Effects of Negotiated Price Transparency Regulations: Evidence from Hospital Prices

Duke University, Durham NC

Investigators

Abstract

ABSTRACT Health care affordability is a major policy concern, a barrier to equitable access to care, and an important factor in patient health outcomes. Prices for health care services are an important determinant of affordability, and prices for privately insured individuals in the United States are negotiated between private health insurers and health care providers. Historically, a hospital-insurer negotiated price was not easily observed by actors outside of the negotiation. This lack of transparency created a barrier to fully-informed patient choice, policy responses, and academic study. In 2021, the Centers for Medicare and Medicaid Services (CMS) Price Transparency Rule required hospital systems to publicly post their negotiated prices with all insurers. The effects of this rule on prices, mechanisms of these effects, and the ensuing consequences have not yet been rigorously studied. The goal of this policy was to increase information and drive down spending. However, prior evidence and economic theory suggest that the effects are not clear. In concentrated markets with prices set by negotiation, increased price transparency may facilitate collusion or lead to price increases in other ways. Further, insurers sell insurance contracts to employers based on the network of hospitals with which the insurer has negotiated prices. This employer-insurer relationship can be modelled as a principal-agent relationship in which insurers exert effort to negotiate prices and the benefits of low prices accrue to the employer. CMS’s policy could have resulted in new information for employers, improving employer monitoring of insurer effort in negotiation and creating another potential mechanism of the policy’s effects. This study will empirically evaluate the effects of CMS’s Price Transparency Rule. The study will use data from the Colorado All Payer Claims Database to observe negotiated prices both prior to and after the policy change. The study will also use data on the prices posted by hospitals, variation in financial penalties, and variation in information about negotiated prices available prior to the policy to estimate causal effects. The study will use variation in insurance contract structure to investigate mechanisms and will explore follow-on effects on consumers by studying changes in employer health care costs and individual insurance market premiums. Finally, the study will examine changes in health care use. Existing economic theory provides several hypotheses about expected effects. Specifically, that the market power and bargaining abilities of hospitals and insurers will mediate any effects on prices. The study will use and attempt to extend structural economic models of negotiated prices to explore these mechanisms and identify determinants of variation in effects. The study will generate useful evidence on the effects of a major recent health care policy and improve understanding of the complex process by which hospital prices are set. This evidence will allow regulators, policy makers, health systems, insurers, and consumers to make more informed decisions in pursuit of affordable health care.