A federal policy mandating that hospitals publicly disclose their prices for medical services was heralded as a revolutionary step toward empowering patients and introducing market-driven competition into the healthcare sector. The initiative, which began in 2021, was built on the intuitive idea that if consumers could shop for healthcare as they do for other goods, they would naturally gravitate toward lower-cost options, forcing providers to compete on price and ultimately curbing runaway medical spending. This vision of a transparent, consumer-centric marketplace was designed to solve the pervasive problem of opaque and unpredictable medical bills. However, years after its implementation, the policy has failed to deliver on its primary promise to patients. Instead of creating an army of savvy healthcare shoppers, the rule has inadvertently armed industry insiders—insurers and providers—with a powerful new weapon for their own complex and costly contract negotiations, leaving the average American patient on the sidelines.
The Patient-Facing Failure
A Flawed Premise
The core philosophy behind the price transparency mandate was that consumer choice could discipline an unruly market, a concept deeply rooted in free-market principles applied to healthcare. The intended outcome was a simple, intuitive process where a patient could research the cost of a procedure online, compare various hospitals and doctors, and make an informed financial decision before receiving care. This model, however, fundamentally misinterprets the nature of medical services, which are not standardized commodities. Unlike purchasing a car or a television, healthcare is highly personalized and subject to immense variability. A planned childbirth, for instance, can have a vastly different final cost for two patients under the same obstetrician due to unforeseen complications, the need for specific medications, or an emergency C-section. The “shopping” analogy breaks down when faced with the unpredictability of human health, where the final bill is often determined by factors that cannot be known in advance.
Further undermining the policy’s consumer-driven premise is the established behavior of patients, who overwhelmingly rely on professional medical advice rather than price lists. Research from health economists like Yale University’s Zack Cooper has shown that there is virtually no evidence of patients using this pricing information to guide their healthcare choices. One revealing study co-authored by Cooper found that patients seeking an MRI typically bypass an average of six lower-priced providers, choosing instead to follow the direct referral of their trusted physician. This highlights a critical reality: in matters of health, the established relationship of trust between a patient and their doctor far outweighs the potential for cost savings found by navigating a complex pricing landscape. For most people, particularly during a time of medical need, the primary concern is the quality of care and the recommendation of a known expert, not undertaking a market analysis of available options.
Implementation Breakdown
The failure of the price transparency rule to engage patients was compounded by significant issues with its execution, beginning with widespread non-compliance from hospitals themselves. In the initial months following the policy’s effective date, studies revealed that only about a third of medical facilities had met the full scope of the regulatory requirements. This reluctance to participate created an incomplete and unreliable dataset from the very start, making any attempt at comprehensive price comparison a futile exercise. Enforcement efforts by the Centers for Medicare & Medicaid Services (CMS) have been slow and limited, with financial penalties issued to a relatively small number of non-compliant hospitals. This lax enforcement sent a clear signal to the industry that the costs of non-compliance were far less than the perceived strategic disadvantages of revealing their negotiated rates, effectively crippling the policy’s foundation before it could ever support a consumer-driven market.
Even for the hospitals that did attempt to comply, the data they released was often presented in a format that was practically impenetrable for the average person. Instead of a clear, user-friendly price list, the information was typically buried in massive, complex spreadsheets containing thousands of rows of internal billing codes, abbreviations, and medical jargon. The American Hospital Association itself noted that calculating these prices required making “detailed assumptions about how to apply complex contracting terms,” a task far beyond the capabilities of a typical patient. This inaccessibility transformed the well-intentioned goal of transparency into a “data dump” that served more to obscure than to clarify. Without a simple way to interpret the information or compare it meaningfully across different providers, the data remained a resource for data scientists and industry analysts, not for the patients it was intended to serve, rendering the entire exercise useless for its stated purpose.
An Unintended Industry Windfall
A New Tool for Negotiations
While the policy failed to create a consumer market, it succeeded in creating an invaluable new resource for the healthcare industry’s internal financial battles. The primary users of the vast troves of pricing data are not patients, but rather the insurance companies and large hospital systems that negotiate payment rates. Insurers, also known as payers, now have unprecedented visibility into the rates their competitors are paying for the same services at the same facilities. Companies like Blue Cross Blue Shield of Minnesota use this data to benchmark their own payment rates, ensuring they are not overpaying a particular provider relative to the market average. This information has become a “vital piece of the contract negotiation,” allowing insurers to enter discussions with a powerful new form of leverage, backed by concrete data on what their rivals have successfully negotiated, thereby strengthening their position to demand more favorable terms.
In response, hospitals and provider groups have begun using the very same data to bolster their own negotiating positions, creating a financial tug-of-war fueled by the new transparency. When a hospital system sees that a rival institution is receiving higher reimbursement rates from a particular insurer, it can use that evidence to argue for a similar increase. This dynamic has given rise to a new “cottage industry” of data analytics firms that specialize in wrangling the complex pricing files released by hospitals. Companies such as Turquoise Health employ machine learning and artificial intelligence to aggregate, standardize, and interpret the raw data, selling their refined insights back to the providers and payers who are its main audience. This has transformed the policy from a tool for patient empowerment into a catalyst for a more sophisticated, data-driven arms race between the industry’s largest players, with each side using the information to maximize its own financial standing.
The Questionable Impact on Prices
The ultimate hope of the price transparency policy—that it would lead to a reduction in healthcare costs—has not come to fruition. The evidence gathered since its implementation remains inconclusive at best, with many researchers and industry executives expressing deep skepticism that the rule will ever significantly lower prices for consumers. Instead of fostering downward pressure through patient shopping, the policy has introduced a new dynamic into industry negotiations that could have the opposite effect. The newfound visibility into competitors’ pricing structures may be creating a price floor, not a ceiling. When providers can see the highest rates being paid in their market, it can discourage them from accepting lower offers and instead anchor their negotiations at a higher baseline, potentially leading to price convergence at an elevated level.
This concern was substantiated by a 2024 study of a similar transparency initiative in New York, which found that the policy resulted in a marginal increase in the average billed charges. This suggests that when providers are armed with information about what their competitors are charging, they are more likely to raise their own prices to match the market leaders rather than lower them to attract cost-conscious patients who, as other research shows, are not using the data anyway. Consequently, a policy designed to introduce competitive pressure and drive down costs had, in this instance, inadvertently contributed to price inflation. The great healthcare marketplace envisioned by policymakers had not materialized for consumers, but the data it produced had become another complex factor in the intricate financial calculus between providers and payers, with no clear benefit trickling down to the patients caught in the middle.
