Healthcare price transparency can address inflation’s largest and longest-running source

Runaway healthcare and coverage prices are boosting historic inflation that’s reducing Americans’ purchasing power and living standards.

Last week, the Bureau of Labor Statistics announced core inflation rose by 6.6 percent over the past year, the fastest rate in 40 years. Health insurance costs rose by 28.2 percent over the same period — more than four times this record rate. Economists predict healthcare prices will increase even more in the coming months. For instance, the Federal Reserve Bank of Dallas estimates the healthcare inflation rate will double between mid-2022 and mid-2023.

To address rapid healthcare inflation, President Biden issued an executive order calling on the Department of Health and Human Services to create plans within 90 days to reduce prescription drug costs.

HHS can achieve the president’s goal and substantially lower broader care and coverage costs by committing to robust enforcement of its federal hospital price transparency rule that took effect on Jan. 1, 2021.

Health insurance costs are already outrageous. According to the Kaiser Family Foundation, the average annual employer-sponsored family healthcare premium is $22,221 — 61 percent more than in 2010. Employees carry the burden of these high costs, as employers cover them out of the pool of funds devoted to employee compensation — money that would otherwise go to higher wages. 

Hospitals are driving much of these high costs. Johns Hopkins University research found that hospitals charge an average of seven times their cost of care. Leaked hospital pricing practices published in the LA Times reveal some hospitals automatically add markups as much as 675 percent.

Employers need not passively accept such escalating prices by passing them on to their employees. In fact, they can reject the opaque and inflationary status quo and enjoy substantial savings by elevating health plan decisions from HR departments to C-suites and proactively treating healthcare prices like any other aspect of their supply chain, with a keen eye toward price and quality. 

Innovative employers nationwide, such as Rosen Hotels and the Osceola School District in Florida, have saved 30 percent to 50 percent on their healthcare costs by analyzing their health claims data, rejecting price-gouging hospitals, and pursuing direct contracts with providers that offer the best care at the best prices. They are sharing these savings with their employees in the form of lower premiums and higher pay.

Hospital price transparency will allow more employers to follow their lead by making it easier to compare and save. The federal hospital price transparency rule requires hospitals to post their discounted cash and all negotiated health insurance rates online, allowing consumers to spot widespread price differentials for the same care, even at the same hospital. The rule empowers employers to engage in meaningful healthcare and coverage procurement through financial review and analysis of actual prices. 

When prices are known, no employer will tolerate paying 10 times more than their competitors for the same treatment. Price transparency can hold hospitals accountable for overcharging, upcoding, and fraudulent billing.

Unfortunately, this rule has been marred by widespread hospital non-compliance. A recent study by PatientRightsAdvocate.org concludes that only 16 percent of hospitals nationwide fully comply with it. A separate study published this month by PRA finds some major hospitals are omitting negotiated prices that appear in health insurance disclosures pursuant to a health insurance price transparency rule that took effect on July 1 of this year.

HHS can meaningfully respond to Biden’s executive order by recommending dramatically greater enforcement of this rule. HHS has only fined two hospitals out of the thousands nationwide that are noncompliant. Yet these two hospitals quickly posted exemplary pricing files, demonstrating enforcement’s potential. HHS can also recommend strengthening the rule by requiring clear hospital data disclosure standards to make it easier for tech innovators to aggregate price information in consumer-friendly web applications like Kayak and Expedia.

Armed with actual, upfront prices, consumers can shop for the more than 90 percent of healthcare that’s not for emergencies, significantly reducing the costs of care, prescription drugs, and health insurance. Patients and workers can enjoy larger paychecks as less compensation is cannibalized by coverage costs, helping them during this time they need it most.

Robust hospital price transparency can put downward pressure on overall inflation by addressing its largest and longest-running source: outrageous healthcare costs.

Cynthia A. Fisher is founder and chair of PatientRightsAdvocate.org