Editor’s Note: It’s welcome news that Department of Health & Human Services (HHS) Secretary Alex Azar has embraced the cause of transparency in healthcare. In a new Health Affairs blog post, summarized below, Manatt Health offers some best practices when it comes to transparency. We highlight how states have led on this front and detail ways that the federal government can support transparency efforts. Click here to read the full post.

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The HHS secretary’s first initiative, including requiring hospitals to post their charge-master prices, may have some value in causing hospitals to rethink list prices, but there are better ways to enhance transparency. A good starting point would be to encourage state transparency initiatives, such as creating all-payer claims databases (APCDs) and statewide cost-driver reporting.

States will likely remain the laboratories for data-driven healthcare. With the federal government delegating more healthcare issues to the states and at least 18 new governors taking office in 2019, the demand for reliable data on widely varying state healthcare marketplaces will only increase.

A Transparency Flashback: Oregon’s Pioneering Efforts

In 2006, leading insurers wanted the Oregon Insurance Division (OID) to open a market conduct exam and require health insurers to provide data on their discounted hospital rates. The insurers started a negotiation with hospitals to assess the type and level of data that might be made publicly available. The end result was the disclosure of hospitals’ discounted rates to a third-party actuary who aggregated and blinded the data to prevent anticompetitive outcomes and produced a public report with average discounted prices by service.

The initial report confirmed that average prices were not very helpful, since they masked the fact that discounts varied, sometimes dramatically, by payer, hospital and service. Based on this learning, the OID negotiated a 2007 law requiring insurers to provide real-time data on their websites for members who wanted to know what their out-of-pocket costs would be for a user-selected service and provider.

A recent follow-up found that the law has not generated many consumer complaints, nor has it been tested in a market conduct exam. That could mean that the law is working perfectly. It is more likely, however, that the law has not been used enough to generate the volume of consumer complaints to trigger a compliance review, or that insurers have made sufficient progress with their own websites to make the law unnecessary.

Where We Are Now: The Benefits and Limitations of APCDs

Today, 18 states have established APCDs (or similar but more limited multipayer claims databases), with another handful actively building them. If current trends continue, we estimate that more than half of all states will have an APCD or APCD-like database by 2022.

States continue to debate the merits of APCD-powered “generic” transparency websites (that is, websites that provide consumers with average prices for common procedures based on retrospective APCD data) versus more targeted transparency efforts (that is, requiring insurers to provide “pre-adjudicated” cost estimates for any service requested). Most state leaders view generic websites as a distraction from the harder work of developing more meaningful and targeted price transparency products.

New Hampshire may be the exception that proves the rule. The state was one of the first to create a public-facing website, NH HealthCost, with price comparisons for a wide range of services and more advanced search options than most APCD-powered websites. But even New Hampshire’s website cannot contend with the proliferation of diverse benefit designs, each with its own cost-sharing rules. New Hampshire is not likely to abandon its public website, but it may be that the best use of its APCD is less patient-centric and more policy-focused, with targeted use cases for understanding marketwide price variations, medical cost trends and service gaps by region.

Massachusetts offers an impressive example of what a larger state can accomplish with deep investments in its data systems and development of program-use cases. In addition to developing its APCD, the Commonwealth invested in a statewide cost-reporting infrastructure that regularly collects aggregate data directly from payers to improve APCD quality and provide policymakers with an annual performance report, including identifying leading cost drivers.

What Can the Federal Government Do?

There is a transparency role for the federal government. HHS could accelerate its efforts to make Medicare and Medicaid data more readily available, promote best practices in data collection and management, and work with other federal agencies to address barriers to data exchange.

For example, Azar could work with Secretary of Labor Alexander Acosta to fill a data void created by the Supreme Court’s Gobeille decision. The Court held that self-insured employers’ third-party administrators could not be required to submit self-insured data to state APCDs, as it would be unwieldy to comply with 50 different data calls. However, the Court also invited the federal government to establish uniform standards for data collection that any interested state could use.

How APCDs Can Partner With State Regulators

Through our work with the Robert Wood Johnson Foundation , we have identified four areas beyond price transparency in which APCDs can enhance health insurance regulation: reviewing insurer rate filings, assessing compliance with network adequacy standards, conducting market conduct oversight and understanding what actions make the most sense in addressing public health issues. In each area, it will take hard work to define processes and strengthen the partnerships among state agencies, payers, providers, and the federal government that are necessary to create a transparent and data-driven healthcare system.

States that invest in APCDs may not get quick returns on their investments. However, their long-term dividends will be substantial.