CMS' new price transparency rule is now a reality for hospitals across the country. But a recent Advisory Board analysis of 50 randomly selected hospitals found that three months in, 52% had published a Machine-Readable File (MRF), but only 14% appear to have followed all CMS guidelines.

The results present both near- and long-term questions about hospital compliance, the future of the price transparency policy, and its capacity to bring about industry change. Below, we've broken down five of the most important questions that will ultimately determine the long-term impact.

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1. How will CMS judge compliance?

It is still unclear whether CMS will evaluate compliance as an all-or-nothing proposition. In our analysis, hospitals responded to the price transparency regulation in different ways—some excluded the most consequential elements, such as payer negotiated rates, while others omitted more innocuous elements, such as hospital location. The agency recently conducted an audit and sent out warning letters to hospitals it deemed non-compliant, giving them 90 days to take corrective action. But we do not know how CMS will judge partial compliance after this grace period—or how far it will go to enforce compliance.

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Fines for non-compliance currently amount to $109,500 per year (or $300 per day) per hospital site. This is a relatively modest fine for some larger organizations—and they may be willing to absorb this cost while they navigate the practical and strategic implications of releasing privately negotiated rates.

2. Are the Biden administration and Congress committed to price transparency?

Some have questioned whether the Biden administration will abandon price transparency as a policy priority, but so far, we have no clear signals that this is the case. The administration rolled back many Trump-era regulations that had yet to take effect, but price transparency, which has historically had bipartisan support, is not one of them.

Congress has also signaled that it won't back down from price transparency. The Energy and Commerce Committee recently urged HHS to take a stronger stance on enforcement by addressing discoverability concerns and increasing civil monetary penalties. These signals from both the Biden administration and Congress indicate that price transparency is here to stay.

3. Will the release of commercial rates meaningfully affect pricing and negotiations?

The release of privately negotiated rates is considered the most consequential and controversial element of the price transparency regulation. In theory, health plans and employers could use this new information to benchmark their reimbursement rates against others and slow down the rate of price increases. However, there are a number of competing market forces that will affect how pricing adjustments and negotiations proceed—and these forces will likely play out differently across markets depending on the local dynamics. Here are two competing schools of thought:

4. Will third parties be able to aggregate pricing data and inflect market prices?

Providing employers, consumers, and the general public with wide-scale access to and insight on pricing data will have more of an impact on pricing than individual health plan or provider use of the data. But, our analysis of publicly available MRFs showed that formatting, labeling, and data definitions varied widely—assuming we could find the MRF at all. The comparability of data across hospitals is also in question due to variability in hospital reporting. One hospital leader told us that hospitals (and the vendors they hire) are using different methods to extract payer rate data. Some are reporting post-adjudicated payments, while others are reporting contractual base rates. These differences are unlikely to be apparent in vendor aggregations because hospitals don't report these nuances. The total disruptive potential of the price transparency regulation will likely be dampened until third-party vendors navigate these inconsistencies and inaccuracies.  

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Despite the constraints, vendors that are able to fill in data gaps and overlay analytics may produce a usable product that providers or payers can use as guardrails during negotiations. At the time of publication, we found only one vendor that was actively selling an aggregated pricing data product. We expect that vendors will grow in number and sophistication with time, but they currently face several challenges in creating valid and usable comparisons.

5. Is media backlash 'much ado about nothing'?

As we've noted, there's an additional aspect to compliance that is outside of CMS' purview—and that is how these rate disclosures are portrayed in the media and the general public. Both hospitals in and out of compliance could be subject to public shaming and long-term reputational harm. Hospitals that do not comply with CMS' price transparency rules may be accused of hiding their rates. Those that do comply risk being criticized for the appearance of exorbitant rates compared to lower-cost competitors.

Media scrutiny is a real and serious threat to building long-term relationships with patients and the community. It is clear that media attention can catalyze action from federal regulators, local community members, purchasers, and patients. For example, a range of reports of hospitals aggressively suing patients to recoup unpaid medical bills and stories of hefty surprise bills have compelled changes to hospital billing practices and even driven new legislation.

While media scrutiny of hospital prices is not new, the degree of scrutiny could be amplified in the future—especially due to newfound ease of access to pricing information. Hospitals should proactively build a clear and compelling public relations strategy that address concerns about pricing practices and minimizes risk.

Amid uncertainty, define your 'true north' on transparency

Much remains unknown about how CMS and industry stakeholders will use or scrutinize pricing data to lower costs, increase competition, and/or influence patient decision-making. Amid the uncertainty, we recommend that executive teams define a "true north" that will guide future price transparency strategy irrespective of the policy environment or third-party actions. For example, hospitals may choose to develop and communicate a strategy centered on key principles such as:

1. Pricing is easily accessible to patients and can be delivered in a customizable yet scalable manner to ensure accuracy;
2. Patient financial obligations are adjusted in accordance with financial need and flexible based on current propensity to pay; and
3. Growth in prices is tightly controlled by embedding cost discipline into organizational operations, strategy, and staff incentives.

These questions and hospital response strategies will be a focus of our research team for the foreseeable future. If your organization has faced headwinds regarding your response (or lack thereof) to the price transparency regulation, contact Lauren Robinson at robinsolau@advisory.com to share your experience.

Contributions from Heather Bell, Rob Lazerow, and Natalie Trebes