The Trump administration appears bent on helping consumers gain better insight into their healthcare purchases, though doing so one small bite at a time.

August 13, 2019

As contemplated in an earlier article, Why Healthcare Price 'Transparency' Is A Myth, And What Consumers Can Do About It, I offered that in 2018 the Centers for Medicare and Medicaid Services (CMS – Medicare) issued a draft rule intended, generally, to nudge health systems toward several initiatives. These included: improving the use of electronic health records and IT interoperability, providing greater price transparency of services, and empowering physicians to spend more time with their patients. This mandate went live on January 1, 2019. Nestled in the rule was the instruction that hospitals publish their prices (“charges”) online for consumers. The price lists are to be updated annually and in an “electronic” format.

As noted, this laudable goal sought to educate patients and enhance patient-centric healthcare empowering consumers to drive informed healthcare purchases and reward doctors for delivering low-cost, high-quality care with repeatable outcomes.<

However, the best laid plans; since then, health systems have seemed loath to create these data resources, and, sans punitive “incentives” to deliver on the requirement, embracing transparency has proven elusive. Compliance with this requirement has been sub-optimal at best.

Thus, the government has taken another stab at empowering consumers. CMS issued a proposal on July 29 stating, “The proposed polices in the CY 2020 OPPS/ASC Payment System proposed rule would further advance the agency’s commitment to increasing price transparency, (including proposals for requirements that would apply to each hospital operating in the United States), strengthening Medicare, rethinking rural health, unleashing innovation, reducing provider burden, and strengthening program integrity so that hospitals and ambulatory surgical centers can operate with better flexibility and patients have what they need to become active healthcare consumers.

Although the intent seems apparent, the new proposed rule uses language that clouds the issue a touch. Among other things, CMS is “proposing to define ‘standard charges’ to mean the hospital’s gross charge and payer-specific negotiated charge for an item or service.”

Generally speaking, understanding “gross charges” and “negotiated charge[s]” does not tell purchasing consumers the entire story unless, of course, CMS’ contemplation of “negotiated charges” are actually negotiated “allowables” (e.g. what the doctor or hospital has agreed upon for reimbursement for a particular service).

While these semantics seem inconsequential, they represent a gaping chasm between the charge and what the hospital or doctor actually gets paid by the insurance company. Remember, “charges” to insurance companies and patients do not necessarily impact what the hospital is paid for various procedures. As I’ve noted, hospitals and doctors are not paid what they charge but are instead paid an “allowable” that has been negotiated between the healthcare entity and the insurance company.

Whatever the narrative, the government has now considered wielding a stick to accompany its previously offered carrot. The new policy language deploys a more aggressive approach to ensuring compliance by fining “hospitals” $300 per day for non-compliance beginning in 2020.

If the new policy pushes through unencumbered, one wonders what the ultimate outcome is to the various local markets across the U.S. Could this move drive unintended quasi anti-competitive ramifications because systems will now understand what each other is paid for the same services? In Figure 1, we consider three hospitals in a competitive market.

Figure 1

Price Transparency 1

Given this publicly available data, how healthcare systems approach pricing is uncertain. For example, Hospital 3 may either consider raising its prices based on market conditions and available market pricing data, or it may consider its services to be priced fairly to compete. (e.g., as the lowest cost Hospital in the market, they may drive more business.) Or the Hospital may consider an increased allowable to meet prevailing “market” allowables. As ever, politics and healthcare constituencies aside, the unintended consequences require contemplation.

Another uncertainty is whether the publication of data will muddy the already murky waters by overloading patients with “noise” versus cogent, easily digestible data. There are about 9,000 Current Procedural Terminology (CPT©[2]) codes that can be used to bill visits, in addition to 740 Disease Resource Group (DRGs). As Figure 2 shows, each CPT can have a different allowable for each insurance company; allowables (e.g., what the doctor gets paid) for two CPT codes might vary significantly based on four insurance companies.

Figure 2

Price Transparency 1

Based on Figure 2, it becomes clearer of how this latest CMS proposal might create a complicated morass of data-driven confusion and a difficult requirement with which to comply. Keep in mind, some medical practices do not even know what their contractual allowables are for insurance companies!

This policy is open for public comment which ends in September 2019. The policy should receive feedback form all corners of the healthcare model and, one speculates, will create strange bedfellows in an effort to quash, or at least tamp down, the reporting requirements. The battle lines have already been drawn as the American Hospital Association (AHA), America’s Essential Hospitals, Children’s Hospital Association, the Federation of American Hospitals and the Association of American Medical Colleges, signed a joint statement, released on July 29, that essentially poured cold water on the proposed policy.

As with last year’s pronouncement and efforts, the administration’s steps seem to be moving in the right direction. While I’d prefer to see a “market solution” versus government intervention, the government may continue attempting to move the barometer forward in an effort to get patients more information with which to make informed healthcare buying decisions. Stay tuned. 

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