Former HHS Deputy Secretary Eric Hargan: Price transparency will lead to a 'market for quality'

When healthcare prices are transparent, the market will help determine whether costs go up or down, he says.

Editor's note: This is part two of a two-part interview with Eric D. Hargan, former deputy secretary of the U.S. Department of Health and Human Services. Read part one here.

When it comes to healthcare prices in the United States, Eric D. Hargan, former deputy secretary of the U.S. Department of Health and Human Services (HHS) and its former chief regulatory officer, doesn't necessarily want them lower or higher as a result of price transparency efforts.

"I would rather see prices that reflect reality," he told HealthLeaders.

And one way to get there, he believes, is for healthcare prices to be transparent, allowing the market to help determine whether costs go up or down.

"I think right now the system of third-party payment makes that opaque, makes it very difficult to understand what the prices are," he says. "And that makes it hard for us to have any of the discipline that markets give us in other of our economic sectors."

Right now, he argues, patients typically don’t know what they're going to pay for healthcare services until weeks or months after they've received them, resulting in patients who are "surprised" and "don't have any control" over what they're buying. It's a situation that's "nearly unique to the healthcare sector."

Unlike the No Surprises Act, which is calls more "determinative" and "prescriptive," price transparency aims only to "get the knowledge out there."

Once patients have that knowledge, Hargan argues, they can make their own decisions about where to receive care and—ultimately—where to spend their money.

Of course, making purchasing decisions always comes down to more than cost: Consumers want to know whether a product is worth its high price tag.

That's a hard enough question when it comes to low-stakes purchases like mattresses or sneakers, but what about healthcare? Is getting an MRI at a prestigious academic medical center worth the higher price tag than getting one at the community hospital in the town next door? And how could consumers know?

"You're asking the person that convened the Quality Summit at HHS and helped bring into being the National [Health] Quality Roadmap," he notes. "I think when prices are exposed and more information gets out there, they'll actually be a market for quality."

He also notes that quality information about hospitals and health services already exists in the market, and it's only a matter of time before "an intelligent consumer of healthcare services" will "able to use quality information—whether scores or other types of quality information—to determine what they want to buy."

However, there are still major barriers in place that prevent the kind of easy comparison shopping you might find on Amazon where prices are listed alongside consumer reviews for multiple competing products.

Although some health price and quality information might currently be available, it's not easy to find and certainly isn't aggregated in any meaningful way. Today, it would take a lot of expert legwork to comparison shop based on cost and quality for healthcare services. 

But that, too, has the potential to be solved by the market, Hargan suggests.

"I think there'll be a market for intermediaries who will help consumers, patients, and so on understand the world of quality and the world of price and package it in a way that makes sense for the consumer," he says. "I have great faith in the ability of the programmers to create apps and all kinds of intermediaries that will allow patients to be able to do this."

He compares the current situation to when the Medicare Part D program was first implemented, noting that Saturday Night Live even sent up the program because people thought it was so complicated that seniors would never be able to understand it.

"Nobody thinks about everyone being confused about Part D, but they were years and years ago," Hargan says.

Now, though, it's a popular program.

"And I think the same thing will be true of the price and quality information over time," he says. "I'm optimistic that when prices are known and … quality is known, there'll be a market for quality."

Read part one of HealthLeaders' interview with Hargan here.