How Are Hospitals Complying with Price Transparency?

Recent studies have shown that many hospitals are not publishing their prices as required by the rule. Did you anticipate this kind of reaction from providers?

It is going pretty much the way I expected. I think there are a couple of things to remember about the rule, though. Hospitals are doing a pretty good job of compliance on one part of the mandate that’s related to payers’ making a price shopping tool available. It’s inclusive of 300 standard services, 76 of which are required by CMS [the Centers for Medicare & Medicaid Services], and for the rest, providers can choose which services they want to post pricing information for. With those 300 common services, patients can easily identify what their out-of-pocket costs will be if they are paying cash. We have a tool that helps providers figure this, and we had a huge surge of providers reaching out to us wanting to use that tool to get things up and running when the rule went into effect. This is good because it achieves the goal of giving patients a mechanism to know what their out-of-pockets costs might be.

But hospitals have been less compliant with other parts of the rule, correct?

Yes, there is a requirement for the hospitals to create a machine-readable file that includes chargemaster and negotiated payer contract rates as well. We did some analysis this summer and looked at 100 provider sites across the country. Fifty-four percent had some form of file there but were not really fully compliant. Those that have all of the required data they are supposed to have is closer to about 5% of those we surveyed.

Originally in 2019, CMS released a mandate for hospitals to publish their rates publicly, but it ended up being just a raw price list and didn’t help patients really have an idea of what their cost of services was going to be. For instance, a hip replacement showed to be $28,000, but no patient was ever going to pay that. With the new rule, hospitals have been good about posting the self-pay rate most consistently. If someone doesn’t have insurance, they can at least use that list to get some better clarity of what they might pay.

The problem is for patients who have insurance coverage: hospitals haven’t done a good job of being clear about those prices. Some may list a few of their major payers like Aetna, Cigna, Humana and United, but we know that hospitals have more than four payer contracts.

The other piece they aren’t being clear about is that they have more than one Aetna plan and are getting reimbursed at different rates, and which plans the hospitals are using to set their online rates are not clear to the patient either. I think the talk in the industry is about trying to get to a place where hospitals are moving toward solving for those challenges, but they are not there yet.

CMS has fines for hospitals out of compliance with the rule, but it hasn’t started doling them out. Do you think those fees would incent providers to publish all of the information required?

I think CMS recognizes that the current fine structure is not providing enough teeth to incentivize providers [it’s currently up to $300 per day if an organization is not in compliance]. The next rule should give clarity on increasing fines, and we think we’ll see a whole lot more compliance [CMS is increasing the amount for larger hospitals, with a minimum of $109,500 and maximum of more than $2 million a year for larger organizations]. This spring, CMS started issuing noncompliance letters but not fines. That did spur a number of hospitals to start moving into action, but it’s a process and they are all still moving in that direction. I still feel at this point that the purpose is to create more of a national conversation on price transparency, which is exciting, because we need to get that clarity that patients deserve.

Why has complying with the rule, and creating pricing transparency in general, been such a challenge in the industry?

It’s a whole host of factors. First, there is some complexity around it. We’ve been receiving calls from clients asking if we can build something for them, but it is their data and they should be able to use that information and do analytics on it. They just may not always have the right resources to do it. There are also competitive pressures as well. If a hospital is in a competitive market, they don’t want their pricing to be disclosed for others to see.

Detractors of requiring price transparency claim that it could lead to more consolidation and price increases. Are those potential side effects?

I have wondered about that as well. But I do think the current administration is trying to safeguard against that by scrutinizing larger health system mergers. If a large system owns a whole market, I could see how it would lead to price increases.

But there is potential to safeguard against price increases. With large employers, if they can see rates for other hospitals that are somewhat nearby, they could send a patient to get a procedure done for $2,000 less, and it might be worth it to do that. That is where true transparency empowers employers to reduce costs.

Where a lot of the friction is, is because healthcare is a slow-moving market. It is always late in the adoption of technology and movement in that area unless it’s on the clinical side. But I think providers are starting to see the writing on the wall that these prices are not sustainable in the long term. Even for their own employees: in many towns, hospitals are the largest employer, so they have to be feeling that same pressure that they shouldn’t be doing some of these services for their own employees. They could be sending them elsewhere for services like imaging and outpatient surgeries.

When the curtain is pulled back, it may be painful for providers, but ultimately it will be a good thing. I have read that there may be price increases, but that’s not my perception. Ultimately there will be some price normalization. If a hospital is in a high-density metropolitan area with lots of providers and those prices can be easily seen, the higher-priced ones will have to justify and have better outcomes and quality. Especially for general services, if they can’t justify higher prices in a meaningful way, they will have to fall in line closer to what the average is in the market.

Another claim is that the data won’t be usable for patients. Is that a valid argument against the rule?

This really isn’t going to be all that usable by patients, in part because the requirements indicate all items and services. When I’ve gone in and looked at some hospitals’ files, they have 17,000 rows of data when they include all their services, and I’m not sure how a patient can really, in all seriousness, navigate through that. My suspicion is that patients aren’t really the target audience here.

There is going to need to be some sort of technology that will sort that or make it simpler to read. Or CMS could expand the required 300 services maybe to 500. Some sort of shoppable tool piece does essentially get patients the information they need, and that may be why we aren’t seeing as much pushback for hospitals to be fully compliant. Maybe patients feel like at least they have something already.

How does transparency benefit patients then?

The big winner of increased transparency should be patients when you think about how much deductibles have increased in recent years. Most people don’t have enough in their savings account to even cover their deductibles much less other out-of-pocket costs.

If providers could take a step back, they would see their costs for collection should go down as well. If they have conversations with patients and give them pricing information sooner, they could offer payment plans or help patients get charity assistance. And there is technology to enable those conversations. We have one large client that sees multiple thousands of patients every day. There is technology that helps them understand who they may need to have conversations with and how to talk with them about finances. That way, the provider knows where they need to be spending their time and energy.

Since COVID, when revenues have dropped, a lot of organizations really depend on automation and technology that can do some of that initial analysis. The tech directs them by using demographic or age range. Younger patients might want to get a text saying, “You are coming in next week for an MRI, here is the cost, and if you pay in advance, you get a 5% reduction in cost.”

Providers don’t welcome having that conversation with patients, so they embrace technology instead of always having to use a financial counselor. Technology can be used for some patients, and they can focus those scarce people-resources where the dollar threshold is higher or the likelihood of payment is lower.

Will price transparency have an impact on payers like self-insured employers?

Large self-funded employers should be excited about price transparency because they can use it for benchmarking for provider negotiations. But it will also provide some insight into understanding where employees can get care and understand the cost in different care locations.

For instance, if an employee needs to have an MRI, they could go to a freestanding imaging center which offers a flat co-pay. Or they could go to a hospital where co-insurance would apply. Large employers should understand about smart benefit designs, and they can use incentives to get workers to go to less-expensive centers which brings costs down for the employer and employee.

Improved transparency helps employers better understand where they are spending their dollars, which could make premiums come down and costs come down. Better management of costs all comes down to having better clarity of prices.