Minnesota lawmakers should focus on price transparency to lower high healthcare costs
House and Senate DFL legislators convened last week to outline their priorities for the new legislative session. A key healthcare priority would set price controls on big pharmaceutical companies to stop “price gouging.” Yet, the pricing issues with insulin and EpiPens they reference have primarily been addressed.
To finally tackle the high and rising cost of healthcare, Minnesota lawmakers should instead focus on expanding price transparency across the entire healthcare system, not price controls on an easy target like big pharma. American Experiment just released an updated set of recommendations to enact this higher level of price transparency.
Study: Private health plans pay higher prices in Minnesota
The real issue with healthcare pricing in Minnesota is much broader than a handful of high-cost drugs. Private health plans often pay far higher prices for hospital and other provider services in Minnesota compared to other areas of the country.
The RAND Corporation reviewed medical claims data from every state “to document variation in negotiated prices for the commercially insured population.” To make this comparison, it established a standardized price for inpatient and outpatient hospital services based on the allowed amount—i.e., negotiated price—paid by the private health plan per service and standardized for case mix using Medicare data.
The results of this research show Minnesota had the third-highest standardized price for inpatient care in 2020. Only New York and Alabama had higher inpatient prices. Minnesota hospitals charged the sixth highest standardized price for outpatient care.
Because pricing can be impacted by the cost of living and other factors unique to where a hospital is located, RAND also calculated relative prices using Medicare pricing as a benchmark. On this measure, Minnesota had the fourth highest prices in the country, behind Kansas, West Virginia, and Florida. Minnesota had the seventh-highest relative price for outpatient care.
Federal rules now require price transparency
Until recently, it’s been impossible to meaningfully compare the price of healthcare services across hospitals and other provider settings. Health plans and providers have long claimed pricing information is proprietary. However, in recent years pricing data from employer health plans became available to researchers. Using this data, studies uncovered an astounding and unreasonable level of price variation within America’s healthcare system. Hidden pricing is a key reason why hospitals and health plans get away with such wide price variations. These price variations can pose a very high and unjustifiable cost on patients.
Until recently, it’s been impossible to meaningfully compare the price of healthcare services across hospitals and other provider settings. Health plans and providers have long claimed pricing information is proprietary. However, in recent years pricing data from employer health plans became available to researchers. Using this data, studies uncovered an astounding and unreasonable level of price variation within America’s healthcare system. Hidden pricing is a key reason why hospitals and health plans could get away with such wide price variations. These price variations can pose a very high and unjustifiable cost to patients.
With a fuller understanding of the problem, the federal government adopted rules that require both hospitals and health plans to publicly post the prices they negotiate. These rules aim to guarantee that patients can access pricing information specific to their health plan before they receive care.
Minnesota hospitals fail to comply and take advantage of loopholes
Unfortunately, hospitals are not fully complying with the rule. The Patient Rights Advocate organization has reviewed hospital compliance semi-annually since the hospital rule took full effect on January 1, 2021. Their most recent review published in August 2022 covered a sample of 2,000 hospitals which accounts for one-third of all the hospitals subject to the rule. Nationally, they found only 16 percent of hospitals fully comply with the rule. For Minnesota, they found only 10 percent of the 40 hospitals they reviewed were in full compliance.
Even hospitals that are in full compliance with the federal rule can take advantage of loopholes to avoid being fully price transparent. For instance, many hospitals don’t report a specific price because their prices are based on a formula or algorithm and the federal government has allowed them to not report a calculated price. Instead, the spreadsheets hospitals publicly post are often filled with “NA” (Not Applicable) where a price should be listed.
Minnesota should adopt a higher level of price transparency
Last year American Experiment published a short policy brief describing the need for Minnesota to adopt a higher level of price transparency to address the lack of hospital compliance and other limitations with the federal rule. Bills were introduced in both the House and the Senate to adopt several of these recommendations. Since then, American Experiment has identified additional recommendations to better address the ongoing lack of hospital compliance and cooperation.
These additional recommendations have been added to an updated policy brief. Specifically, the updated brief adds the following recommendations:
- Require hospitals to disclose negotiated rates that rely on a formula to report the dollar amount that results from the formula in the machine-readable file. This change would align with the requirements of health plans.
- Require hospitals to report the lowest cash price they accept over the past 6 months for self-pay consumers if they have not determined a discounted cash price.
- Require links to pricing data to be posted prominently on the homepage of a hospital’s website.
- Aggregate hospital pricing data to a public website.
By adopting the full set of recommendations offered in American Experiment’s updated policy brief, Minnesota lawmakers would achieve three important goals:
- Enforce compliance with the federal hospital price transparency rule;
- Close loopholes hospitals use to avoid full price disclosure under the rule; and
- Expand price transparency beyond what the federal rule had statutory authority to require.
Achieving these goals would finally empower Minnesota patients with the pricing information they need to make the best care decisions with their doctor.