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Texas Legislates Medical Price Transparency

November 1, 2007
By Erica Schatz

Texas passed legislation in June that will require health care providers to give consumers statewide greater access to price information for medical services and billing procedures.

stethoscope and insurance docs

Texas passed legislation in June that will require health care providers to give consumers statewide greater access to price information for medical services and billing procedures.

Many consumers take advantage of comparison-shopping when they are in the market for a new car, electronics, and everyday items, and the purpose of the new law is to allow them to do the same with their health care. It is not uncommon to go to a doctor's office and be confused by the co-pays, deductibles, out-of-pocket expenses, and other intricate aspects of health care plans.

State Sen. Robert Duncan (R-Lubbock) authored Senate Bill 1731, which took effect September 1. The new law includes multiple methods of creating transparency in health care prices.

"Having witnessed the recent years' incredible growth in the cost of health care, it's become clear we need more transparency for Texans considering their medical needs," Duncan said. "This new law will move the Texas health care industry toward becoming a more market-driven entity, which will ultimately benefit consumers and practitioners."


Standard Requirements

Three key players are affected when price transparency legislation is considered: physicians, insurers, and facilities such as hospitals and clinics.

Under the new law, billing requirements statewide are now standardized for all three groups. Also, doctors and hospitals must disclose their billing policies and standardize their billing procedures. Care providers must give estimates of expected charges and itemized statements of services to patients who request such information.

Physicians are now required to develop and enforce written policies for billing, including policies for uninsured patients and procedures for handling complaints, and they must post the policies in waiting rooms.


Consumer Guide

Consumers will now be able to shop online for doctors' services and estimated costs for procedures. Since physicians are not necessarily equipped to assist patients with complicated insurance information, consumers are better served by a central site where they can collect it themselves, the law's supporters say.

The legislation requires the Texas Board of Medical Examiners to provide on its Web site a Consumer Guide to Health Care that will give patients information on physicians' billing practices. Patients will be able to access physician billing information and find average charges for procedures.


National Effort

The initiative to make medical costs more available to consumers and easier to understand is also being undertaken on the national level.

U.S. Health and Human Services Secretary Michael Leavitt said in a speech last spring, "people need to know--they have a right to know--the cost of their care and the quality of the care." Competition and transparency will make the system better, he says.

"Change will begin to occur when those who pay for health care in each market area insist that their insurers, and their providers, commit to transparent measurement of quality and price," Leavitt concluded.

The price transparency trend seems to be picking up steam. According to the U.S. Department of Health and Human Services, Arizona, California, Indiana, Massachusetts, Minnesota, and Wisconsin have all established price transparency pilot programs, and several others are considering similar legislation.


Half of Spending

Insurance companies are also establishing online cost-comparison tools. Aetna, Blue Cross and Blue Shield, and UnitedHealthCare offer customers cost and quality information regarding their health care.

According to the Kaiser Family Foundation, most health care dollars in the United States are spent on hospitals and physicians--more than 30 percent is spent on hospital care, and nearly 22 percent on physicians' and clinical services. That means half of all the health care dollars spent nationally go to entities affected by price transparency legislation.


Simpler Solution

Some, however, say price transparency legislation is another form of government control.

"Texas legislators have the right goal but, I fear, the wrong solution," said John R. Graham, director of health care studies at the Pacific Research Institute, a free-market think tank in San Francisco. "The 'root cause' of price opaqueness in hospitals is that they are financially dependent on government. SB 1731 imposes classical government regulatory interventions--'the hospital must do such and such within 30 days,' or 'the facility physician must do so and so within 10 days.'"

A simpler solution is available, Graham says.

"A price transparency law need only be one sentence long: 'No patient has an obligation to pay a health care provider unless he has entered into a contract with the provider to pay for a service,'" Graham explained, adding that agreeing on prices beforehand is much simpler for patients to understand and easier for government to enforce.


Erica Schatz (erica@alec.org) is legislative assistant to the Health and Human Services Task Force at the American Legislative Exchange Council in Washington, DC.

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