Price Transparency in Hospitals—Current Research and Future Directions

The Hospital Price Transparency Final Rule (the rule, hereafter), which requires hospitals to post the payer-specific negotiated prices, discounted cash prices, and standard charges for all items and services in a machine-readable format, became effective on January 1, 2021. The rule also requires a customer-friendly list of such price-related information for 300 shoppable services, of which 70 services were specified in the rule and the remaining 230 could be selected by each hospital. The rule is unprecedented because there has never been nationwide reporting of commercial prices negotiated between hospitals and health plans. Researchers have analyzed the price data reported under the rule. Gul and colleagues¹ examined the prices of 5 common urologic procedures disclosed by 153 academic hospitals. This commentary evaluates their findings in the context of the extant literature and raises 3 questions that require further debate and analysis.

There are 3 main takeaways from the existing research on the rule. First, the compliance rates have been low. In March 2021, a random sample of 100 hospitals indicated that only 33% reported the negotiated commercial prices for some services.² Even by September 2021, more than one-half of the 5239 hospitals that registered with the Center for Medicare & Medicaid Services (CMS) did not post a machine-readable file or display any shoppable services.³ In response to the low compliance, the CMS raised the penalty for noncompliant hospitals to $300 per day for small hospitals and up to $5500 per day for large hospitals beginning from January 1, 2022.³ Despite the steeper penalties, the compliance rate remains low. For example, Gul et al¹ note that as of March 2022, only 29% to 56% of academic hospitals disclosed commercial prices for 5 common urologic procedures.¹ As of June 2022, only approximately 60% of hospitals disclosed commercial prices across 13 shoppable radiology services.⁴

Second, the commercial prices for the same procedure vary widely across hospitals and within the same hospital. For example, according to our calculations, the IQRs of commercial prices were 65% to 82% of the median price for 5 urologic procedures in the study by Gul et al.¹ For 13 shoppable radiology services, the IQR of the commercial prices was 1.3 times the median across all hospitals, and within the same hospital, the maximum commercial price was 3.8 times the minimum price.⁵ Between health plans that belong to the same insurance firms and enter into contracts with the same hospital, the maximum price was approximately 1.2 times the minimum price.⁴ Different costs of providing service might explain the hefty price variations between hospitals, but they cannot account for the large within-hospital price variations.

Third, for many hospitals, discounted cash prices for uninsured individuals are lower than the commercial prices negotiated between hospitals and insurers. For example, among the 70 shoppable services specified by the CMS, nearly one-half of the hospitals that disclose both cash and commercial prices set cash prices below the median commercial prices.⁶ In addition, cash prices are less than or equal to the lowest commercial prices for nearly 17% of the hospitals.⁶ For 5 common urologic procedures, Gul et al¹ found that some hospitals set the discounted cash price even below the Medicare and Medicaid prices. These findings are surprising because individuals without insurance are in a weaker position to bargain for low prices, which suggests that prices would likely be higher for such patients.

Although the existing research has shed light on how hospitals set prices for different types of payers, there are 3 important questions that remain to be examined. Answers to these questions will help us to better calibrate the costs and benefits of using price transparency as a policy instrument to reduce health care costs.

First, did the rule lower hospitals’ commercial prices? The rule uses price transparency with the goals of reducing information asymmetry, permitting benchmarking among hospitals, and allowing patients and payers to make informed decisions. Eventually, the benefits from transparency enabled by the rule could permeate to reduce health care costs. Thus, an important question is to assess how the rule affects hospitals’ negotiated prices. Gul et al¹ concluded that the rule has had little impact as evidenced by large price variations between hospitals. A more robust inference entails nuanced econometric tests where the effects of the rule on price variations are examined by comparing prerule and postrule prices.

Two obstacles prevent a straightforward investigation. First, data on payer-specific prices before the rule was adopted may be absent, which thwarts a study of changes in prices around the rule’s first adoption. At best, we can compare the changes in prices for hospitals that comply with the rule over time. Evidence from such an approach would be a noisy indicator of the rule’s effectiveness because many hospitals did not comply with the rule. This leads to the second obstacle—namely, if hospitals that are most likely to be affected by the rule do not comply, then the results do not reflect the full potential of price transparency regulation.

The second question is why are so many hospitals still not compliant with the rule? Are they concerned about negative implications from the disclosure, or are they unable to bear implementation costs? Cost of implementation could indeed be a serious obstacle. For example, hospitals complained that CMS underestimated the burden of implementing the rule, which was initially estimated as 12 hours per hospital at approximately $1000.⁷ The CMS agreed and substantially revised the estimated burden to 150 hours per hospital at approximately $12 000 for the first year.⁷ It also delayed the rule’s effective date for a year to allow hospitals to prepare.

Research indicates that a hospital’s compliance status is highly associated with peer hospitals in the same market.⁸ In addition, the more expensive a shoppable service, the fewer hospitals that disclose cash prices.⁶ These findings suggest that hospitals could have concerns about negative repercussions from disclosure. Understanding which factors explain a hospital’s likelihood to comply will help us better understand the rule’s impacts.

The third question is what explains the large price variations both between hospitals and within hospitals? Analysis of this question requires an examination of the contextual characteristics of hospitals and health plans that influence price setting. Understanding the factors associated with price variations can enable better design of strategies to reduce health care costs.

The Hospital Price Transparency rule, which enjoys bipartisan support, was implemented with the goals of facilitating comparison shopping for payers and patients, promoting price competition among hospitals, and eventually improving hospital care affordability. The information disclosed by some hospitals has enabled researchers such as Gul et al¹ to answer many important questions that could not be examined before because of the lack of data. More research effort is warranted to provide rigorous evidence on whether price transparency influences health care costs, what structural issues in the market influence the effectiveness of price transparency, and how the behavior of various players in the health care market evolves in response to price transparency. These efforts have the potential to facilitate evidence-based public policy making and influence the purchasing practices of hospital services.

Published: January 5, 2023. doi:10.1001/jamanetworkopen.2022.49588

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2023 Jiang JX et al. JAMA Network Open.

Corresponding Author: John Xuefeng Jiang, PhD, Broad College of Business, Michigan State University, 632 Bogue St, Ste N252, East Lansing, MI 48824 (jiangj@msu.edu).

Conflict of Interest Disclosures: Drs Jiang and Bai reported receiving support from Arnold Ventures and PatientRightsAdvocate.org. No other disclosures were reported.

Disclaimer: Dr Bai is a visiting scholar at the Congressional Budget Office (CBO). This publication has not been subject to CBO’s regular review and editing process, and the views expressed here should not be interpreted as CBO’s.