How Price Transparency Could Save $100 Billion

May 28, 2014
Laura Joszt

Better healthcare price transparency for patients, physicians, employers, and policymakers, could reduce US healthcare spending by an estimated $100 billion over the next 10 years.

Better healthcare price transparency for patients, physicians, employers, and policymakers, could reduce US healthcare spending by an estimated $100 billion over the next 10 years, according to an analysis from the Gary and Mary West Health Policy Center.

Most current healthcare transparency initiatives focus solely on providing patients with information, which would reduce $18 billion over the next decade. However, researchers point out that this number is less than a tenth of a percent of the projected $40 trillion that will be spent in the next 10 years.

“While healthcare transparency is typically viewed through the lens of patient-facing transparency tools to drive comparison shopping, our analysis suggests even greater impact could be achieved by expanding the audience for such information,” Joseph Smith, MD, chairman of the West Health Policy Center Board of Directors, said in a statement.

According to the report, physicians need data on what the treatments they order cost the healthcare system. This knowledge will allow them to “embrace frugality as a value.” The authors also point out that larger employers generally fail to use their buying leverage when they purchase healthcare in bulk on behalf of their workers.

“We’ve found that providing price information to 3 key stakeholders—physicians, employers and policymakers—may have a far greater impact,” Smith said. “And we have identified a range of new policy proposals, including 3 that, if implemented, could save $100 billion over 10 years.”

There are 3 policy initiatives that the authors outline:

1. Report hospital prices using state all-payer health claims databases

Potentially, this initiative could save $55 billion. Employers would become more aware of price differences and could realize savings by using narrower provider networks and tiered benefits. High-price hospitals would feel pressure to reduce or justify prices. These claims data could better inform the discussion of policy options for controlling costs.

This initiative is estimated to save $25 billion. Physicians are often unaware of the cost of the services they order. Providing cost information would enable informed, shared decision making about the value of tests of treatments when physicians are developing patient-specific treatment plans.

3. Require private health plans provide personalized out-of-pocket expense information

Over the next decade, this initiative could potentially save $15 to $20 billion. Most price plans already offer a personalized price tool, so this initiative would have the most modest impact. Unfortunately, few consumers actually use these tools. According to the researchers, more effective patient-facing transparency tools and/or steeper incentives for these tools to be used could increase the impact.

The researchers point out that price transparency is not a silver bullet; although it is most likely to be effective in supporting other reforms.

“Price transparency alone isn’t going to change the structural factors that support excessive spending in our healthcare system, but in concert with the transition to newer health plan designs, and newer ways of paying providers, it plays an essential role,” Chapin White, PhD, lead author of the analysis and a former HSC senior researcher now at the RAND Corp, said in a statement.