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On November 15, 2019 the Trump Administration, in conjunction with the Centers for Medicare & Medicaid Services, released a final rule which would require the public disclosure of hospital charges. The proposed rule, initially released in June, was immediately met with opposition from both hospitals and health plans and the final release only reinforced the contentious climate. Before discussing the impact this new set of regulations will have on healthcare, it is important to understand the impetus for the Trump Administration’s executive order.

Hospital price transparency is not a new topic. In fact, the nearly universal recognition of unacceptably rising healthcare costs has prompted both sides of the political aisle to tackle price transparency in order to provide consumers with meaningful information to make informed healthcare decisions. Even the Patient Protection and Affordable Care Act (colloquially known as “Obamacare”) included a provision requiring hospitals to publicly disclose a list of their standard charges[1]. What differentiates the new rule and evokes contention is the broadening requirement to disclose payer-specific negotiated charges in addition to gross charges, which ignore discounts and provide little use to patients interested in determining out-of-pocket expenses.

The new rule is estimated to impact approximately 6,000 hospitals across the United States, who will have to invest significant resources to achieve compliance before the January 2021 implementation date.

The new rule is estimated to impact approximately 6,000 hospitals across the United States, who will have to invest significant resources to achieve compliance before the January 2021 implementation date. Listed below are several key tasks hospitals must complete over the next year:

  • Compile a list of 300 “shoppable” services to be disclosed
  • For each “shoppable” service, include a list of ancillary services that “customarily” accompany them (labs, x-rays, radiology, etc.)
  • Gather information for payer-specific and other pre-defined rates pertaining to all the services identified
  • Prominently display and publish the data in a machine-readable and searchable format

Market Impacts

Opponents of the new rule argue that price transparency of payer-negotiated charges could encourage anticompetitive behavior such as price fixing and hospital collusion. Some go as far to say it requires disclosure of trade secrets and violates first amendment rights[2]. The Alliance of Community Health Plans released a statement supporting efforts for price transparency but claims that the regulation places an undue burden on the consumer to sift through complex and sometimes irrelevant information, potentially leading to confusion and continued increasing costs[3].

The market impacts of the final rule are largely unknown at this early of a stage. However, it is apparent that the impacts will be greater for hospitals and health plans in population-dense areas with greater hospital competition than those in rural areas where fewer alternative hospitals. During this period of uncertainty, hospitals and health plans may benefit from exercising enterprise risk management (ERM) in the form of scenario planning, SWOT analysis, and consulting with industry experts. Furthermore, healthcare stakeholders should explore how the new regulations could be used for their advantage, using the newly public data as a tool to better position themselves in the market.

Healthcare stakeholders should explore how the new regulations could be used for their advantage, using the newly public data as a tool to better position themselves in the market.

Hospitals

The most drastic change the new rule will have on hospitals is their negotiating power with health plans. Higher payments can be negotiated if a competing hospital also receives a higher rate for a similar service; on the contrary, health plans can press for lower payments if the current rates are higher than other competing hospitals. Hospitals may also want to consider how their list of 300 “shoppable” and ancillary services could be constructed to strategically position themselves in the market. The list can be used proactively to influence utilization and revenue rather than simply be a disclosure of existing charges. This is particularly true for larger health systems because each licensed hospital is required to disclose its own list. Health systems can construct the lists of their respective hospitals to direct patients in the most efficient manner.

Health Plans

Like hospitals, health plans will be most dramatically affected by the regulation in their negotiations. They will be able to reference publicly disclosed charges to pressure a hospital to accept a lower rate if other nearby hospitals are doing the same. As mentioned previously, one of the primary concerns among hospitals is the incentive for all payers to re-negotiate to the lowest paid price and engage in anticompetitive behavior. Furthermore, although there is debate whether price shopping will actually occur among patients, the CMS offers incentives for health plans to encourage such behavior. Savings generated from price shopping can be shared with patients and credited towards the insurer’s medical loss ratio (MLR)[4]. Health plans may benefit from exploring arrangements to increase price shopping among their insureds or evaluate plan designs to minimize MLR rebates paid in areas where price shopping is most effective. Lastly, while not included in the final rule, the CMS recently released a proposed rule which would also require employer-based group health plans and health insurance issuers to provide similar cost-sharing information to enrollees[5].

Patients

The extent to which the price transparency will influence patient behavior is difficult to predict and will vary depending on the actuarial value of their health insurance. Patients may make decisions based on whether a procedure is classified as inpatient or outpatient. On the other hand, price transparency will likely have little impact in cases of emergency care. In the end, some patients may be more influenced by the ancillary services that customarily accompany each “shoppable” service, opting for the hospital that makes them feel the most secure or is the least invasive.

Conclusion

With a more than a year before its implementation and hospitals already promising to file lawsuits against the final rule, there is plenty more news waiting to be broken on hospital price transparency. While increasing transparency would seem to be a cause that garners widespread support, the degree of opposition makes one wonder just how revolutionary this new rule promises to be. In the meantime, the ultimate winners will be determined by who prepares the most and views the uncertainty as an opportunity rather than a threat.

Endnotes

[1]https://www.mwe.com/insights/proposed-opps-changes-for-2020-a-review-of-four-key-proposals/

[2]https://www.axios.com/newsletters/axios-vitals-e30baa47-bebc-4081-81a6-cb96115c5e55.html?chunk=1#story1

[3]https://achp.org/statement-achp-on-trump-administrations-final-proposed-price-transparency-rules/

[4]http://www.klgates.com/cms-finalizes-hospital-price-transparency-rule-and-proposes-new-transparency-requirements-for-health-plans-11-19-2019/

[5]https://www.mwe.com/insights/cms-finalizes-hospital-price-transparency-requirements-disclosure-of-negotiated-rates/

About the Author

Ryan K. Bilton, ASA, CERA, is an Actuary with Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.