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Health Plan Role in Negotiating Lower Hospital Prices Often Overlooked

Disclosure of Negotiated Hospital Prices Could Backfire and Hurt Rather Than Help Consumers

News Releases
June 22, 2004

FURTHER INFORMATION, CONTACT:
Alwyn Cassil: (202) 264-3484

ASHINGTON, D.C.—Health plans play an important intermediary role between consumers and hospitals by negotiating lower prices for hospital care—not by providing patients with a great deal of price information, but by forming networks of hospitals that have agreed to accept negotiated prices, economist Paul Ginsburg, Ph.D., president of the Center for Studying Health System Change (HSC), told a congressional committee today.

Recently, hospital pricing practices have come under scrutiny, particularly for uninsured patients who often face paying a hospital’s full charges rather than discounted prices negotiated by health plans. A copy of Ginsburg’s testimony at a hearing of the U.S. House of Representatives Ways and Means Subcommittee on Oversight examining hospital-pricing practices is available online. HSC is a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

Increased patient awareness of hospital price differences might help slow rising costs, but outright disclosure of prices negotiated between health plans and hospitals could backfire by increasing hospitals’ bargaining clout, Ginsburg said.

"Greater price transparency would benefit the more concentrated side of the market," he said. "At the local market level, hospitals often are more concentrated than health plans, meaning price transparency would tend to lead to higher prices for hospital care and thus higher health insurance premiums."

Because of the bewildering complexity of hospital pricing and the uncertainty of what services a patient will need, health plan network designs offer more effective opportunities to engage consumer-driven market forces than extensive publication of hospital price lists, Ginsburg said.

The managed care backlash and the loss of bargaining clout with hospitals from broader networks has led health plans to search for mechanisms that rely more on financial incentives to steer consumers to lower-cost hospitals, including tiered-hospital networks. In a tiered-network product, health plans label some hospitals as "preferred." Patients pay less out of pocket if they choose a preferred hospital than if they go to a nonpreferred hospital in the network. Tiering improves health plans’ bargaining leverage because hospitals in the nonpreferred tier will lose some volume.

Tiered networks also give consumers an option to economize at the point of service, accommodating consumers who will not accept restrictions on their choice of provider as well as those who are willing to trade less choice for lower out-of-pocket costs.

"The combination of the complexity of dealing with hospital prices and the pitfalls of making negotiated prices public argues for consumers depending on their health plans to negotiate contracts with hospitals and present them with information as to which hospitals will cost them more," Ginsburg said. "This can be conveyed to consumers through differences in out-of-pocket costs—you will have to pay $300 more to be admitted to hospitals in group A than to hospitals in group B, for example."

 

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.

 

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