Prices and Transparency

The United States spends more on health care than any other nation. Researchers have argued that high provider prices contribute significantly to high spending on medical services. Yet the price of health services remains poorly understood, and data on prices are scarce. In particular, employers—who insure most American adults under 65—often do not know how much they are paying for health care. Providers are seldom transparent about pricing, and the patchwork U.S. system contributes to wide price variations.

Pathbreaking RAND studies were among the first obtain and analyze data on the price of services, specifically hospital prices. The analysis showed that, on average, hospitals charge employers and other insurers 247% of what they would have charged Medicare for identical services. The work’s implications are that employers can take steps to improve transparency and cut costs by negotiating prices. Related work highlighted the problem of "surprise medical bills"—charges by hospitals for patients' unwitting use out of network providers—and found that placing limits on what hospitals can collect for out of network care could yield significant savings while addressing the surprise billing problem.

U.S. drug prices also contribute to high health care spending. Recent analysis of insulin prices found that U.S. consumers pay far more than their counterparts in other OECD countries. RAND researchers have also explored solutions, such as policy proposals to "offshore" drug prices—that is, to determine prices based on benchmarks in other countries with lower prices; and novel purchasing designs, such as the prescription model—paying a lump sum for some medicines—that some states are piloting.