Price Transparency

Health care services and prescription drugs often don’t have a single, straightforward price tag. Instead, prices for the same service vary based on who is paying for services, placement in the delivery system and supply chain, and the size and market power of provider organizations. Recent policies have compelled some providers to publicly share their prices. However, much of the data released remains complex and hard for patients, employers, and other stakeholders to understand.

RAND experts navigate these complexities by working with a wide range of data sources and leveraging their deep understanding of health care markets to create new ways to analyze prices and payments.

Bringing Transparency to Hospital Prices

Employers spend billions of dollars every year purchasing health care for employees and their families. Yet the lack of price transparency has kneecapped employers’ ability to understand the prices they negotiate with health plans and providers, limiting the strategies they could have used to control growth in health spending.

Making prices visible: In a multi-year study with employers across the country, RAND collected and compared their hospital claims data with a publicly available benchmark: the prices paid by Medicare for the same service at the same hospital. The key findings of Round 5.1 of the study were consistent with previous rounds:

• Prices nationwide in 2022 were about 2.5 times what Medicare pays.
• Hospital market power, gained through consolidation, explains most of the observed price variation.
• These data have sparked efforts in multiple states to enact policies that mitigate price variations across hospitals and health systems—and contain health care costs.

Comparing Prescription Drug Prices

Accurate comparison of drug prices across countries—and even within the United States—is challenging because so many actors are involved in the manufacturing, distribution, purchasing, and selling of prescription drugs—all of which affect drug prices.

Enabling apples-to-apples comparisons of drug prices: RAND found that Americans spent an estimated $603 billion on prescription drugs in 2022—far more than what people pay in other countries for similar drugs. Our researchers’ analyses regularly inform policy decisions on

• the potential effects of “most favored nation” policies, based on international drug pricing comparisons comparing drug prices internationally, across all drugs, brand-name versus generic drugs, and separately for insulins
• interconnectedness of drug prices, premiums, and rebates
• how drug shortages affect costs to consumers.

Understanding the Effects of Consolidation

Consolidation between hospitals and providers, and between insurers and providers, has reconfigured health care markets across the country. Proponents assert that vertical integration of providers into health systems and insurer entities will lead to improvements in care and cost efficiencies. Yet no evidence has demonstrated that consolidation achieves those ideals.

Changes in practice and increased costs: RAND’s Center of Excellence on Health System Performance has been conducting research to understand health systems and the impacts of consolidation:

• The vertical integration of previously independent physician practices by hospitals and health systems leads to changes in referral patterns, which in turn substantially increases spending.
• Ownership arrangements that involve private equity firms’ investments in ambulatory surgery centers need careful examination: A recent study found no delivery pattern changes after private equity involvement but did find a 50 percent increase in charges for services.