CMS’ latest transparency rules: A true game changer or much ado about nothing?

by Christopher Kerns, Eric Fontana, Yulan Egan, and Rachel Hollander

On Friday, CMS released two highly anticipated rules that aim to increase price transparency among health care providers and insurers.

The two rules include the final piece of the CY 2020 Hospital Outpatient Prospective Payment System (HOPPS) final rule, which will require hospitals to publish the payer-specific negotiated rates for all items and services, and a proposed rule that would bolster price transparency requirements for health insurers. The provider rule will go into effect January 1, 2021, while the proposed insurer-based rule would go into effect at the same time, if finalized.

We’ll unpack details of the final rule on hospital price transparency in greater detail this Thursday—but in the meantime, here are the key details you need to know, as well as our take on the news.

Thursday: Examine CMS’ new rules on hospital price transparency

What you should know about the rules

The final rule on hospital price transparency requires hospitals to publish standard charges for all items and services—including service bundles—delivered to a patient during an inpatient admission or outpatient visit. CMS has finalized the definition of “standard charges” to include:

    1. Gross charges, which are the charges that appear on the hospital chargemaster, absent any discount;

    1. Payer-specific negotiated charges, which are the charges the hospital has negotiated with a third-party payer;

    1. Discounted cash prices, which are the charges that apply to an individual who pays in cash, or cash equivalent; and

  1. De-identified minimum and maximum negotiated charges, which are the lowest and highest charges, respectively, that a hospital has negotiated with all third-party payers.

Effective January 1, 2021, hospitals will be required to publish this information in two formats. The first is a machine-readable file that includes all standard charges listed above for all hospital items and services, including service bundles. The second is a “consumer-friendly” display of payer-specific negotiated charges, discounted cash prices, and de-identified minimum and maximum negotiated charges for at least 300 “shoppable services” (which CMS defines as any service that can be scheduled by a health care consumer in advance).

The proposed rule for health plan price transparency, which HHS released in conjunction with the Department of Labor and the Department of 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 via  internet-based self-service tools, and in paper form upon request. CMS will accept comments on the rule for 60 days.

Whether or not CMS has the authority to mandate such disclosure remains unclear. Just hours after the final hospital rule was released, four major hospital groups stated their intention to file a lawsuit challenging the new requirements. What is certain is that if these new rules survive the forthcoming legal challenges, they will have a notable impact on market dynamics, with potentially game-changing implications for health care prices and contract negotiations between plans and providers.

Advisory Board’s perspective

The vociferous reaction to the rule underscores how momentous such a mandate would be for the provider industry. Few rules have the potential to transform the hospital and health system business model as fundamentally as this one. That said, the anxiety such transformation conjures has also been tempered by a general skepticism that these rules will ever enjoy the force of law. We’ll leave it to other experts to provide legal comment. For now, a few observations:

1. Mandated price disclosures would immediately put nearly every provider and payer on defense.

The first thing that public airing of hospital and health system pricing would reveal is the degree of variation in price that different payers pay—a variation that is far more likely to be explained by market leverage than any other factor. Not that price differentials are indefensible; providers able to show demonstrable differences in quality, patient experience, access, etc., may be on better footing to explain the variation. But in our experience, few organizations are prepared to make such a case.

The scrutiny wouldn’t end with providers. Payers would be questioned on how they can justify certain organizations in their networks, and even CMS would face questions on its significantly less generous reimbursement for Medicare and Medicaid claims. Both payers and providers would be forced to defend the economics of cross-subsidization—not a great starting position from a public relations standpoint.

2. Organizations that don’t have defensible explanations for steep variations in price would be under immense pressure to lower overall prices, drastically undermining the cross-subsidy model.

Greater sunlight on market variations in price that can’t be explained beyond market leverage could place enormous pressure on providers to accept lower prices (even trending toward Medicare rates). Mission-based, nonprofit organizations may find themselves under special pressure to do so given their tax-exempt status. Such a move fundamentally undermines revenue and cost models based on a cross-subsidy of private to public payers, forcing dramatic and painful choices on cost structures.

Some objections to the rule point out that more disclosure might cause prices to spike if lower-priced organizations demand higher rates from payers to match those of their market’s larger systems. There is some logic to this argument, but the degree of opposition to the rule suggests that most providers do not expect higher rates (and therefore higher revenue) as a long-term consequence of such a rule.

3. The actual impact on provider, payer, and consumer behavior is far from clear.

Would consumers actually use this information to shop? How might providers and plans use information about competitor pricing in contract negotiations? To what extent would other stakeholders—the media and employers, for example—use such information to put pressure on plans or providers? The impact of these disclosures depends on a variety of factors, each difficult to predict on its own, and all of them made more complex by their potential interactions with one another. Notably, even CMS acknowledged in the proposed rule that the “impact resulting from the release of negotiated rates is largely unknown.”

4. The release of privately negotiated rates would create winners and losers on both sides—and enough losers on each side that is has two major segments of the industry up in arms.

Many of the recent health policy solutions under consideration (including the surprise billing debate) clearly position entire segments of the industry as winners and others as losers. Rate disclosures, on the other hand, could very likely have differential impact within industry segments. Larger health systems that have leveraged their scale to negotiate higher rates could see those prices challenged, while smaller providers could use the data to improve their negotiating position and extract higher rates. Revealing negotiated rates could also further tilt regional markets toward dominant players with influential providers trading lower reimbursement for guaranteed volumes through network tiering and steering clauses with influential plans.

Ultimately, the impact of this type of mandate would likely vary widely by market and depend heavily on the relative balance of power between plans and providers in a given geography, along with levels of competition in the market.

Our conclusion

This debate is unfolding against the backdrop of growing public anger regarding the unaffordability of health care in the United States—and hospitals and insurers are two top targets of that backlash. We firmly believe that greater collaboration and less adversarial relationships will be key to delivering against the industry’s affordability mandate.

However, in the short term, providers can be forgiven for objecting to such potentially disruptive regulations mandating greater transparency, given the likely impact to business models. And it’s far from certain that CMS even has the legal authority to create such regulations. But over the long term, such resistance is unlikely to gain much public sympathy if and when the industry is subject to greater price transparency. The strongest long-term position is to work to control costs, improve quality and access, and provide a patient experience worthy of the price differentials that exist today.

 

Register for our national meeting to get a deeper dive on the affordability mandate

This series will unpack the increasing need to deliver on demand for affordability and provide a playbook for capturing ambulatory growth.

What patients want along their financial journey

Follow the patient financial journey, from pre-care through billing and collections. Learn a patient’s questions and fears that arise at each step, and what tools and support your revenue cycle program must proactively provide.

This entry was posted in Community Paramedicine Articles. Bookmark the permalink.