Will it make a difference?
There is no question that healthcare is expensive. The issue is that the cost of healthcare isn’t clear. So, how do we fix this? Well, two regulations are being suggested to help make the price of healthcare more transparent. What are they? Will they make a difference? Why are some people opposed to them?
A recent Gallup Poll shows that the most urgent problem facing the nation in relation to healthcare is the high cost. When you think about it, healthcare is the only industry where you purchase a product or service that you can’t return without knowing the ultimate cost and then receive a non-negotiable bill. With deductibles rising, consumers are using less services rather than engaging in price shopping before getting care, despite the increasing prevalence of price transparency tools to help estimate costs. Many of these tools are provided by major insurers, like UnitedHealthcare, Kaiser Permanente and Anthem Blue Cross. One independent price tool is Guroo, from the nonprofit Health Care Cost Institute, is very popular because it lets individuals search for procedures and pull up the average total costs in their state, neighboring states and nationwide. The key thing that is often missing is standardization. When consumers are comparing prices between competing suppliers, there can be a substantial difference in the services covered in the various prices making it not a true comparison. Most consumers want to know the total price for the services they need and do not have the time or expertise to gather up pricing information from the multiple billing parties that they would need to reach to find out this information. Even if patients do have time the to comparison shop for non-emergent hospital procedures, calculating the total amount you’ll be out is extremely challenging as a result of these obstacles. This is what the Trump administration is trying to address with their new proposed regulations. The new rules require hospitals to make a range of prices readily accessible, such as prices negotiated within an insurer’s network, what hospitals are paid if their care is out of a patient’s insurance network and what the hospital would accept for the treatment if paid in cash. The goal is that patients could use that information to shop around ahead of an elective procedure to find a better deal. This is the first time the federal government is introducing price transparency requirements with the concepts of service standardization, consumer-friendly organization/terminology and bundling in order to make the marketplace more competitive. The Administration says the real goal is to allow for more outside scrutiny of pricing and this would facilitate the lowering of costs of care overall.
Let’s take a more detailed look at Trump’s Executive Order on Improving Price and Quality Transparency in American Healthcare. The Department of Health and Human Services (HHS) announced that the Centers for Medicare & Medicaid Services (CMS) is issuing two rules that take steps to increase price transparency with the thought to empower patients and increase competition among hospitals, group health plans and health insurance issuers in the individual and group markets. The first rule is the Calendar Year (CY) 2020 Outpatient Prospective Payment System (OPPS) & Ambulatory Surgical Center (ASC) Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule. The second rule is the Transparency in Coverage Proposed Rule. In response to the Executive Order, HHS, the Department of Labor and the Department of the Treasury are issuing a proposed rule, “Transparency in Coverage” that would require the majority of employer-based group health plans and health insurance issuers offering group and individual coverage to disclose price and cost-sharing information to participants prior to having any form of treatment. This is designed so patients will have accurate estimates of any out-of-pocket costs they must pay to meet their plan’s deductible, co-pay or co-insurance requirements in a standardized way that allows for easy comparison. If finalized, the rule would require health plans to give consumers real-time, personalized access to cost-sharing information through an online tool that most group health plans and health insurance issuers would be required to make available to all of their members, and in paper form, at an individual’s request. The rule also requires that health insurers to disclose on a public website their negotiated rates for in-network providers and allowed amounts paid for out-of-network providers. In addition, the rule encourages health insurance issuers to offer new or different plans that incentivize consumers to shop for services from lower-cost, higher-value providers by allowing them to take credit for shared savings payments in their medical loss ratio (MLR) calculations. A third rule that the Administration is finalizing would require hospitals to provide patients with clear, accessible information about their “standard charges” for the items and services provided in two ways starting January 1, 2021. The first way to make this information available is the Comprehensive Machine-Readable file. This file would contain all hospital standard charges for all items and services, common billing/accounting codes used and a description of the item/service. The file will need to be available on the internet in a single data file that can be read by other computer systems. The second way this information would need to be made available is through the Display of Shoppable Services in a Consumer-Friendly Manner. This means that hospitals must make public payer-specific negotiated charges, the amount the hospital is willing to accept in cash from a patient for an item/service and the minimum and maximum negotiated charges for 300 common shoppable services in a manner that is consumer-friendly and they must update the information at least annually. Shoppable services are services that can be scheduled by a patient in advance, like an x-ray, outpatient visits, imaging and laboratory tests, or bundled services, such as a cesarean delivery, including pre- and post-delivery care. In the regulation, CMS specifies 70 of the services that must be included with the hospitals free to choose the other 230 themselves. The CMS list of included services contain common physician services, laboratory and pathology services, radiology services and medical/surgical procedures. According to the rules, this will help standardized the system. Another elemental of this part of the rule is that hospitals are supposed to include a total price, which means primary services with the ancillary services that usually accompany them, which is particularly important for medical and surgical procedures since they often come with additional charges for radiology, pathology, an operating room and therapy services. This is intended to make it easy for consumers to make better comparisons. The file containing this information must be consumer-friendly by being located in a prominent spot online that is easily accessible, must be searchable and in non-medical terms. This last rule also provides CMS with new enforcement tools including monitoring, auditing, corrective action plans and the ability to impose civil monetary penalties of $300 per day. However, many critics say the penalty isn’t stiff enough to be an effective deterrent and wonder how many hospitals will just pay the fine. What most people don’t realize is that the new rule supplements an existing requirement, from a rule published in 2018, which forced hospitals to post online all of their chargemaster rates starting in January 2019. Many hospitals responded to that requirement by posting online their chargemaster rates for the thousands of codes used in the insurance billing system, which means it’s incomprehensible to consumers.
The HHS finalized the hospital price transparency requirements in November 2019 and they’re set to go into effect, once finalized, at some point in 2020. The issue is that less than three weeks after the rules became public, a lawsuit was filed by the Federation of American Hospitals (FAH), American Hospital Association (AHA), Association of American Medical Colleges (AAMC), Children’s Hospital Association (CHA) and three individual hospitals. The lawsuit claims that the rules violate the First Amendment by mandating “speech in a manner that fails to directly advance a substantial government interest, let alone in a narrowly tailored way.” In addition, it alleges that HHS does not have the statutory authority to force hospitals to publish anything other than standard charges. The reason hospitals, and insurers, are not in favor of the new rule is because it compels them to disclose confidential price information that they view as fundamental to their business operations and financial viability. The hospitals argue that public disclosure of the confidential rates would backfire and increase prices because hospitals would be less willing to make selective pricing concessions for fear of having to extend them to all payers, institution would know the prices of its competitors making them reluctant to settle for less and it would undermine the ability of insurers with the most leverage to get deeper discounts than their competitors from hospitals. Some experts describe it this way: hospitals set prices by negotiating with individual insurance companies in a confidential process. If the hospitals are forced to publish those rates, then every health plan administrator will know what all the other insurers are paying and, smartly, use the information to bargain for lower rates. While this might seem like a good idea, if hospitals are forced to lower their rates, this puts more stress on them and they have to find other ways to shift their costs, which means prices will come up for everybody and people will end up paying more for their insurance. Besides financial reasons, one of the main reasons hospitals are opposed to the rules is the complexity of actually disclosing the information. Since it requires hospitals to describe each item or service and then display multiple types of prices of charges applicable to each, which means that it would be hundreds of thousands of data pieces that need to be reported for every hospital annually. Despite HHS’ projection that compliance would the new rules would only consume 12 hours on average, many hospitals argue that the requirement would impose a far greater administrative burden. However, this isn’t just a project for the hospitals, but also consumers. The AHA contends that the rule will lead to confusion among consumers and will setback efforts to provide patients with the most relevant information for healthcare decision-making that they deserve. AHA further stressed that they and other organizations have repeatedly urged CMS to work with hospitals, doctors, insurers and patients to find a different solution to getting price transparency, but the HHS moved forward with requiring the disclosure of payer-specific negotiated rates instead. However, the AHA did say they’re still willing to work with CMS to uncover the right approach. The groups are pushing for alternative solutions that would allow hospitals to provide patients and consumers with cost-sharing information, like out-of-pocket costs.
Those who support the Administration’s proposed regulation say that it’s unpopular with the hospital and insurance industries because it disrupts the status quo and requires adjustments to their current business models. They feel that disclosure of the information that the rules are requiring is likely to expose true outliers and lead facilities to lower prices in some cases to avoid embarrassing disclosures that are harming consumers. In addition, they feel that transparency might generate new business opportunities to build networks that steer patients based on differential pricing patterns exposed by the new data. However, even the Administration admits, the regulations by themselves won’t fully address the obscurity of today’s market. One of the things that needs to be addressed is that transparency requires even stricter standardization of the services than are issued in the proposed rules. The proposal supporters also say that since hospitals can vary the ancillary services that are grouped together under different primary services, it makes it extremely difficult, if not impossible, for consumers to determine fully comparable pricing. So, they feel that there needs to be something done to further standardized the pricing model. In addition, reform of the nation’s insurance payment system must be done in tandem with the price transparency effort. Some individuals feel that we need to quit negotiating for these unclear discounts from charges that we don’t know anything about and force price competition. One group, the Colorado Business Group on Health, which represents 17 employers, will take on the first statewide purchasing alliance to negotiate contracts with hospitals in which the contract rates will be available to nonmember employers in the state. However, not all employer business groups favor the rules. One of the largest groups, the National Business Group on Health, which represents 444 large employers and cover more than 55 million people, is suspicious of the regulations. Their concern is that with increasing consolidation within hospitals and physicians practices the helpfulness of the rules will be impeded. They point out that about 80% of local healthcare markets are highly concentrated on the provider side, so instead of reducing prices, it could have the opposite effect.
According to CMS, hospital costs make up the largest share of healthcare spending and private insurers, mostly employers, pay 44% of their healthcare expenditures for hospitals. Most insurers have already negotiated preferential pricing with preferred hospitals and physicians for their enrollees. So, the consumers in these plans correctly assume they will minimize their expenses if they stay in-network when getting care. This means that price shopping will not make much of a difference to them. The insurance industry fears that the regulations may push insurers away from negotiating discounts from high hospital list prices despite the fact that a recent study found that private insurers pay some hospitals two to three times more than the Medicare program pays for the same care. Insurers refer to a 2015 Federal Trade Commission letter on a Minnesota disclosure law that stated disclosures of privately negotiated rates could “chill competition by facilitating or increasing the likelihood of unlawful collusion.” Through all of these, one thing that is important to remember is that hospital charges were never designed to represent the price to consumers, but set to capture the maximum allowable reimbursement from insurers. The amount you actually end up paying depends on which insurer you have and what type of policy you have, which means that your out-of-pocket price can differ dramatically from the posted price. If you don’t have insurance, then listed prices for the majority of procedures seems unaffordable. If you do have insurance, you’re unlikely to know what discounted rates have been negotiated between the hospital and your insurance carrier and how this impacts your out-of-pocket costs. The University of Utah Health created an interactive tool to help with this by providing an accurate estimation of out-of-pocket expense based on the type of insurance individuals have, the amount of their unmet deductible and the availability of co-insurance. Their pricing transparency tool is considered to be superior by CMS Administrators. The pricing tool asks questions about a patient’s copay, deductible, coinsurance and medical procedure details. Unfortunately, the US payment system and the practice of medicine are confusing because of the 5,000+ procedure searches down in a several month time span, only about 1,174 individuals finished answering all of the questions and completed the submission. One of the things that the University of Utah found was that neither the consumer nor the hospital can know exactly which procedure a patient will require for a specific condition. This requires input from a provider and this is often missing when patients are trying to calculate price. According to a national survey, 60% of patients and 71% of employers said they’d like physicians to discuss the cost of care. The good news is that most physicians (59%) believe it’s their responsibility to do so. One study done by the University of Utah disclosed that when providers made patients aware of a less expensive option with equally good outcomes, the patients were more likely to select it. This is why posting prices alone will not truly drive value for the consumer.
Most employers say they have little idea about the prices being paid by the insurers on behalf of their workers. Since insurers only take a percentage of healthcare spending, employers have more incentive to reduce cost. The more total spending there is, the more revenue insurance companies make. One of the benefits that transparent price information is thought to bring will be to help employers redesign benefit packages that not only reduce costs, but improve quality by steering employees toward hospitals that provide the best value. As a result, many employers will probably turn to reference-based pricing plans, which use a set price for certain healthcare services. The amount is based off of costs at facilities that have high quality and the best price. So, if an employee wants to go to a more expensive facility, they must pay the difference. When it comes to elective procedures that don’t need to be done locally, more and more employers are willing to pay for their employees to have procedures done at more efficient hospitals in other areas. A good example of this is Walmart. It not only provides full coverage for treatment of cancer, kidney transplants, hip and knee replacements and spine surgery, but also pays travel costs to facilities, like the Cleveland Clinic, that have proven records of high success and lower costs. If this were the model going forward, consumers would need to be aware of the price for the shoppable services that their insurers are required to make reference-based payments for those services for all out-of-network care. This means that consumers could stay in-network and get the negotiated rates secured by their insurers or go out of network and use a reference-based payment to cover at least part of the cost of the services they receive. If the consumer decides to go with an out-of-network price that is below the reference-based payment, they should ideally be allowed to keep 100% of the savings.
With all of the talk about shoppable services, it begs the question just how much of our hospital-provided healthcare is really shoppable? According to the Executive Order, 73% of the 100 highest-spending categories of inpatient services and 90% of the 300 highest-cost outpatient services are. However, the majority of estimates place the number at only 30%. In addition to the lower numbers, even if patients do want to shop around for the lowest price with the highest quality of care, affordable options often don’t exist. Many areas of the country have one dominant hospital system, so there’s not a lot of choice, which means it doesn’t matter if you know what the price is if you going to have to pay it regardless. Also, many health policy experts are doubtful that the rule will have a significant impact on prices because patients typically don’t shop for healthcare services anyway. Another concern is that by focusing on negotiated prices, we might be placing more emphasis on price over value and value should be the decision-maker because you want the best care for you or your loved one. The healthcare systems and providers need to begin thinking about not only having cost conversations, but creating more affordable options. Consumers need out-of-pocket cost estimates, not standard charges.
While the president’s transparency requirement might provide a much-needed spotlight on rising healthcare costs, the obstacles that it faces could wipe out any the positives benefits. One thing for sure is the legal challenge is real. For instance, when the Trump administration tried to mandate that pharmaceutical companies had to disclose the list price of their drugs in their television ads, a federal judge ruled that HHS exceeded its regulatory authority and the rule was overturned. In addition, hospitals and insurance companies are no strangers to legal battles. In Ohio, a state law requiring price transparency was passed two years ago, but is still held up in the courts. Even if the hospitals’ legal challenge succeeds, they’re vulnerable to the increasing public demand for lower prices and better transparency. Patients deserve to have the most relevant information when they are making decisions about their healthcare. Unfortunately, these latest rules will likely lead to widespread confusion and even more consolidation in the commercial health insurance industry, which means that the regulations are a limited step that might actually cause more harm than good.