Major Problem with Hospital Price Transparency Rule
A new analysis shows that self-sustaining practitioners are usually involved in hospital-based “shoppable” services, revealing a gap in the hospital price transparency rule.
Hospital price transparency
Hospital price transparency helps Americans know the cost of a hospital item or service before receiving it. Starting January 1, 2021, each hospital operating in the United States will be required to provide clear, accessible pricing information online about the items and services they provide in two ways:
- As a complete machine-readable file with all items and services.
- In a show of shoppable services in a consumer-friendly design.
This information will make it easier for clients to shop and compare prices across hospitals and calculate the cost of care before going to the hospital.
The new price transparency rule aims to lower health care costs by maintaining consumer-style competition. The main issue with this goal is that health care does not follow the traditional rules of consumer economics. For example, there is a big difference between purchasing the latest cell phone technology and having a surgical procedure. In addition, while clients choose some services, most patient care is urgent.
Over 85% of hospital admissions are unscheduled, and most patients continue to depend on physician referrals to guide specialists and services. There is no large-scale evidence that patients use price transparency tools to “shop” for assistance.
In addition, recent trends in consumer-driven health care will likely corrupt the effectiveness of the new rule. Cost transparency relies on high deductibles and coinsurance. However, evidence shows that such plans leave consumers feeling cheated and underinsured. In addition, most consumers with high-deductible health plans do not contribute to their health savings accounts. Employers that need to attract qualified workers in a tight labour market are increasingly discarding high-deductible products that shift costs and “choices” to their employees.
Unexpected Results of Hospital Price Transparency
While the price transparency rule will not build up the changes of health care consumerism, it will have a remarkable impact on the financial ecosystem of medical care.
First, the rule will create compliance challenges as hospitals struggle to implement the new directive. The law appears to the premise that prices and payments result from simple items and services rather than the detailed and interrelated charges a procedure may necessitate. As a result, assigning costs to specific services will be a significant undertaking. In addition, the rule requires hospitals to submit data they do not possess, especially payor information that is outside a given hospital’s contractual authority to collect.
Most importantly, the new rule will change the balance of power in payor negotiations. The critical issue here is the requirement for hospitals to publish minimum and maximum cash payment prices, including the lowest cash payment they will accept from consumers. This requirement creates a competitive advantage for large purchasers of health care services such as insurance firms, large self-insured companies and labour unions. In concrete terms, the publication of hospital minimum cash prices will give all payors a low floor from which to negotiate.
With the help of in-house analytics experts, large purchasers of health care will use price transparency to reduce their medical spending to the lowest common numerator. In parallel, brokers will guide large self-insured companies to insurers with the best hospital pricing. The result will be payment compression from private payors and hospitals’ loss of the ability to recover losses from Medicare and Medicaid payment shortfalls through cost shifts.
Similarly, hospital price transparency reinforces the negotiating attitude of delegated medical groups that assume the risk for outpatient and sometimes in-patient care. The new rule places trusted groups and hospitals in potential conflict and give charged groups an additional advantage in their negotiations with hospitals.
The overall shift in negotiation leverage will affect different organizations in different ways. Health care is still local, and the impact of price transparency on a given hospital will depend on factors like regional competition, size, cost structure, physician networks, market authority, distance to competitors, infrastructure, workforce and reputation.
Hospitals and health systems that are major access points in networks should leverage their strength to maintain balance in rate negotiations. Conversely, hospitals and health systems are not positioned as a “must-have” access point, and therefore, price transparency will further weaken their negotiating power.
Pricing information publicly disclosed by CMS’ hospital price transparency rule falls short of informing consumers of their charges for many standard hospital-based services.
The problem was especially prevalent for complex medical and surgical services. Independent practitioners were involved in over 80% of shoppable services within this category. The median reimbursement for the services billed by the independent practitioners ranged from $47 for physical therapy to $9,545 for a significant cardiothoracic procedure.
Independent practitioners were also frequently involved in the shoppable evaluation and management services (7.6% to 42.4%), with median reimbursement for these practitioners ranging from $61 to $412, and radiology services (64.9% to 87.2%), with median reimbursement for independent radiologists ranging from $26 to $210.
CMS has required hospitals to publish their pricing information, including gross charges and payer-specific negotiated charges, on public websites since the start of the year. In addition, hospitals must also display the report for at least 300 “shoppable” services in a consumer-friendly format. According to the federal agency, Shoppable services are services that patients can schedule in advance.
Compliance with the new requirements has been low, with most hospitals in the most significant health networks failing to publish all their pricing information in the format CMS specifies in the rule. In addition, some hospitals have cited resource constraints, especially in light of the COVID-19 pandemic, while others with arguably more access to resources have yet to comply.
Hospital industry stakeholders have argued that the hospital price transparency rule, as it stands, does little to benefit consumers. The law, for example, does not provide consumers with their expected out-of-pocket costs for care, depending on their health plan’s deductible at the time and other cost-sharing arrangements, several industry groups argued in a 2019 court case challenging the rule.
CMS plans to require price transparency from payers soon. However, the regulation containing payer price transparency requirements also has significant limitations, researchers stated in the study.
First, the regulation will not improve health care price discovery for individuals enrolled in grandfathered plans or uninsured individuals. Additional efforts will be needed to achieve health care price transparency for all.
Second, patients seeking to estimate their out-of-pocket costs accurately will be expected to anticipate what individual services will constitute the planned [healthcare] encounter. This would be challenging for experienced [healthcare] experts, let alone nonexpert patients. As such, patients may still receive partial price information even under this prospective regulation.
With consumers owing more for their care under high-deductible health plans, the frequency of care provided by independent practitioners and the reimbursement they bill creates significant barriers to adequate healthcare price transparency, the study concludes.
Over six months after the hospital price transparency rule went into effect
Only 5.6% of hospitals are compliant with the hospital price transparency rule just over six months after its implementation, according to a report on 500 randomly selected US hospitals.
The hospital price transparency rule requires hospitals to display files on their websites containing gross charges, payer-specific negotiated charges, discounted cash prices, and deidentified minimum and maximum negotiated costs. All hospitals also must show at least 300 shoppable services that a healthcare consumer may schedule in advance.
Approximately 80% of the 500 hospitals failed to publish payer-specific negotiated charges as a rule requires, and over half did not publish any negotiated rates at all. Additionally, 39% did not publish any discounted cash prices.
Researchers identified a hospital as non-compliant if it omitted any of the five criteria imposed by the rule. For example, they are if data fields were blank, if it did not post all negotiated payer rates, or if the hospital’s price estimator tool did not show both the negotiated rates and discounted cash prices.
Most non-compliant failures resulted from non-posting or incomplete posting of the negotiated prices associated with all of the payers and plans accepted by the hospital.
The second significant failure was publishing the complete list of discounted cash prices.
The report also suggested that HHS require hospitals to post actual prices instead of providing a price estimator tool. In addition, the report emphasised the need for clear pricing data standards to empower consumers truly.
Advocates viewed CMS’s hospital price transparency rule as a win for patients across the country when it went into effect on January 1. It allows patients to shop for optimal care and ideally facilitates a more positive patient experience.
However, recent research has shown that awareness of the hospital price transparency rule is deficient and may confuse healthcare costs. Only one in ten adults are aware that hospitals must disclose prices, according to a KFF Health Track poll.
The recently proposed calendar year (CY) 2022 Medicare Outpatient Prospective Payment System (OPPS) rule aims to combat non-compliance by increasing the penalty charges that CMS can impose on non-compliant hospitals.
If finalised, the OPPS rule would mean hospitals could incur upwards of $2 million for a full year of non-compliance with the price transparency rule.
A recent survey suggested that consumers largely support the government enforcing price transparency measures. Over half of respondents in the study of over 2,000 US adults reported feeling like they or a close family member were overcharged for medical care.
More than 80% of respondents believed that cutting healthcare costs and improving quality metrics should be a priority for lawmakers. Most respondents also supported increasing the penalty for non-compliant hospitals, which may be adopted if the OPPS rule is finalised.
The Hospital Price Transparency rule can shift the power away from hospitals and into the hands of consumers – meaning patients, employers and union-sponsored plans. If hospitals comply, the transparency rule will drive down the cost of care and coverage.