Price Transparency is Coming: what Does it Mean, and Will You Be Ready?

If you’ve been keeping up with healthcare news recently, you’ve seen a lot of chatter regarding a concept called “price transparency.” While it has variations in meaning, the idea is that consumers should know in advance the cost and quality of the care they seek from doctors and hospitals. By having more information, the consumer can make better and more informed decisions as to when and where they seek care.

Many health plans already have common procedure cost look-up tools where consumers can look up the price of procedures such as knee or hip surgeries at different providers in a given area. Some, even have calculators where the consumer can see both the provider’s negotiated payment rate from the insurer and their own actual out-of-pocket costs. The Trump Administration is in the midst of taking this concept even further for providers and health plans. Let’s examine what they are trying to accomplish and how and if it could work.

In late July of this year, the Centers for Medicare & Medicaid Services (CMS) proposed a rule forcing hospitals to post both their raw standard charges (gross) as well as their negotiated payment rates with various health plans. This information is to be posted online in machine-readable format and made “consumer friendly.” The rule also requires posting of data for at least 300 common “shoppable” procedures (imaging, outpatient visits, lab tests, bundled services, etc.). The administration’s goal is to arm consumers with the information they need to make educated decisions on where to go for care. They also suggest that competition between hospitals will increase by exposing costs. The rule imposes a penalty of $300 per day for non-compliance.

Needless to say, many industry stakeholders have an interest in the rule and over 1,400 comments were collected and evaluated. Many in the healthcare industry, from hospitals to health plans, had significant reservations about the effect of transparency on their business models, and they convinced the administration to hold off on implementation. In addition to concerns about intrusions into their business practices, the industry has put forth a three pronged argument:

  • First, the administration does not have the statutory authority to require sharing of this type of information.
  • Second, that the rule will not give consumers enough information to be helpful since pricing is not correlated with quality.
  • Third, they argue that rather than reduce prices, the rule will reduce competition and drive pricing higher. In essence, this third argument is that a pricing floor would be created where hospitals that charge lower rates will raise them rather than hospitals with higher rates lowering them. Some commentators have also argued that the rule will only create unnecessary confusion for the consumer if there aren’t any calculators to accommodate for an individual’s specific insurance plan and out of pocket costs.

Based on industry reservations, in early November, CMS announced a delay in the implementation for this rule. That delay lasted only until mid-November when the rule was finalized with a go-live date of January 1, 2021 (was originally to be January 1, 2020). In addition, CMS simultaneously released a new proposed rule that expanded transparency to health plans. In short, the proposed rule would require health plans to:

  • Give consumers real-time, personalized access to cost-sharing information, including an estimate of their cost-sharing liability for all covered healthcare items and services, through an online tool. Most group health plans and health insurance issuers would be required to make such a tool available to all of their members at the consumer's request.
  • Disclose on a public website their negotiated rates for in-network providers and allowed amounts paid for out-of-network providers.
  • The proposed rule would also encourage health insurance issuers to offer new or different plan designs that incentivize consumers to shop for services from lower-cost, higher-value providers by allowing issuers to take credit for "shared savings" payments in their medical loss ratio (MLR) calculations.

As with the hospital rule, the proposed health plan rule is also facing resistance from the industry. This is not surprising, since few industries welcome outside regulation into their business practices. There will always be unintended consequences to any rule, and one hopes that any final rule ultimately provides more benefits (increased competition and educated consumers) rather than drawbacks (increased pricing, decreased competition).

The concept of price transparency makes perfect sense for healthcare if it can be done in an easy to understand manner that also takes into account the quality of care. Even without government intervention, at some point crowdsourced data on cost will become available (though likely only partially reliable). The complexity of healthcare makes good cost and quality data difficult to synthesize. Data flows in multiple directions and in different formats. Analysis needs to be conducted on a variety of levels to ensure that the output is helpful to the consumer.

Despite likely court challenges to the CMS rules, price transparency is happening. Managing the data flow will create a heavy lift for both health plans and health care providers. It’s prudent to get ahead of changes and invest in getting your data in order. Colibrium will continue to keep its clients educated about industry changes. Colibrium will also continue to consult on system and data impacts ahead of final rulemaking. Price transparency is here. Let’s find a way to work together to make it useful for consumers and beneficial for providers and health plans.