Bringing clarity and consistency to CMS’s hospital price transparency rule will be a win for all
The Centers for Medicare and Medicaid Services’ (CMS) price transparency rule requiring U.S. hospitals to provide clear, accessible pricing information online about the items and services they offer has been celebrated as a huge victory for patients. We think that celebration is premature as many hospitals are not fully complying with the rule more than eight months after it went into effect.
There are three issues at hand. First, many hospitals haven’t complied with the rule because the process of making prices more transparent comes with challenges, including revealing the market power that providers have in negotiations with payers and diverting resources that are already spread thin.
Second, lack of compliance is frustrating third parties such as researchers, who want to understand health care prices, and entrepreneurs, who want to use the data to improve the patient experience and develop new products to make tools for consumers. It also leaves patients in the dark when they try to compare pricing.
And third, even when pricing information is available, it is difficult to aggregate. If the spirit of the CMS rule is to provide consumers price transparency, even the most tech-savvy consumers are unlikely to be able to effectively compare pricing across different health care providers.
Over the long term, the advantages of the new rule will surely outweigh the costs for all parties involved, including consumers and entrepreneurs who will introduce new technology that will help create better outcomes and lower costs in the U.S. health care market.
To bring comprehensive improvement to the health care system, price transparency must be looked at through the lens of the three “S’s” — standardization, supplementation, and synergy.
Standardization: empowering efficiency and innovation
The most pressing and obvious obstacle in implementing the price transparency rule centers around the consistent use of formatting, pricing structure, terminology, and procedure codes. Without this information, it is difficult to compare data points, undercutting the intended affect.
Bridging this gap requires the public and private sectors to work together. CMS must, at a minimum, increase the penalty for not complying with the rule. As it stands, a violation carries a maximum fine of $300 a day. For providers to comply with the rule, the operational cost is estimated to be almost equal to the fine, which doesn’t encourage compliance since the penalty is not a deterrent. Clear guidance from CMS on formatting the online file would also greatly help with problems aggregating and comparing price information.
From a private perspective, health care startups should seize this opportunity to collect and aggregate pricing data in a user-friendly format. There are groups already addressing this, most notably Turquoise Health, which has created an online price estimator tool.
Leveling the playing field presents a unique opportunity for innovation to take place as third parties can maintain provider directories and leverage big data to help consumers make purchasing decisions by combining quality and patient experience data with pricing details.
Bringing transparency to the revenue side of the U.S. health care system also accelerates innovation as new entrants — who are not traditional health care firms — can more quickly grow their reach and expand their footprint as they can clearly see what the pricing landscape looks like.
While artificial intelligence and machine learning can be used to understand this pricing resource, it more importantly removes opacity from the U.S. market, allowing these technologies to deliver immediate value.
Take a disease such as multiple sclerosis as an example. It can take years to determine the proper drug regimen for a patient, a pathway that includes neurologists, radiologists, and primary care physicians. The use of artificial intelligence in radiology is not something radiologists or other clinicians immediately see value in. Yet its use has been shown to greatly reduce the time to effective treatment, and the savings on this pathway become clearer knowing exactly what a provider is compensated for by payers for a specific service — not what she or he charges for the service.
Supplementation: creating cashflow streams
One concern with the price transparency rule is that providers may lose revenue if their costs for procedures and care are higher than those of other local health care providers. There is some truth to this. Price transparency reveals not only the negotiating power of individual providers, but also how the negotiated rates for commercial insurance have traditionally been essential for the financial health of hospital systems. If commercial rate agreements were replaced with Medicaid or Medicare rates, many hospitals would fail because they are not designed to generate profitability on noncommercial rates.
The stark difference in these rates can be seen a Wall Street Journal article on the rates for cesarean sections. The base Medicaid rate, noted at $6,241, won’t cover the hospital’s operating expenses for the procedure, much less any overhead.
Publishing rates is likely to place downward pressure on the costs hospitals negotiate with commercial insurance companies. So any financial losses that providers experience due to transparency being introduced into the negotiation process will need to be offset by operational efficiencies and new revenue streams. Potential new streams include expanding service areas by focusing on digital health and moving patients to the lowest-cost locations for care while ensuring equivalent or better patient outcomes. Examples of this include moving oncology care out of the hospital and into lower cost outpatient areas, and moving outpatient care into the home when possible.
The opportunities around digital health and the ability to engage patients remotely should remove the need for the significant capital expenditures that hospitals have traditionally invested into buildings.
Price transparency also opens opportunities for direct contracting with employers for specific services. Walmart’s Centers of Excellence program, which directly contracts with specialists for specific procedures for their employees, is an example of this approach.
The pressure on margins that comes from price transparency will also make value-based care or revenue-at-risk programs more appealing. CMS has been promoting programs that reward providers on cost containment, such as the Medicare Shared Savings Program, the program which created accountable care organizations. This program has evolved over the years to allow providers to take different levels of risk. A provider new to a value-based care arrangement, for example, may choose to share only in possible savings capped at 40%, whereas a provider with experience may choose more risk, which would allow it to claim up to 70% of the savings though it can be penalized for poor performance.
Synergy: building cooperative relationships
Surprise billing, which occurs when insured patients unexpectedly receive medical bills from out-of-network providers, has become a controversial topic and point of contention as health care costs have ballooned, spurring the transparency movement. While born out of financial fairness, there is also an ancillary benefit to health care providers in complying with the price transparency rule — the potential for increased trust.
A 2020 recent survey conducted on behalf of America’s Health Insurance Plans noted that 82% of adult consumers said that medical procedure information that is more focused and digestible is more valuable than information that is comprehensive but confusing. Presenting information in desirable ways can deepen relationships that can translate into required hospital compliance for patient-centered care models where an individual’s desired health outcome is the priority, which helps offer future cost savings and improved outcomes.
The U.S. health care system and its policies are slowly making strides to create a better financial experience and a more transparent ecosystem, which in turn helps the public make more informed decisions about their medical care. But we are still a world away from a holistic solution that satisfies everyone’s needs.
While early reports show that compliance with the pricing transparency rule is low, the “three S’s” offer a path forward in which providers, payers, patients, and digital health companies can all be winners.
Chris Plance and Nilesh Chandra are healthcare experts at PA Consulting
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