Healthcare stakeholders largely adhere to a secretive healthcare pricing model because it's good for business.

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Despite the merits of transparent prices of healthcare services and prescription drugs, they’re of limited importance for patients to direct lower their out-of-pocket expenses. Yet opening up the books could spur competition among stakeholders in the healthcare supply chain which would in all likelihood reduce costs throughout the system. But most for-profit stakeholders don’t want transparency. Their modus operandi is to keep net prices proprietary because it helps boost their revenues.

Price transparency is a prerequisite for a functioning, competitive market in most industries. The more information that is readily available to all who participate in the marketplace, the better.

Yet opacity in (net) pricing is par for the course in healthcare. Take, for instance, secret arrangements between drug manufacturers and pharmacy benefit managers that allow firms to offer high rebates in exchange for favorable insurance coverage of their (branded) products. PBMs and drug manufacturers have worked together to ensure the net prices of such drugs, after rebates and other discounts, remain out of public view.

PBMs assert that the proprietary nature of contracts helps them achieve cost savings for end-users, whether these are employers paying for insurance benefits or patients spending money on premiums and out-of-pocket costs. If deals were to become public, every other entity contracting with PBMs will demand them, making manufacturers less likely to offer rebates in the first place. Or so the conventional argument goes.

A problem for patients is that the rebates are often not passed through to them at the pharmacy counter. And with continually rising premiums and co-payments, it’s unclear to patients how much benefit they’re deriving from the dealmaking between drug manufacturers and PBMs.

Similarly, insurers and healthcare providers such as hospitals negotiate deals behind closed doors. Here, patients aren’t usually aware of the cost of services until after they’ve been rendered.

Lawmakers worry about how this impacts their constituents. At an Energy and Commerce health subcommittee hearing in January on lowering healthcare costs, Representative John James (R-MI) asked health insurance executives why they hid their prices unlike in other parts of the economy: “Why in healthcare do you hide our prices? You only hide things when you don’t want people to know what you are doing.” He contrasted the way airlines price tickets to healthcare. James is the lead sponsor of the bipartisan “Patients Deserve Price Tags Act,” which aims to ensure Americans receive transparent, upfront prices across healthcare services and technologies.

Shortly after the hearing, Health and Human Services Secretary Robert F. Kennedy Jr. said, “if you go to a restaurant and look at the menu, the prices are there. Healthcare is the only place where you can’t see your prices.”

But most episodes of care are not analogous to ordering something in a restaurant or buying an airline ticket. Patients usually don’t know in advance which tests or procedures they wind up needing, especially in emergencies or for complex diseases and conditions. As such, it’s unclear how much transparency would assist patients in a material way.

However, for those who work on behalf of patients as purchasers of healthcare services and technologies, having more clarity could help. For example, for group health plans and employers, increased transparency may improve provider network selection and enable them to be better stewards of their employees’ contributions towards their insurance benefits.

Why then is there so much opposition to price transparency? Perhaps first and foremost, secrecy enables, say, drug companies to charge different net prices to different buyers. U.S. public sector insurers — among others, Medicare and Medicaid — are unique in that underlying their foundation was intentional fragmentation by the federal government of healthcare markets by subpopulations: Separate insurance mechanisms, each with different rules and regulations according to categories like age, poverty level, disability and veteran status. Confidentiality of pricing is fundamental to the business model as it allows firms to maximize profits through targeted discounts with government entities and various insurers serving the public and commercial sectors, leveraging price discrimination across the different markets.

And it isn’t just pharmaceutical manufacturers that exploit this differentiation (which extends to overseas markets, too). All stakeholders trying to make money in the system do so. From the vantage point of healthcare service and technology providers — from drug makers to health insurers to hospitals — proprietary contracts are necessary to keep the markets separate.

And so, most in the industries in question want to perpetuate this profit-generating model built on asymmetric information and price discrimination. It’s alleged, however, that middlemen, in particular, may generate excess profits through hidden deals. The opacity permits large mark-ups and other profit-making opportunities to exploit margins. This doesn’t just apply to intermediaries such as PBMs. Hospitals, clinics and contract pharmacies, too, exploit spread margins by purchasing drugs at (sometimes heavily) discounted prices and then getting reimbursed at higher rates.

It’s very likely that transparency would force a convergence of prices. And so, attempts to push through rules, regulations and laws have often been met with fierce opposition by stakeholders with vested interests in the status quo. The idea of breaching confidential terms in contracts by making them public is frequently seen as a third rail topic.

Yet at present, for legislators in Congress and for policymakers in the executive branch there’s a sense of urgency. They believe that more transparency could lower healthcare expenditures. Though limited, there’s some evidence from Florida and New York that suggests modest reductions in healthcare costs stemming from public disclosure of competitive price information.

President Trump signed a law in February that stipulates several new requirements on PBMs, such as disclosure of all their direct and indirect compensation, and reports of gross and net drug spending concerning companies with whom they contract with at least 100 employees. PBMs must also report to the federal government the price they charge employers for each drug and the reimbursement they pay to pharmacies. Likewise, pharmacies must report the cost of acquiring the drugs from wholesalers and the reimbursement received from PBMs. The government will publish benchmarks based on actual transaction prices for each drug across all sales points. Most of these requirements take effect in January 2029.

But the Trump administration wants regulatory action now, as reflected in the release of a proposed rule earlier this year by the Department of Labor. It contains many of the same mandates, with a focus on opening up the books for the self-insured plan market. If implemented, it would become operational starting in July of this year.

Needless to say, those with a stake in keeping things as they are, are resisting regulations via lobbying and other efforts, including possible legal challenges. After all, maintaining opaque pricing in healthcare has been profitable to them.