November 15, 2019 Advisory Board's take: Why this rule could potentially backfire

The Trump administration on Friday released two highly anticipated rules that aim to increase price transparency among health care providers and insurers.

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The two rules include the final piece of the 2020 Hospital Outpatient Prospective Payment System (HOPPS) final rule that will require all hospitals operating in the United States to publish the negotiated rates they reach with insurers for health care services, and a proposed rule that would bolster price transparency requirements for health insurers.

HHS said CMS released the latest rules in accordance with an executive order President Trump signed earlier this year that directed the department to increase price transparency in health care.

CMS finalizes requirements that US hospitals post discounted prices

CMS in a fact sheet said the final rule updates calendar year 2020 HOPPS regulations to require all hospitals operating in the United States to publish the negotiated rates they reach with insurers for health care services.

According to CMS, the final rule implements Section 2718(e) of the Public Health Service Act and updates previous guidance that already requires hospitals to make their standard charges available to the public upon request, as well as to publicly post prices for certain services in a machine-readable format.

Under the final rule, hospitals beginning in 2021 will be required to post online "a machine-readable file … that includes all standard charges (including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges) for all hospital items and services." Hospitals under the rule also will have to publicly post "discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges for at least 300 'shoppable' services."

The final rule defines hospital "items and services" as "all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge," CMS said.

CMS in the final rule defines a "hospital" as "an institution in any state in which state or applicable local law provides for the licensing of hospitals, that is licensed as a hospital pursuant to such law, or is approved by the agency of such state or locality responsible for licensing hospitals, as meeting the standards established for such licensing." CMS said the definition includes all institutions enrolled in Medicare "that are licensed as hospitals (or approved as meeting licensing requirements) as well any non-Medicare enrolled institutions that are licensed as a hospital (or approved as meeting licensing requirements)." CMS said federally-owned hospitals that do not typically treat the general public already are considered in compliance with the final rule "because their charges for hospital provided services are publicized to their patients."

The rule also finalizes methods for CMS to monitor hospital compliance with the requirements, as well as actions the agency can take against non-compliant hospitals including warning notices, requesting corrective action plans, and levying civil monetary penalties that could equal as much as $300 per day. CMS also can publicize penalties against non-compliant hospitals. Under the final rule, hospitals will be able to appeal the penalties.

CMS proposes price transparency regulations for insurers

CMS in a fact sheet said the proposed rule, which HHS released in conjunction with the Department of Labor and the Department of the Treasury, would require most group health plans—including self-insured health plans—and health insurance issuers to disclose cost-sharing and price information to enrollees, beneficiaries, and other participants.

Specifically, the proposed rule would require all non-grandfathered group health plans and health insurance issuers offering non-grandfathered health plans in both the individual and group markets to make personalized out-of-pocket cost information available to all beneficiaries, enrollees and authorized representatives, and other participants. Affected entities would have to make the information available for all covered health care services and items via "an internet-based self-service tool and in paper form upon request," CMS said.

CMS said the proposed requirement would allow most consumers "[f]or the first time … to get estimates of their cost-sharing liability for health care for different providers, allowing them to both understand how costs for covered health care items and services are determined by their plan, and shop and compare costs for health care before receiving care."

The proposed rule also would require all non-grandfathered group health plans and health insurance issuers offering non-grandfathered health plans in both the individual and group markets to make public the rates negotiated with providers that are included in a health plan's network, as well as "historical payments of allowed amounts to out-of-network providers through standardized, regularly updated machine-readable files." CMS said affected entities would have to make the data available to all public, including "stakeholders such as consumers, researchers, employers, and third-party developers."

CMS said the agency under the proposed rule would allow health plan issuers "to take credit for … 'shared savings'" generated by empowering consumers to shop for health care services "in their medical loss ratio (MLR) calculations." According to CMS, affected entities under the proposed rule "would not be required to pay MLR rebates based on a plan design that would provide a benefit to consumers that is not currently captured in any existing MLR revenue or expense category."

CMS in the proposed rule also is seeking comments on additional efforts to improve health care price and quality transparency, particularly on:

  • How health care quality information can be incorporated into the proposed rule; and
  • Whether the agency should also require health insurance issuers to make the cost-sharing information referenced in the proposed rule "through a standards-based application programming interface."

CMS will accept public comments on the proposed rule for 60 days after it is published in the Federal Register. All of the provisions included in the proposed rule—except for the MLR provision—would take effect for plan years that begin at least one year after the proposed rule is finalized. The MLR provision would take effect beginning in the 2020 MLR reporting year.

Azar says changes will 'shin[e] light on the costs of … shadowy [health] system'

HHS Secretary Alex Azar in a release said, "Trump has promised American patients 'A+' health care transparency, but right now our system probably deserves an F on transparency." He added, "Today's transparency announcement may be a more significant change to American health care markets than any other single thing we've done, by shining light on the costs of our shadowy system and finally putting the American patient in control" (Armour, Wall Street Journal, 11/5; HHS release, 11/15; CMS CY 2020 Hospital Outpatient Prospective Payment System Policy Changes fact sheet, 11/15; CMS Transparency in Coverage Proposed Rule fact sheet, 11/15; LaPointe, RevCycleIntelligence, 11/15; King, FierceHealthcare, 11/15).

Advisory Board's take

Robin Brand, Senior Director, Revenue Cycle Advancement Center and Rachel Sokol, Practice Manager, Health Plan Advisory Council

While the Trump administration's announcement this morning will certainly raise the blood pressure of many in the industry, it's something we've been expecting for some time. Here are some high-level takeaways we see for providers and payers:

Implications for providers: More price transparency is probably a good thing

For providers, we knew that this rule would eventually be finalized after being proposed in the OPPS FY 2020 rule. It's also in keeping with the continued trend from this administration towards greater price transparency.

We know that price transparency is a good thing—and a critical piece of a positive patient experience. The rule is clear that it wants to inflect health care costs through encouraging patients to shop for services by cost, and this will certainly have an impact. However, our research has found that providing patients information about their out-of-pocket costs is not just about letting them shop, but—given the sheer size of patient obligations—also about allowing them to prepare and budget for these costs.  

We have very recent data showing that 76% of health systems report providing patients a price estimate personalized to the patient's insurance plan type. Yet we know from our patient surveys that only 41% were offered an estimate proactively. Therefore, it's clear that proactive price estimates still aren't a consistent part of the patient financial experience—and that's something this rule would remedy.

As much as this will require investments of time and resources, particularly for health systems that have yet to invest in a patient-facing price transparency tool, we have to agree that the aim of this rule is positive. Patients deserve to have as much information around what they'll be expected to pay as possible, and as much as we can routinize and automate that process, the better for the patient (plus the more likely health systems are to collect on those obligations).

Implications for payers: Most already have these tools, but they could face unintended consequences

Even if this proposal is not blocked in the courts (which it may be given that HHS likely does not have the authority to force the disclosure of negotiated rates), we don't expect that large an impact on payers.

It's unclear to us how the tools the administration is mandating will be any different than the tools that most payers already have on their websites. Indeed, most of the plans we work with already have personalized estimate tools for consumers, and most would love if more people used these tools. The problem is that few have incentives to use them. Part of the problem is that many people don't have multiple options for care—meaning that their ability to make decisions on price is severely limited. The second is that, once individuals meet their deductible, they become highly price insensitive and not motivated to shop.

Not to mention, we see time and time again that physicians heavily influence where their patients go for treatment. That is, if their doctor recommends a certain specialist for follow-up, they will go to see him or her—even if it is the most expensive option.

Finally, we know that, even if someone can get an estimate before care, the final cost often changes. Providers will add additional tests or rates will change, and patients may therefore end up with a very different cost than they bargained for.

We'd have to address all of these factors if we actually wanted a viable market for health cost information and true consumer price shopping. Yet, that's not to say that the administration's effort won't be felt. The industry should see this proposal as a significant sign from the administration that they want to put downward pressure on hospital prices. And it's possible that having these prices online could shame high-price providers into lowering prices (as happened in North Carolina in 2013 when the state government mandated public disclosure of prices for the most common DRGs).

However, one concern we have is that having more accurate negotiated rates online could actually backfire—possibly increasing prices if providers see that payers are giving their neighbors higher payment for the same services. Such tools (and the fact that they will be more accessible to the public) could give providers ammunition to ask for higher rates.

In sum, this seems like the administration's answer to rising health care costs in the era of Medicare for All. It's a very conservative principle to try to make markets work, and this is the administration's hope that increasing transparency in costs will help the markets operate better for the consumer.

We'll be exploring this news much deeper in an upcoming blog post and digging into some of the legal questions, implications for the broader industry, and broader takeaways for providers. Stay tuned for more.

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