Why Hospitals Keep Their Prices Secret

They don’t want you to know what the other guy is paying.

A cynic, Oscar Wilde famously observed, is “a man who knows the price of everything and the value of nothing.” Yet when it comes to health care in the United States, the quip doesn’t get it quite right. In that realm it’s not too cynical to say that no one even knows what the prices are, much less what the value of any particular doctor or hospital really is. 

Check out the complete Washington Monthly hospital rankings here.

Take hip replacements. What happens if you call your local hospital and ask how much they charge to perform one? Even if you get past the phone tree, chances are that no one you talk to will even understand your question. Which price do you mean, and who’s paying? Do you mean for the surgeon or the anesthesiologist, for your meds or for your meals? There are different prices for each, and each price is different for different people. 

For example, there’s the price the hospital charges people without insurance, which is the highest of all. Then there’s another, government-set price that hospitals are paid for treating people on Medicare, and still another for people on Medicaid. And how much will the hospital bill for treating people with employer-sponsored health care plans or other private insurance (the majority of working-age, middle-class Americans)? Well, there’s one price for me and one price for you and another for Uncle Joe and another for that guy on Facebook you went to high school with. In other words, it just depends, even if we are all getting the same operation by the same surgical team in the same hospital on the same day. 

Here’s how that works. Suppose you have a standard health insurance plan that covers 80 percent of your hospital expenses and leaves you responsible for the remaining 20 percent. The big question is, 20 percent of what? If your insurer has a big market share in your town and knows how to throw its weight around, it may have negotiated with the hospital for “in network” prices that are substantially discounted. This means that your out-of-pocket cost will be substantially lower than what people on some other health care plan with the same benefit structure have to pay for the same operation. Alternatively, if the hospital is a local monopoly (which is more and more common these days), even the biggest purchasers of health care—whether insurance companies or large employers—won’t be able to negotiate much of a discount, or even any terms at all, and a lot of people will just have to pay whatever “surprise bills” the hospital sends their way. 

There’s also a third possibility. In the increasingly likely event that both your local hospital and your insurance company face little competition in your town, they may just wind up fixing high prices, making the cost of getting a hip replacement or a stent or a scan higher in your town than in other towns where some real competition still exists. And, in fact, research has revealed that the price of such procedures varies by as much as elevenfold from place to place across America in part for this exact reason. 

What happens if you call your local hospital and ask how much they charge for a hip replacement? Chances are that no one will even understand your question. Which price do you mean, and who’s paying?

Adding to the absurdity, all this rampant price discrimination in U.S. health care is not only legal, but also legally hidden from the public. “The actors charging these prices are doing everything they can to keep prices secret,” says James Gelfand, senior vice president for health policy at the ERISA Industry Committee, which represents large companies that fund their own employee health plans. Often, not even employers get to know what prices their own health care plans are paying doctors and hospitals. Meanwhile, mere policy makers and individual citizens are left completely in the dark—because, well, reasons.

“Between overpriced providers not wanting to share prices publicly because they don’t want to lose business, and some insurers not wanting their competitors to know what they are paying, there are a lot of powerful interests against transparency,” says Suzanne Delbanco, executive director of Catalyst for Payment Reform, which represents employer-sponsored health care plans. In other words, both insurers and hospitals have something to lose by disclosing prices. It’s worth noting, too, that in secret negotiations between the biggest and most powerful insurers and providers, both sides of the table usually wind up doing quite well for themselves while most of the pain is borne by the rest of us. So why would they ever change their secretive, collusive ways of doing business?

And that’s not the end of the absurdity. Because of American health care’s black-box pricing system, it’s impossible even for sophisticated researchers, let alone individual patients, to know which hospitals offer the best value. It’s like trying to choose the best barber shop when you can only learn after the fact how much a haircut costs—and each barber in the shop charges different customers different secret prices based on private negotiations with the customers’ employer or insurance company. 

In recent years, it has occurred to many people that just maybe the U.S. health care system would not be so expensive and inefficient if folks could at least see what the price of everything is. It’s not so much that, as some market conservatives hope, such a measure would necessarily make a big change in how individuals decide where to get care. True, it might influence where people with high-deductible health plans chose to get a scan or a purely elective surgery. But few of us are in a position to comparison shop, much less haggle, when it comes to the really expensive stuff, like when we are bleeding from a car accident or in the midst of a heart attack. Even in the best of circumstances, it’s hard to judge the quality of different health care providers, so a lot of us wind up assuming that the most expensive doctor or hospital will give us the best treatment, or we just go where our doctor sends us. 

And it is not as if making prices transparent would, by itself, end the rampant price discrimination against weaker market players that is among the most egregious, yet little-remarked features of our health care system. That particular injustice is brought to you by health care monopolists who use their market dominance to impose higher prices on those who lack the power to resist. 

But making all prices public would at least satisfy an essential precondition for health care researchers—like the Lown Institute and the Washington Monthly—to be able to rank hospitals according to their cost-effectiveness. Good data on health outcomes and other quality measures is needed as well, but without knowing the price of care we cannot know who provides the best value for the money. And being able to do that is critical, because it would give large insurers and employer-sponsored health care plans (including those run by state and local governments) an actual evidence-based foundation for deciding which hospitals, doctor groups, or other health care providers deserve their business and which do not.

In developing our “Best Hospitals for America” rankings, we and our partners at the Lown Institute spent many months trying to get data on how much different hospitals charge people with private insurance and how they treat them. But in the end, we could not pierce the veil of secrecy. Some states collect such data by collating it from private insurance claims, and the RAND Corporation has data on hospital prices in 25 states. But until until all hospitals and insurers publicly report prices in a consistent way, national rankings remain unobtainable. Two nonprofit organizations, the Health Care Cost Institute (HCCI) and FAIR Health, have managed to get their hands on valuable proprietary price information and have used it to document vast disparities among hospitals, nationally and regionally, in their costs and use of different tests and procedures. But insurers demand that both organizations never disclose specific hospitals’ price and claims information, Niall Brennan, CEO of HCCI, says. (A spokesman for FAIR Health declined to comment for this story.)

Going forward, at least some health care prices may become more transparent. The Trump administration, for example, released rules last November requiring hospitals and health insurers to publish their privately negotiated rates for hundreds of non-emergency, “shoppable” services. More recently, in the wake of the coronavirus crisis, it has threatened to make greater price transparency a precondition for hospitals receiving bailout funding. Hospital groups are fighting in court to block the yet-to-be-enforced hospital rule, arguing that it’s overly burdensome and that the government lacks authority to require the disclosure of prices, which the groups call “trade secrets.” On June 23rd, a federal judge upheld the rule, but the American Hospital Association has announced it will appeal the decision.

The conservative policy wonks who have sold the Trump administration on this position may be misguided in believing that it will, by itself, do much to drive down health care prices, not least because most of the money in health care goes for medical services that are not “shoppable.” Moreover, transparency in pricing alone does not fix the monopoly problem in the United States or provide the kind of quality metrics needed to evaluate cost-
effectiveness. 

But even if based on faulty assumptions, these new rules are still a step in the right direction. Government could, of course, just end price discrimination by setting uniform prices in health care, as is done in most other industrialized countries. The state of Maryland has actually done this since the 1970s, making it an ongoing experiment in price setting within the United States. Uniform prices are also part of “Medicare for All” plans like those proposed by Elizabeth Warren and Bernie Sanders. But short of that, any other policy to make our health care system more cost-effective—like a public option, advanced by Joe Biden—can’t be done smartly unless we know what the price of health care is for everyone.

This story has been updated since it appeared in print to include the June 23rd ruling.

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Phillip Longman and Harris Meyer

Phillip Longman is a senior editor at the Washington Monthly and the policy director at the Open Markets Institute. Harris Meyer is a reporter who has covered health care for more than 30 years for Kaiser Health News, Health Affairs, Modern Healthcare, and other news outlets.