hitherto secret) prices they have negotiated with insurance companies. The idea is that transparent pricing will spur competition and force high-price hospitals to cut margins, or become more efficient.
The political urgency is glaring. In a survey earlier this year 61% of Americans said they would prefer a five-year freeze in their health-care costs to a 10% increase in income. One in eight had borrowed money to pay for health care in the past year. Even among households making $180,000 a year or more, a third fear that a health crisis could push them into bankruptcy.
The presence of fat for competition to trim is evident from the wide variation in negotiated prices (where those have been made available for research). Analysis of payments data from three big insurance companies found up to a 39-fold difference in the prices they paid for a given service in the same metropolitan area—even after outlier prices were excluded. Whether making this kind of information public will push prices down is doubtful.
One way it could do so is if people use it to price-shop. An estimated 30-40% of America’s health-care spending goes on things considered “shoppable”, meaning that the situation is not urgent (like a broken leg or a heart attack) and there is a choice of medical providers. But almost all this expenditure is paid by insurers, meaning patients have no incentive to shift to lower-price providers. Some patients may see high prices as a sign of quality, says Lynn Quincy of Altarum, a health-care consultancy—even though research in America shows that the two are not linked.
Pressure from insurance companies is a more likely way to reduce prices. Knowing what hospitals are charging their competitors may spur some insurers to bargain for better deals. Big employers who buy health-insurance plans in bulk will press them on that. The problem is that a recent boom of consolidation in America’s hospital industry has left buyers of health care with fewer choices.
According to a study in 2017 by the Commonwealth Fund, a think-tank, 90% of metropolitan areas in America have hospital markets that federal competition authorities would call “highly concentrated”, meaning that there is very little competition. Although the insurance market is also highly consolidated at local level, that rarely gives insurers the upper hand in bargaining with medical providers. The market concentration of insurers is higher than that of providers in only 6% of metropolitan areas, according to researchers at the Commonwealth Fund.
Nonetheless, experience with price transparency suggests that hospitals charging particularly high prices may blink first when there is a dispute over bargaining, says Ms Quincy. Until 2010 New Hampshire’s most expensive hospital charged nearly 50% more than its competitors. That year, the state’s biggest insurer used data made available by a price-transparency law to shame the hospital as a pricing outlier—getting public support which forced the hospital to lower its prices. After California’s public-employee fund set a “reference price” for joint replacements, covering costs only up to that amount, its payments per patient fell considerably—mostly because hospitals lowered prices to the reference amount, rather than because patients shifted to lower-priced hospitals.
Hospital and health-insurance lobby groups claim that Mr Trump’s price-transparency plan will backfire and prices will rise. What happens eventually may vary from place to place. But shedding light on what everyone pays might just infuse some reason into the seemingly random pricing of America’s health care.◼