Healthcare Price Transparency: What Research Shows About Costs and Consumer Behavior

Healthcare price transparency has become a federal policy priority following the implementation of rules requiring hospitals and insurers to publish their negotiated prices in machine-readable formats and consumer-friendly displays. The Hospital Price Transparency Rule, effective in 2021, and the Transparency in Coverage rule requiring insurers to publish negotiated rates, effective in 2022, represent the most significant expansion of public information about healthcare prices in American history. Research on whether this transparency information is accessible, usable, and effective in influencing consumer and market behavior is still developing, but early findings are illuminating. The opacity of healthcare prices in the United States is distinctive among developed nations. Americans encounter healthcare with little information about what services will cost until after they receive care, and prices for the same service vary dramatically across facilities and insurers in ways that are unrelated to quality. Research on healthcare price variation finds that prices for the same procedure at different hospitals in the same metropolitan area can differ by factors of three to five or more, and that these differences do not reflect quality differences. The logic of price transparency policy is that making prices available will enable consumers to comparison shop, incentivize providers to lower prices to attract patients, and reduce overall healthcare spending. Implementation of the hospital price transparency rule has been uneven. Research tracking compliance finds that while a large majority of hospitals have posted prices in the required formats, the quality and accessibility of the information vary substantially. Some hospitals' files are difficult to find, poorly formatted, or incomplete. The machine-readable files, which contain comprehensive negotiated price data, are not consumer-friendly and require technical capability to use. Consumer-facing displays, which are supposed to provide cost estimator tools for the 300 most common services, are more accessible but often incomplete. Research on consumer use of transparency information finds that awareness and use remain limited. The circumstances under which price information is most useful to consumers are those in which a planned procedure allows comparison shopping in advance, as opposed to emergency care or care for conditions requiring immediate treatment. Research on shoppable procedures, meaning planned services for which consumers have time to compare options, includes services including orthopedic procedures, imaging, laboratory tests, and some outpatient surgeries. Studies find that price-sensitive consumers who know about and can use price information for shoppable services can find meaningful price variation and, in some cases, choose lower-cost options. Empirical research on whether price transparency reduces prices or utilization is still limited. A study using a large employer that provided workers with price information for common procedures found that the intervention was associated with reduced spending for laboratory tests and imaging, driven by both price shopping and reduced overall utilization. Research on reference pricing, which caps what employers will pay for specific procedures and encourages employees to choose lower-cost facilities, finds more consistent price reductions. These findings suggest that transparency combined with financial incentives for consumers to act on price information produces stronger effects than transparency alone. Insurance market transparency is a distinct policy area. Requiring insurers to publish negotiated rates has created access to data that researchers, employers, and policy analysts are using to study price variation and insurer contracting practices. Research using this data is beginning to examine questions including whether insurers in more concentrated markets negotiate lower prices, whether large hospital systems extract higher rates, and how prices compare across markets with different degrees of competition. These findings have implications for antitrust policy and healthcare market regulation that go beyond individual consumer price shopping. Patient financial responsibility is the dimension of healthcare costs most relevant to individual consumer decisions. Research on out-of-pocket spending finds that high-deductible health plans, which require patients to pay a larger share of costs before insurance coverage kicks in, have become more common and have increased consumer exposure to healthcare prices. Studies of high-deductible plan effects find that patients reduce both high-value and low-value care when they face higher cost-sharing, suggesting that patients are not consistently able to distinguish between care that is worth the cost and care that is not, which limits the effectiveness of cost-sharing as a mechanism for reducing unnecessary care. The broader potential of healthcare price transparency to create market discipline that reduces prices depends on conditions that may not be present in many healthcare markets. When consumers have limited ability to choose providers due to network restrictions, geography, or the urgency of their condition, transparency has limited direct effect on consumer choice. When providers compete vigorously for patients, transparency may create pressure to lower prices. Research on price transparency's market effects will accumulate over time as the transparency rules have been in effect long enough to assess their impact on competition and prices.