Price Transparency

Health care services and prescription drugs rarely come with a single, straightforward price tag. There are usually many different prices for the same service, and these prices vary depending on who is paying (employers, insurers, government entities, and individual patients), the patient’s source of health coverage (e.g., Medicare, Medicaid, or commercial), and where in the delivery system and supply chain the price is measured. Negotiations between payers and providers often play a huge role in determining the final prices paid—as do the size and market power of providers and hospital systems.

Recent policies have compelled some providers to publicly disclose their prices, but much of the data disclosed thus far have not been easy to understand or use to analyze differences in prices paid for the same services. For most price shoppers and employers, health care prices remain obscured by lack of transparency.

The experts at RAND understand these complexities. They use innovative methods, working with a wide range of data, such as insurance claims and proprietary pricing files, to analyze health care prices and make them more transparent and understandable. RAND experts are also working to understand how health systems operate to delivery high-value health care and how provider consolidation affects health care delivery and spending.

Highlights

Hospital Price Transparency

Employers spend billions of dollars every year purchasing health care for employees and their families. Yet the lack of transparency in prices paid to providers has limited the ability of employers to understand prices negotiated on their behalf by health plans and to develop strategies for controlling the growth in health spending that continues to erode employee wages. RAND has made a significant contribution to the ongoing discussion about health care costs and transparency, carrying out a multi-year study with employers across the country to leverage their hospital claims data to analyze the prices they pay compared to a publicly available benchmark: the prices paid by Medicare for the same service at the same hospital. In Round 5 of the study, which used 2022 data, the key findings were consistent with previous rounds: Median prices for hospital services vary substantially by state, from below 200% of Medicare prices to above 300%; overall prices nationwide are about 2.5 times what Medicare pays. Hospital market power, gained through consolidation, explains most of the observed price variation. These and other insights on price variations across hospitals, health systems, and states in this groundbreaking study have informed private employer rate negotiations and sparked other efforts to contain health care costs.

Prescription Drug Prices

Americans spent an estimated $603 billion on prescription drugs in 2022. Purchasers and policymakers consider this level of spending high, relative to what people pay in other countries for similar drugs. Apples-to-apples comparisons of drug prices are difficult to make without detailed analysis because in the United States there are many actors involved at different steps in the process of manufacturing, distributing, purchasing, and selling prescription drugs—all of which affect drug prices. To inform policymaking, RAND has created novel methods to deliver drug price comparisons. Our researchers have produced reports comparing drug prices internationally, including for all drugs, for categories of drugs like brand-name versus generic drugs, and separately for insulins. A new report also examines how the timing of a drug's launch affects its pricing, across the United States and several economically similar countries.

Consolidation, Vertical Integration, and Practice Ownership

Over the past decade, the health care market has significantly changed due to consolidation between hospitals and providers, and more recently between insurers and providers. Vertical integration of providers into health systems and insurer entities may lead to improvements in care and cost efficiencies as proponents have asserted, but the evidence has been lacking to demonstrate these benefits. RAND’s Center of Excellence on Health System Performance, which has been carrying out research to shed light on health systems and the impacts of changes in the structure of the delivery system, found no evidence that consolidation achieves those goals. Some forms of consolidation, such as clinically integrated networks, are opaque, and their effects on health care delivery and cost are poorly understood. RAND researchers have shown in several studies that the vertical integration of previously independent physician practices by hospitals and health systems results in changes in referral patterns, from the ambulatory setting to the hospital outpatient department, which in turn substantially increases spending. Ownership arrangements that involve private equity firms’ investments in ambulatory surgery centers also bear scrutiny: a recent study found no delivery pattern changes after private equity involvement but did find a 50% increase in charges for services.