Has hospital price transparency affected healthcare costs?

Converging market -- a step in the right direction?

Xiao and his team looked at a data set consisting of over 390,000 monthly negotiated rates for 37 common healthcare services at 234 different hospitals. The hospitals included in the analysis were located in one of the nation's 10 largest metros.

The team then segmented services into three markets: high market rates, meaning costs were above the 75th percentile; middle market rates between the 26th and 75th percentile; and low rates below the 25th percentile.

The data showed price changes in both directions. In particular, high rates declined by 6.3% annually, while low rates went up by 3.4% annually. The middle 50% of prices also went down by 1.1%.

Xiao and team said these findings indicate a converging market.

"Economically, converging rates are an encouraging sign that healthcare markets are responding to price transparency with increased market competition," Xiao wrote.

"On the other hand, increases in Bottom-tier prices raise questions about market dynamics and potential unintended consequences," he continued. "As pricing information becomes more widely available, some providers offering services at below-market rates may negotiate prices upward to match market rates."

Still, Xiao posited that the convergence of healthcare costs should lead to pricing that "more accurately reflects the true cost and value of healthcare services," he wrote.

To truly understand the broader effects market convergence will have, it is prudent to assess the magnitude of top-tier and bottom-tier rate movement. To do this, Xiao looked at middle-tier rates as a benchmark. Relative to middle-tier rates, bottom-tier rates increased by 4.4% while top-tier rates decreased by 5.2%. The greater magnitude of the top-tier rate decreases offsets the magnitude of the bottom-tier rate increases, which Xiao said was promising. However, the way in which this impacts healthcare consumers will depend on several factors, including healthcare utilization patterns and the price changes of specific services.

The report also indicated broad impacts of the hospital price transparency rules, as measured by the strength of converging markets. Looking at 37 services in the 10 biggest U.S. metro areas, treating each as its own market, Xiao found that around 83% of markets were converging.

In converging markets, Xiao found continued patterns in rate changes across tiers. Top-tier rates dropped notably, middle-tier rates dropped slightly and top-tier and bottom-tier rates rose moderately. In nonconverging markets, Xiao observed decreases across all markets, with the biggest drop still occurring in bottom-tier rates and the smallest change happening among middle-tier rates.

"While these markets didn't exhibit convergence, the overall downward price trend is noteworthy and potentially beneficial for consumers," Xiao said.

Outpatient market more transparent and more competitive

The variation in convergence could be due to the types of healthcare services that are responsive to the healthcare price transparency tools, the report continued. In particular, convergence proved greater among outpatient services than among inpatient services, with a 10% convergence compared to a 3.8% convergence among inpatient services.

There are a few reasons for this, Xiao explained. Foremost, the shoppable nature of outpatient services could make them more sensitive to the price transparency rules.

Second, these services are more fairly commoditized, meaning there is little differentiation between providers. Conversely, inpatient services can vary across hospitals based on numerous factors.

Next, the outpatient market is rife with competition. Healthcare consumers have more options for outpatient care than they do for inpatient care, making this market more sensitive to price transparency.

Finally, Xiao noted more limited data availability about inpatient services than outpatient services. This makes it harder for the price transparency rules to affect inpatient services, he noted.

"While the trends observed in outpatient services align closely with the intended effects of price transparency initiatives, the more muted response in inpatient services suggests that additional factors may be at play in these markets."

Xiao and team anticipate further price adjustments as healthcare organizations continue to be transparent about their prices.

"To date, we've begun to see effective use of price transparency data in rate negotiations and the early stages of market adjustments," Xiao concluded. "Continuous monitoring, tailored policy interventions, and formal research to understand the full impact of price transparency on both prices and patient costs will be needed to ensure that the promise of transparency is fully realized across the healthcare ecosystem."

Sara Heath has covered news related to patient engagement and health equity since 2015.