Federal Price Transparency Rule for Health Care – A Game Changer?

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In 2019 Seema Verma, Chief of the Centers for Medicare & Medicaid Services (CMS), promised the federal price transparency rule to be implemented in January of 2021 would “upend the status quo to empower patients and put them first.” Six months into the sharing of this information what have we learned?

What the Federal Price Transparency Rule Requires

The federal price transparency rule requires hospitals to post what they accept from all insurers and the non-insured for thousands of line items in a format that is “easily readable by computers.” They must also include a consumer-friendly separate listing of 300 “shoppable” services that bundle the full price a hospital accepts for a given treatment such as having a baby or getting a hip replacement. These shoppable services are procedures that can be scheduled in advance and 70 are specified by the rule with the rest being chosen by each hospital.

Beginning in January of 2022 negotiated prices for medical care across a broader range of facilities like clinics and doctor’s offices will be required.

It’s a Mess!

As of July 6, 2021 60% of 1000 hospitals surveyed had posted at least some data, but 30% had reported nothing at all. Some hospitals bury the pricing data deep on their websites or have not included all the categories of prices required. Typically consumers don’t comparison-shop preferring to choose convenience or the provider their doctor recommends. Eighty-five percent of adults have not researched online the price of a hospital treatment. As it turns out for reasons they don’t even recognize….even with the new rule it is virtually impossible to figure out.

Bernard Wolfson for KHN “spent hours toggling among multiple spreadsheets, each containing thousands of numbers, in an effort to compare prices for 20 common outpatient procedures. After three months of glazed eyes and headaches from banging my head against walls of numbers, I am throwing in the towel. It was a fool’s errand.” For example, in Virginia the average price of a diagnostic colonoscopy is $2,763, but the range across the state is from $208 to $10,563. At a Medical Center in Kentucky, an uninsured person getting a stent after a heart attack could be billed around $66,226 for the procedure. A health-maintenance organization plan would pay just $17,895 at the same hospital while a Medicare plan would pay $12,445.

Cash is Trash

For the first time the newly public prices allow for a comparison between what deep pocketed insurers pay hospitals versus rates that hospitals set for patients who pay cash. The Wall Street Journal did a review of 1,166 hospitals that shared their Medicare advantage plan rates finding that uninsured patient’s fees were 3.6 times higher than the average paid by Medicare plans. Out of the total 1,550 hospitals the WSJ surveyed 21% billed the uninsured at the highest rates for the majority of services and another 11% of the hospitals the cash rates for EVERY reviewed service were higher than the insurers’ rates.

“Hospitals don’t want to give away too much of a discount because they really want the best discounts to go to these larger volume negotiated insured rates,” says Will Fox, a Milliman actuary. “Somebody walking off the street, we’ll give you a 20% discount, but we’re going to give our favorite customer, who sends us million or even billions of dollars in business, a much bigger discount.”

For those who struggle to pay, financial aid is hard to get at some hospitals with high cash prices. The WSJ found this to be true even at the 3,000 nonprofit hospitals that get tax breaks on the condition they give back to the community.

Hospitals’ Reaction

Hospitals have fought the release of this information in the courts, so far, without success. They feel the rule is unclear and overly burdensome, and they don’t want their prices exposed knowing competitors might adjust theirs or health plans could demand lower rates. Lower cost hospitals might raise their rates if they see it makes sense.
Hospitals typically have a sticker price, often called the chargemaster price that can be the starting point for negotiations with insurers. Discounts off that sticker price tend to be steeper for those that bring large volumes of patients. Insurance plans offered under government programs like Medicare and Medicaid get even lower rates, tied to prices mandated by federal and state agencies.

Hospitals collect only 5% of the amount they billed uninsured patients before writing off bills after a year of seeking payment. They collect 40% of bills sent to insured patients for amounts owed under deductibles, copays and other out-of-pocket costs. Issues difficult to factor in a competitive pricing structure.

CMS has sent letters to some hospitals that have not complied with the new federal price transparency rule giving them 90 days to release their data or face a $300-a-day fine. A coalition of large employers is lobbying for a $300/bed penalty versus $300/day so “the fine would be bigger as the hospital gets bigger. That’s the kind of thing they take seriously.”

The Federal Price Transparency Rule seems to be a major step in changing how our health care costs are priced. Interested in being a part of this industry? Contact Smith Hanley Associates’ Executive Recruiter, Nihar Parikh at nparikh@smithhanley.com.

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