In an effort to bring healthcare costs down, the federal government is imposing sweeping new regulations to increase price transparency. The most recently implemented is the hospital price transparency rule issued by the Centers for Medicare and Medicaid Services (CMS).
Now U.S. hospitals must publish their standard charges for items and services. And this disclosure rule does not merely apply to chargemaster rates. It extends to information on the hospital’s negotiated rates with insurers, and even discounted cash rates negotiated with patients.
There are numerous questions on the ultimate effect of this new transparency rule, which we explore below. While there is debate over whether the rule will accomplish its purpose of reducing healthcare costs, it will undoubtedly have a large impact on both patients and payers, including self-insured employers.
What Does the Hospital Price Transparency Rule Require?
The hospital price transparency rule went into effect on January 1, 2021, and requires hospitals to make public a list of “standard charges” for the hospital’s items and services. The definition of “standard charges” includes the following:
- Gross Charges: The hospital’s chargemaster rates (unnegotiated, non-discounted price lists).
- Payer-Specific Negotiated Charges: The rates the hospital has negotiated with specific third-party payers, including health insurers and self-insured plans.
- Maximum and Minimum Negotiated Charges: The highest and lowest rates it has negotiated with third-party payors for each item and service, without specifying the payors.
- Discounted Cash Prices: The rates the hospitals charge patients who pay with cash or cash-equivalents.
Hospitals are required to publish a machine-readable file for both gross charges and payer-specific negotiated charges. For all items above except gross charges, each hospital must publish a consumer-friendly display of the charges for the hospital’s 300 most “shoppable services,” which are services that can be scheduled in advance by a healthcare consumer. Shoppable services include common elective procedures that aren’t emergencies, things like knee replacements or screening colonoscopies. This information must be displayed prominently on a publicly-available website, and has to be in plain language (not medical or billing jargon) that patients can understand.
Importantly, there are three broad categories of medical facilities and providers that are exempt from these requirements: (1) government hospitals, including Veterans Affairs facilities, Indian Health Services facilities, and Department of Defense Military Treatment Facilities; (2) non-hospital healthcare facilities, including ambulatory surgical centers (ASCs); and (3) physicians who practice at a hospital without being directly employed by the hospital.
What are the Effects of the Hospital Price Transparency Rule on Hospitals’ Care and Pricing?
According to CMS and other advocates of this rule, price transparency will lower healthcare costs by allowing patients to shop for the best price and increasing competition among providers. The idea is that patients, if provided with pricing up front, will shop around for the best deal on their mammogram or MRI. Critics of the rule contend there are several reasons this is not the case, and suggest that it is likely to influence hospital’s decisions on how to provide patient care.
One primary concern is the exception for ASCs. There has already been a trend toward hospitals affiliating with or acquiring ownership interests in ASCs, and directing outpatient procedures to those same facilities. According to research by Bain & Company, ASCs performed more than half of all outpatient surgeries in 2017, and approximately 25% of ASCs had hospital shareholders in 2019. Hospitals could skirt the new law by diverting procedures to affiliated ASCs, thus undermining the intent of the price transparency rule.
Another issue is the exclusion of physicians not directly employed by the hospital. The vast majority of physicians are not directly employed by or contracted with a hospital. Some states actually restrict hospitals from directly employing physicians, including California. Some commenters believe hospitals could take steps to direct more care to outside physicians in order to circumvent the rule, such as by acquiring medical foundations.
Nonetheless, CMS and other advocates believe these concerns are either overstated or wrong, and that greater price transparency will lead to overall cost reductions. Legal challenges by the American Hospital Association and other healthcare industry interests have been defeated in court. It is now up to hospitals, patients, and payers alike to adjust to this new world.
How Will the Hospital Price Transparency Rule Affect Self-Insured Employers?
For self-insured employers, the price transparency rule could potentially provide very useful data. Some of the reasons are laid out by James Gelfand, senior vice president at the ERISA Industry Committee, a lobbying group for large employers offering employee health insurance. In an article in Kaiser Health News, Gelfand explains that employers (along with patients) will now be able to compare prices between hospitals in the same area. This could lead employers to reject certain prices or even take network steerage measures to direct plan members to lower cost options. Employers could also use the information to provide financial incentives for their employees to use the lowest-cost facility.
These arguments are all the more true for self-funded employers. Employers offering self-funded plans often partner with specific hospitals as part of their networks. Now these employers can compare and contrast different hospitals in the same area. And an employer can see what other carriers and payers are spending for a mammogram, for example, and utilize that information in negotiations.
And this has to be viewed in the context of similar transparency rules that will soon be implemented for all health plans, including self-funded plans. Starting on January 1, 2022, private health plans will be required to publicly disclose the rates they pay healthcare providers for specific services. They will also be required to provide personalized information on enrollee cost-sharing. Since this will likely lead to pressure on self-insured employers to lower costs, it is beneficial for these employers to have more information on hospital pricing.
How Will the Price Transparency Rule Help Patients Make Healthcare Decisions?
Since the patients themselves will have access to all this hospital pricing data, the open question is how much this will influence patient decisions on healthcare. Will it lead to more informed financial decisions on their parts?
Especially for patients with employer-provided health insurance, many other factors influence their decisions. These include the size of their deductibles and the types of health plans in which they’re enrolled. For more complex medical problems, estimating the total cost can be wildly inexact. For example, a patient with breast cancer might initially undergo surgery, then move to radiation or chemotherapy, and possibly face a second surgery depending on outcomes. It’s hard to estimate the total cost of care when the treatment may change or expand over time. However, the pricing information could be highly relevant for patients with different levels of coverage.