Blog Post

Our take: The 3 big critiques of Medicare's move toward price transparency

August 2, 2019

    On Monday, CMS released its proposed rule for updates to the hospital outpatient prospective payment system (HOPPS). Our team is in the midst of breaking down the full implications of the rule, including proposals that would advance site-neutral payments and the ongoing shift toward lower-cost care settings—you can read our initial take here and sign for our upcoming webinar here.

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    But the proposal that has garnered the most attention is the requirement for the nation's 6,002 hospitals to publish their gross charges and payer-specific negotiated charges for all items and services offered for an inpatient admission and outpatient visit. The rule would also require hospitals to prominently display these charges for at least 300 "shoppable services" on their websites.

    Not surprisingly, this proposal ignited an immediate flurry of strong reactions, with many expressing skepticism about the potential efficacy and legality of the mandates. We've been following the conversation closely—read on to get our take on three of the most common critiques that have emerged and why we think this proposal matters (despite its potential pitfalls).

    Critique #1: Posting negotiated rates isn't useful for consumers—and will only confuse them more

    Many have been quick to point out that negotiated rates are often a far cry from an individual patient's out-of-pocket obligation. Hospitals have also argued that posting payer-specific rates will overload patients with data, only confusing them further. While there is merit to both of these arguments, it's important to recognize that patients are not necessarily the intended audience for this data in its raw form. In fact, CMS has been explicit in its desire for third-party transparency platforms to serve as intermediaries, translating the data into something much more consumer-friendly. CMS is also likely betting that these mandates will motivate hospitals to invest in consumer-friendly financial tools themselves. Earlier this year, our teams did some secret shopping to get a sense for how hospitals were responding to the new requirement to post their standard charges online. And while responses varied widely, many organizations did in fact supplement their chargemasters with links to out-of-pocket estimators.

    Our take: It's hard to believe that making pricing information (in any form) more accessible won’t ultimately make it easier for patients to shop on price—even if the path for getting there is indirect.

    Critique #2:  Posting negotiated rates will actually decrease competition, not increase it

    While the ultimate goal of the proposal is to increase price competition, some have argued that it could have the opposite effect by giving lower-priced providers visibility into the rates their competitors receive—and sending them running back to the negotiating table. In fact, FTC raised those precise concerns in response to similar requirements proposed in Minnesota back in 2015. However, our experience working with providers would suggest that most organizations are already well aware of their relative pricing position in the market, even if they may not have full visibility into the magnitude of the discrepancy between them and their competitors. Furthermore, it's also plausible that such transparency could have the opposite effect, and encourage payers who are reimbursing at above-market rates to ratchet down reimbursement to achieve more competitive premium price points. Ultimately, we believe the impact of this type of mandate would vary widely by market and depend heavily on the relative balance of power between plans and providers in a given geography, along with the level of competition in the local hospital and health plan markets.

    Our take: The impact of this proposal on competition would be variable. While it could lead to higher prices in some markets, it's also likely to lead to lower prices in others.  

    Critique #3: CMS does not have the legal authority to mandate such price disclosures

    Hospital and insurer industry groups have argued that the executive branch does not have the authority to mandate these disclosures and that such a requirement would be in violation of contract and antitrust laws. The administration is arguing that the ACA grants the executive branch the authority to mandate these disclosures due to provisions of the law focused on transparency. But the administration has overreached in the past. Most recently, a court overturned the administration's attempt to require drug companies to disclose the prices of prescription drugs in TV ads.

    Our take: Whether or not CMS has the authority to mandate such disclosures remains unclear. What's almost certain is that the proposal—if finalized—would invite legal scrutiny.

    What's missing from the debate

    Most of the conversation about this proposal thus far has centered on the details of the proposal itself. While those are important, there are at least three other crucial factors to consider as well:

    1. Employers are a critical potential consumer of this information—and successfully inflecting pricing in health care will require their intervention. Employers are increasingly focused on price growth and price variation as top priorities for curbing their health care spending. In fact, earlier this year, a group of employers partnered with the RAND Corporation to release a study detailing the prices paid by private health plans to over 1,500 hospitals across 25 states. While much of the debate around this proposal has focused on the potential utility of the pricing data to consumers, employers are almost certainly a more influential player (and arguably a more motivated one) when it comes to putting downward pressure on pricing. Data like this would only further embolden activated employers to pursue strategies to secure reimbursement cuts and/or shift employees toward low-price providers.

    2. This proposal is just the latest bold action purchasers have taken to minimize price growth and price variation. Recent moves to shift financial risk onto consumers and providers were largely attempts to incentivize the industry to correct itself. But as spending has continued to increase, purchasers are becoming increasingly impatient. Across both the public and private sectors—and on both sides of the political aisle—approaches are becoming more heavy-handed. Strategies that are being implemented and debated in the marketplaces and legislatures include not only mandated transparency, but Medicare-for-All, Medicaid block grants, reference-based pricing, the use of social media to "shame" high-priced providers, and Center of Excellence programs that fly patients across the country (or even internationally) to access the care and drugs they need. The message is clear: If the industry itself can't deliver on affordability, purchasers and outside disruptors will force the issue.

    3. Conspicuously absent from the public debate is any mention of quality—providers will have to act if they want it to be a meaningful part of the conversation. The laser focus on price in the absence of actionable quality information ultimately limits patients' ability to make fully informed decisions about care choice. And thus far, CMS has not made any concrete moves to require the packaging of cost and quality information together. The 90-day comment period for this proposal offers providers a clear opportunity to advance the conversation on what constitutes meaningful transparency beyond a focus just on price to include a robust discussion of quality.

    Next steps: Get a detailed analysis of the 2020 proposed rule

    To learn more about the final rule, including its proposed changes for 340B, the wage index "rural floor" calculation, and more, register for our upcoming webconference on August 27.

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