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Over the years much has been said about the issue of increasing costs of healthcare, its causes, and solutions to address it. In terms of solutions, on one side of the spectrum is the constant drum of a government takeover of healthcare in the form of Medicare for all. Antithetical to American values is the argument that if only the government had more power to dictate prices, they could mandate coverage and force costs down. On the other side of the spectrum is a call to increase transparency and competition so consumers can choose who to receive services from and force high-cost providers to compete. However, many aspects of healthcare are notoriously complex and confusing. Bundled payments, % of billed charges, DOFRs, DRGs, CPT codes, ICD-10 diagnosis codes, referenced-based pricing, value-based reimbursements, the list of dynamics and funding arrangements goes on.

One step in the right direction is to try to add transparency into the system to give consumers more control over their decisions. The idea is that apart from member cost-sharing such as deductibles and copayments, the members have no idea how much medical services actually cost, which providers are cheaper, and can’t make as informed of a decision. Although not perfect, the spirit of the federal Hospital Price Transparency Rule attempts to address this.

Even though the Hospital Price Transparency Rule took effect January 1, 2021, the roots of its language and legislative authority are found in the Patient Protection and Affordable Care Act passed by Congress in 2010. In the years since its passing, there have been multiple federal rulings that addressed the issue and reminded hospitals of their responsibility in price transparency. These rulings reiterated the requirement for hospitals to make their standard charges public in response to an inquiry, expressed the expectation that charges should be updated annually or more frequently as appropriate and encouraged hospitals to engage in communications with their members to educate them on the various prices for similar services. On Wednesday, November 27, 2019, CMS and HHS released 45 CFR 180 for the final rule on hospital price transparency with the following background detailing its motivation:

“We believe there is a direct connection between transparency in hospital standard charge information and having more affordable healthcare and lower healthcare coverage costs. We believe healthcare markets could work more efficiently and provide consumers with higher-value healthcare if we promote policies that encourage choice and competition… Presently, however, the information that healthcare consumers need to make informed decisions based on the prices of healthcare services is not readily available[1]”

To achieve these ends there are nine major policy provisions that will codify regulations on hospital transparency.

  1. The definition of a ‘‘hospital’’
  2. Definitions for five types of ‘‘standard charges’’ that hospitals would be required to make public
    1. Gross charges
    2. Payer-specific negotiated charges
    3. Discounted cash price
    4. De-identified minimum negotiated charge
    5. De-identified maximum negotiated charge
  3. A definition of the hospital ‘‘items and services’’ provided by the hospital to a patient in connection with an inpatient admission or an outpatient department visit
  4. A determination that federally owned/operated facilities are deemed to have met all requirements
  5. Requirements for making public a machine-readable file of the five types of standard charges
  6. Requirements for making public a payer-specific file, for each of the five types of standard charges, for 300 ‘‘shoppable’’ services that are displayed and packaged in a consumer-friendly manner, plus a policy to deem hospitals that offer internet-based price estimator tools as having met this requirement
  7. Monitoring hospital non-compliance with requirements for publicly disclosing standard charges
  8. Actions that would address hospital non-compliance, which include issuing a written warning notice, requesting a corrective action plan (CAP), and imposing civil monetary penalties (CMPs) on non-compliant hospitals and publicizing these penalties on a CMS website
  9. Appeals of CMPs

Since the rule has been effective there have been a couple of issues that have occurred and more that will need to be addressed to achieve its goal of giving the member more control of the cost of care. One big issue revolves around surprise billing that comes when a member receives care from an innetwork hospital, while the actual provider who renders care is out-of-network and bills separately. In these cases, the member receives a bill from the hospital for the services that fall under its umbrella and receives yet another from the provider. Receiving multiple bills for the same episode, one of which is out of network and more costly can be confusing and frustrating to the member. This dynamic isn’t new and is well documented. However, this issue isn’t addressed in the Hospital Price Transparency Rule because “physicians and nonphysician practitioners who are not employed by the hospital are practicing independently, establish their own charges for services, and receive the payment for their services, we indicated we did not believe their charges for their services would fall within the scope……as they are not services provided by the hospital[2]”.

One of the main documented issues with the rule involves monitoring hospital non-compliance and actions intended to address it. The policy provisions address these issues of noncompliance by giving a warning to a hospital, followed by requesting a corrective action plan (CAP) if needed, imposing civil monetary penalties (CMPs) and publicizing it on a CMS website. It also specifies that if the hospital does not respond to CAP requests, in addition to failure to provide data on any one of its standard charges, constitutes non-compliance and will expose the hospital to CMPs and public notice of its failure to comply. The daily monetary penalty for noncompliance would be $300. CMS proposed that “even if a hospital is in violation of multiple discrete requirements of proposed 45 CFR part 180, the maximum total sum that a single hospital may be assessed per day is $300[3]”. On the surface this may seem like an outcome a hospital would want to avoid but given the extent of the administrative burden transparency imposes and competitive leverage it would lose, hospitals may choose to just pay the $300 a day max penalty. In fact, this appears to be the case. A recent report found that, “just over six months after the hospital price transparency rule went into effect, only 5.6% of hospitals are compliant[4]”.

Although flawed and imperfect, the Hospital Price Transparency Rule takes a step in the right direction. With any goods or services, when those who are consuming such services are almost entirely insulated from its cost there will be no incentive to choose efficient providers. This is particularly true when services have such an inelastic demand as healthcare. There will always be demand with portions of the population unable to avoid the need for healthcare and usually unconcerned with its true cost so long as the services address their issues. It is intellectually lazy and dishonest to utilize the largest of sticks, the federal government, to force, dictate, prescribe, or set the costs and funding arrangements for all healthcare. Competition, transparency, freedom of choice have proven to be potent motivators to increase efficiency in marketplaces and could do so in healthcare as well.






About the Author

Sean Lorentz, FSA, MAAA is a Consulting Actuary at Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.