Nobody likes a surprise medical bill. But for years, healthcare pricing has been opaque, leaving patients and even industry pros guessing the final cost of medical care. In 2021, the federal government took action by rolling out price transparency regulations. The goal? To increase competition and lower healthcare costs.
But is price transparency actually helping? To find out, we analyzed over 390,000 negotiated rates from more than 200 hospitals, covering 37 common medical services in the biggest U.S. metros. Spoiler alert: we have a hunch it is helping*. Based on our exploration, we see early signs of a major transformation in healthcare markets. Here’s how price transparency is reshaping competition, pricing strategies, and power dynamics in healthcare markets.
*There’s always an asterisk! See our full white paper for more information on exactly what we explored to come to this conclusion.
Competition is Heating Up
So, what do we see? Based on the results below, we believe price transparency is making healthcare markets more competitive. As a result, high-cost providers are forced to lower their prices or risk losing patients, while low-cost providers are raising prices to better align with market averages. On average, high-end prices have dropped by an inflation-adjusted 6.3% annually, and low-end prices have risen by 3.4% annually. This shift, known as price convergence, means prices for the same service are becoming more similar across hospitals. We observed this trend across 82.8% of the markets we studied.
The widespread nature of this convergence signals a fundamental change in healthcare pricing. High-cost providers can no longer charge premium prices without demonstrating added value. At the same time, low-cost providers are gaining leverage, as they can push their rates higher while still remaining competitive in a more transparent market.
For patients, this increased competition could bring more predictable healthcare costs and more consistent pricing across providers. As high-cost providers adjust rates to stay competitive, this creates downward pressure on prices—a significant win for price transparency that could make care more affordable overall. However, the rise in lower-cost providers' rates means some affordable options are already starting to disappear. However, it’s difficult to determine the impact of this disappearance given how most consumers currently engage with and think about shopping for healthcare. So while price convergence is a sign of progress, it also introduces new challenges that need to be addressed by legislation (we’ll say more on this in our closing thoughts).
Evolving Pricing Strategies
As price transparency takes off, increased competition is driving changes in provider pricing strategies. One of the most significant trends we’ve uncovered is the difference between outpatient and inpatient services. Outpatient services are seeing greater price convergence, with rates converging in 87.4% of the markets we studied. By contrast, inpatient services are lagging, with only 62.5% of markets showing similar patterns.
This divide likely reflects how pricing strategies are changing in response to price transparency. Outpatient services—like radiology and labs—are more “shoppable” for patients. They can be planned in advance and there’s less differentiation between providers, which has led to more price competition. On the other hand, inpatient services often involve more complex care and are difficult to plan in advance, which makes them harder to compare and less prone to price competition.
This evolution in pricing strategy paves the way for greater specialization and efficiency in healthcare markets. As a result, hospitals may concentrate their efforts on complex, inpatient services (think: Medical/Surgical beds) where they can be more competitive by offering specialized expertise, while outpatient centers, like imaging centers and ambulatory surgery centers, compete on price for more standardized outpatient services (think: Chest X-Rays). This specialization can potentially increase market efficiency (basically, how well prices reflect the actual value of the item or service) by aligning prices with the cost and complexity of care in each setting, ultimately creating opportunities to reduce overall healthcare costs for consumers.
Shifting Power Dynamics
Thanks to evolving market forces, power dynamics are shifting within the healthcare industry. Traditionally, pricing negotiations were controlled by payers and providers, with limited involvement from other stakeholders. However, as price transparency advances, employers and consumers are starting to play more influential roles.
Employers are facing mounting pressure to control healthcare costs. With increasing lawsuits over their fiduciary responsibility to evaluate employee health benefits, employers can no longer afford to be passive participants. Price transparency provides them with the tools to partner with brokers and apply pressure on both payers and providers, pushing for more competitive rates and ideally, allowing them to see the benefits of those lowered costs downstream. Employers are in a unique position to drive meaningful change, as they oversee healthcare plans for the majority of working Americans.
However, employers are only part of the equation. Consumers—the patients actually using the healthcare system and shopping for services—have yet to fully enter the picture. While price transparency has made healthcare pricing data available, we are still in the early days of seeing consumers use that data to price shop. As consumers increasingly use price information to choose more affordable care options, they will create additional market pressure and provide employers with more leverage to negotiate lower premiums and better deals with payers and providers.
Closing Thoughts
Three years into price transparency, healthcare markets are showing early signs of a major transformation. Increased competition, new pricing strategies, and shifting power dynamics are pushing the industry towards more efficient, cost-effective care. But this transformation is far from complete.
In this evolving market, every stakeholder must adapt. Payers and providers must understand their market position clearly, adapting their services and pricing to offer distinct value as competition grows. Employers now have the leverage to actively drive down healthcare costs for their employees. Price transparency provides them with the tools to partner with brokers and apply pressure on both payers and providers. Consumers need to be empowered to make informed healthcare choices, using pricing tools to shop for value. Meanwhile, regulators must continue to steer the industry toward transparent, upfront pricing by promoting innovations like Advanced Explanations of Benefits (AEOBs) and enforcing compliance with existing transparency rules. Continued monitoring and more tailored interventions may be needed to ensure the impacts of price transparency are fully realized for all consumers.
Moving toward a truly transparent, competitive, and cost-effective healthcare market requires all industry stakeholders to understand and adapt to these shifting dynamics. If you’re curious to learn more about how markets have responded to price transparency, check out our full white paper. It offers an in-depth analysis of how healthcare markets have evolved in the years post price transparency and what we might expect in the future.