The Secret of Health Care Prices: Why Transparency Is in the Public Interest

Project Description



“The Secret of Health Care Prices: Why Transparency Is in the Public Interest”

July 2019

Executive Summary:

In 2018, California lawmakers sought to design and create a state Health Care Cost Transparency Database, an all-payer claims database (APCD), to collect information on the cost of health care in the state. The law tasks the Office of Statewide Health Planning and Development (OSHPD) with designing a database to best fit the needs of the state. Of specific interest for this project, California’s APCD may collect information about amounts paid for health care services, including data about negotiated rates between insurance plans and providers. Many health care providers and payers seek to maintain the confidentiality of these paid amounts as trade secrets, claiming their secrecy provides a competitive advantage. Yet the public has begun to demand greater price transparency in health care. This report examines the legal and economic implications of collecting and releasing these paid amounts, reviews the practices of existing APCDs, and concludes with recommendations for California’s policymakers about best practices to ensure the effective use of increased transparency to control costs and increase access to health care services.

Part I of this report reviews trade secret statutes and case law regarding the protection of negotiated prices as trade secrets. While some negotiated prices may constitute trade secrets in some circumstances, trade secret law is extremely fact specific, and no court has definitively ruled on the issue of whether negotiated rates can be protected as trade secrets. Furthermore, even if a court finds that certain price information constitutes a trade secret, that protection is not absolute. State freedom of information acts and free speech protections can allow disclosure of trade secrets when disclosure of that information is in the public interest. Specifically, Part I demonstrates that California can. allow or require disclosure of information that is in the public interest, including negotiated rates for health care services, as long as the state articulates the conditions and policies for disclosure at the time of data collection and follows state and federal patient privacy statutes.

Part II of the report presents economic evidence about when disclosing negotiated rates is in the public interest. Part II begins by explaining theories forwarded by economists and antitrust enforcers about how disclosure of negotiated rates in health care markets could facilitate price collusion and drive price increases. The report then reviews evidence demonstrating that in rare circumstances, in other industries and in other countries, mandated transparency reports have allowed tacit collusion. To date, however, no state with an existing APCD has experienced competitive harm, and, in fact, a decade of public disclosure of negotiated rates in New Hampshire resulted in increased competition and reduced prices for health care services.1 Part II concludes that while disclosure of negotiated health care rates in some markets could theoretically result in price collusion and increased prices, concerns over disclosure of negotiated rates for health care services in California are likely overstated and can be mitigated by proper safeguards. Furthermore, this part of the paper discusses why, with appropriate safeguards, the procompetitive effects of APCDs are likely to outweigh any anticompetitive harms.

Part III compiles and compares the current and planned price dissemination practices for 18 states with mandatory APCD data collection programs. The variation in legislation and regulation governing APCD data release is discussed, and this information is summarized in a chart that includes collection and disclosure requirements. This research shows that the state has the legal authority to collect and, in many cases, disclose negotiated rates. All states with active APCDs collect information about paid amounts and release reports of aggregated information, but a few states, including Maine and New Hampshire, disclose plan- and provider-specific median paid amounts for the most commonly used health care services on publicly accessible websites. This part of the report also offers best practices for California based on the experience of other states.

Download the report here.

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