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Affordability

Pricing transparency regulation got off to a rocky start in 2021. Will 2022 be any better?

Gabriel Perna | January 19, 2022

In this series, Health Evolution is examining the year 2021 in health care through the lens of our eight imperatives. We will be examining the trends that were at the top of CEOs’ minds throughout the past year and what may come in 2022. This week: Addressing affordability  

 

Previously:      

Strengthening system resilience      

Confronting the mental health crisis.    

Escalating Health Equity    

Advancing new models of care   

Securing data advantage 

Realizing medical breakthroughs 

In 2021, the pricing transparency era got off to a tumultuous start. 

The Hospital Pricing Transparency rule went into effect at the beginning of 2021, requiring hospitals to “provide clear, accessible pricing information online” through a comprehensive machine-readable file with all items and services as well as a display of shoppable services in a consumer-friendly format.  

How did that rule go over?  

According to researchers at University of Minnesota School of Public Health, only 1 in 4 sampled hospitals reported all required data elements in machine readable format. Of that one quarter, only a percentage were posting the negotiated prices between payers and providers, which is a requirement of the Hospital Price Transparency rule. Slightly more than 70 percent of hospitals reported data in a consumer-friendly format with the majority doing so through the availability of an online price estimator tool. But this varied across different types of hospitals with non-profit hospitals (versus for-profit and public) and those affiliated with systems (versus independent) more likely to report consumer-friendly information. 

There are a lot of reasons why compliance with the pricing transparency rule didn’t even come close to 100 percent, says Sayeh Nikpay, PhD, Associate Professor, Division of Health Policy and Management at the University of Minnesota School of Public Health and one of the authors of the study. For one thing, she says it came out at the worst possible time.  


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“Can you imagine a time where hospitals were more overburdened with everything else? Asking hospitals to comply in 2020 with this policy, even though it didn’t completely overlap with COVID, was very difficult to do,” says Nikpay.  

Other studies confirm that the government had some challenges with compliance of the hospital pricing transparency rule in year one. A study published in Health Affairs found that 65 of the nation’s top 100 hospitals were clearly noncompliant with the rule. The researchers added that the number they arrived at was almost certainly an underestimate. It was enough of a problem that CMS reached out to more than 250 hospitals to issue a warning about their noncompliance, according to Bloomberg Law. 

Lack of a financial disincentive  

Beyond COVID, finances played a big part in why hospitals were not complying with the transparency rule to the degree in which CMS expected. The initial fine for noncompliance hospitals was $300 per day, regardless of size. In a yearly total, this amounted to a drop in the bucket for many hospitals at just over $100,000. Moreover, as Nikpay notes, it’s also not a cheap initiative to implement.  

“The Office of Management and Budget said that complying with this policy would cost hospitals $71.4 million in 2021 alone. Even though the vast majority have EHRs, it’s not as if there is a button that you can press to send these prices to a consumer, shoppable tool or a machine-readable database. This is quite an administrative effort to make this data into something usable,” says Nikpay. After the initial implementation, the rule will cost hospitals an average of $21 million per year to sustain, says OMB’s analysis. 

What’s potentially encouraging for supporters of this rule is that the fine has been increased by CMS to $5,550 per day for hospitals with more than 550 beds. For hospitals between 31 beds and 550, it’s the number of beds times $10. And for hospitals with under 30 beds, it remains $300. This means the total goes up to more than $2 million for larger hospitals, which is harder to write off. Nikpay says it should move the needle.  

“When you look at hospitals’ operating revenue, that’s a much bigger number,” says Nikpay. “Now that skin is actually in the game, are they going to comply? What economic theory tells us is yes, they should be complying. We have yet to compile the data but we’re going to look at it very soon. This is important because it’s a much bigger penalty.”  

Turquoise Health, which creates pricing transparency software for payers and providers, looked at the compliance data throughout the year and saw an uptick when CMS announced the increased penalties in July, says Marcus Dorstel, head of operations at Turquoise.  

I would encourage health care CEOs to put themselves in the consumer mindset. Walk through the process and see whether they are able to get a shoppable pricing experience in an easy way.  Very often, they’re complying with the rules but it's still not easy for the consumers.

Florian Otto, Cedar

The problem with pricing transparency  

Michal Horný, PhD, Assistant Professor, Department of Health Policy and Management, Rollins School of Public Health, Emory University, says the fines may increase compliance, but he’s not sure it will have an impact on cost of care. He says that prices posted by hospitals only include services rendered by employees, not contractors. 

“Even if all hospitals comply with this rule, they will still be prices only for services that are provided by the hospital employees. It will not include the prices provided at the hospital by independent contractors. Hospitals don’t necessarily know the prices of the services by these contractors. What that ultimately means is that patients will not be able to find the ultimate price for the service or procedure they are seeking,” says Horný.  

Horný’s team conducted research and found independent practitioners were frequently involved in the delivery of shoppable hospital-based care. In evaluating 4.5 million encounters for shoppable health care, they found that more than 80 percent of medicine and surgery services included independent practitioners. This is one major challenge, he says, with pricing transparency rules. 

“If you go to a restaurant and you order a steak with a side of potatoes, you’d get a menu and it would say the price. Imagine if the price was only for the meat—not for the potatoes, the plate, the work of the cooks in the kitchen. You can’t get a meal at a restaurant with all those elements included in the experience. But if you saw a price of just the ingredients and then got a bill that includes all the charges for the cooks, the dishwashers, the plates and silverware, it would be unexpected. This is how the health care system is designed,” says Horný. “It’s very unlikely pricing transparency as implemented would lead to lower costs of care. It’s possible but I don’t see it happening.”  

Competitive concerns 

To date, Nikpay says that the evidence doesn’t point one way or another to whether or not billing information leading to more consumer choice on shoppable services. She says it’s specific to the context and could change as more hospitals comply with the rule.  

What’s potentially causing some hesitation is the belief that the information could also lead to different market dynamics between competitors within a region. This was why Texas-based Christus Health initially declined to post prices—saying that it would be useful to competitors. However, the system ended up flipping the script and posted a price estimator later in the year.  

Competitive concerns may have been a factor in certain markets where there is less consolidation, says Dorstel. Turquoise’s data found that some markets—such as Minnesota and South Dakota—had high compliance rates of up to 65 percent. In other markets—such as Louisiana and Colorado—less than 25 percent of hospitals complied with the law.  

“It seemed like in certain markets, there was a game of chicken between some of the largest hospitals. They were waiting for their competitors to post a file before they posted theirs because no one wants to be the first to put their rates out there for the public if their competitor didn’t post rates,” says Dorstel.  

Consumers driving trend 

On top of the increased fines, 2022 will also see the introduction of the No Surprises Act. This bill prohibits doctors, hospitals, and other covered providers from billing patients more than in-network cost sharing amount for surprise medical bills. It also requires private health plans to cover out-of-network claims and apply in-network cost sharing. There’s also the Transparency in Coverage Rule, which requires certain insurers to publish in-network provider rates for covered items and services, out-of-network allowed amounts and billed charges for covered items and services and negotiated rates and historical net prices for covered prescription drugs. Enforcement on that one will begin on July 1 of this year. 

Consumers hold perhaps the most potential to drive pricing transparency forward. According to a survey of consumers from Cedar, a health tech company, 90 percent say the quality of the billing and payment experience—in terms of consolidated bills, simplified explanations, payment options—is an important factor in whether they will return to a health care provider. Nearly 80 percent of respondents are willing to pay for the out-of-pocket cost prior to (or at the time of) the visit if given a guaranteed price. 

“Health care providers should see everything from the consumer mindset. They shouldn’t think what the competition is doing in comparison,” says Florian Otto, CEO of Cedar. “I would encourage health care CEOs to put themselves in the consumer mindset. Walk through the process and see whether they are able to get a shoppable pricing experience in an easy way.  Very often, they’re complying with the rules but it’s still not easy for the consumers.”    

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email at gabrielp@healthevolution.com or on Twitter at @GabrielSPerna