Imagine you’re a mom-to-be from Roxbury Township, looking to schedule a cesarean section. You’re halfway between Morristown Medical Center and Newton Medical Center. The listed price at Morristown — the top-ranked hospital in the state — is $24,927. At Newton, it’s nearly three times as much — $66,091.
Price discrepancies like these are commonplace at hospitals around the country. The highest and lowest prices for standard outpatient services can vary by nearly 300%.
To help patients like our expectant mother navigate hospitals’ confusing pricing practices, the Center for Medicare and Medicaid Services, known as CMS, recently promulgated a rule requiring hospitals to publish the price of 300 non-urgent medical services that can be scheduled in advance — such as C-sections, joint replacements and MRIs.
The rule has been in effect for over a year. Yet the vast majority of hospitals still aren’t complying. The Journal of the American Medical Association last summer found that 80% of hospitals had flouted the rule. In its semi-annual report, PatientRightsAdvocate.org concluded that less than 6% of hospitals were compliant.
In response, CMS began imposing harsher penalties at the beginning of this year on hospitals that fail to comply. Patients, and proponents of free markets, ought to welcome the increased fines. The rule is one of the best healthcare reforms in recent memory. Pressuring hospitals to comply would save patients billions and make our healthcare system more efficient.
Transparent pricing makes markets work more efficiently and benefits consumers. If patients know the price of a procedure, they’ll be able to “shop around” for the best deal, just as they do when buying cars, clothes, and food. Price transparency could save patients and insurers almost $27 billion annually on hospital services, according to the RAND Corporation.
But due to hospitals’ lack of compliance, shopping for the best-priced care is still nearly impossible. Opaque pricing continues to contribute to the exorbitant costs that leave half of Americans with medical debt and 40% hesitant to seek care.
Examples of such huge price differences extend far beyond the Garden State. A United Health enrollee in Rhode Island could get a colonoscopy at the Women’s and Infants Hospital in Providence for $5,606 — or drive down the road to the Roger Williams Medical Center to get one for 80% less.
Price transparency allows patients to make informed financial decisions — and thus brings costs down via competition. Applying transparent pricing to medical imaging tests saved New Hampshire patients who hadn’t yet reached their deductibles about $200, on average — a 36% discount compared to what they otherwise would have paid, according to a 2019 study by a University of Michigan researcher.
Hospital administrators know that a lack of transparency enables them to charge above-market rates. And since the current fine for non-compliance is only $300 a day — or about $110,000 annually — many administrators rationally conclude that it’s better to ignore the rule.
The new penalties will be more painful. Hospitals with more than 30 beds could be fined up to $5,500 per day. Total fines could reach more than $2 million annually.
These heftier fines may finally force hospitals to obey the law — and benefit patients in the process.
Sally C. Pipes is the president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All.