Hospital price transparency has not delivered lower costs because buyers still lack meaningful alternatives. A new proposal would restore bargaining power by pairing independently set reference prices with a ban on restrictive hospital contracts that prevent health plans from steering patients elsewhere.
Prices in competitive markets are disciplined by a buyer’s outside option: the credible ability to purchase elsewhere. In the US commercial hospital market, this condition fails. Local consolidation leaves many purchasers without a viable alternative, while anti-steering, anti-tiering, and all-or-nothing contract clauses strip buyers of the freedom to direct patients even where alternatives exist. Consequently, negotiated prices are not formed at arm’s length.
Federal policy has mistakenly treated this structural crisis as an information problem. Five years of mandated price disclosure have produced price convergence rather than cost reduction. Transparency cannot discipline a market whose buyers have nowhere to go. Moreover, existing benchmarks—such as Medicare multiples, the qualifying payment amount (QPA), and aggregates of disclosed rates and cash prices—cannot detect this systemic failure because they are all derived from the same insular transactions. Each metric merely locates a provider relative to other domestic providers, failing to establish whether the baseline level is reasonable. Compounding this, Medicare’s own payment rates are annually recalibrated from hospital-submitted cost reports—costs that the Medicare Payment Advisory Commission (MedPAC) has shown rise alongside commercial revenue.
To restore discipline, we propose a two-part intervention: an accessible outside price composed of procedure-level reference prices authored independently and published by a multi-stakeholder institution, paired with a prospective prohibition on restrictive contracting clauses. Neither mechanism can succeed alone. Finally, we outline the specific conditions under which this proposal should be judged to have failed.
