May 17, 2021

The Real Cost of Health Care: Hospitals Dragging Their Feet on Price Transparency

Shawn Gremminger photo

Author: Shawn Gremminger

This year’s landmark federal rule requiring the nation’s 6,000 hospitals to begin making pricing data available publicly was supposed to help consumers and purchasers shop more intelligently for health care services. But whether that’s actually occurring seems questionable.

According to news reports and PBGH’s own analysis, wide variation in how hospitals are presenting price information make provider-to-provider comparisons difficult. Worse yet, hundreds of hospitals have coded their price lists in ways that ensure the data is invisible to Internet search engines. The Wall Street Journal reported the practice is so widespread among both hospitals and payers that the Centers for Medicare and Medicaid Services (CMS) recently issued guidance prohibiting it.

Only 35% of hospitals complying

Then there are the hospitals that haven’t complied with the transparency rule at all, apparently willing to accept a $300-per-day financial penalty in lieu of publishing their price lists. A recent study in Health Affairs found that 65 out of 100 hospitals sampled were “unambiguously non-compliant.”

Among those that have posted prices, the numbers frequently have sparked more questions than answers. Case in point: Prices for caesarean sections provided by Sacramento-based Sutter Health varied by a factor of 10—from $6,241 to $60,584—depending on which Sutter facility did the procedure and/or which insurance company paid for it.

Hospitals point to COVID-19 challenges

The transparency final rule, which was initially published in December 2019, codified an executive order issued by President Trump the previous June that had identified hospital price transparency as a means of encouraging provider competition and reducing costs. The American Hospital Association (AHA) filed suit to block the rule’s implementation and sought an emergency stay, but a federal judge upheld the legality of the regulation in December 2020 and the law took effect on January 1.

The rule requires hospitals to post their entire list of standard charges, or chargemaster, along with discounted cash prices, payer-specific negotiated prices, and de-identified minimum and maximum negotiated charges. They also must publish pricing for 300 specific shoppable health services, 70 of which have been predefined by CMS.

Hospitals believe the Department of Health and Human Services (HHS) should exercise discretion in enforcing the rule, given the challenges facilities face due to COVID-19. Insurers, for their part, have argued that the rule will cost them vastly more than anticipated, require the sharing of trade secrets, and compel the disclosure of “staggering” volumes of data.

But key elected officials are not in a sympathetic mood. Bipartisan members of the House Committee on Energy & Commerce in mid-April urged the HHS to conduct vigorous oversight and enforce full compliance. They suggested the possibility of increasing the civil penalty amount and conducing regular hospital audits. Notably, the current penalty of $300 per day, or $109,500 annually, amounts to about 0.0033% of the average hospital’s net patient revenue of $334.5 million in 2018.

A vital tool for purchasers  

The price transparency rule was primarily envisioned as a tool to help consumers make better purchasing decisions. But it will likely prove most valuable to health care purchasers and employers, assuming standardized, accurate pricing data eventually is available nationwide.

That’s because the lack of visibility into pricing historically has been a source of enormous frustration for employers. Without pricing or care quality information, purchasers are effectively flying blind when it comes to decisions about employee health benefits. This knowledge vacuum has been exacerbated by gag clauses and other tactics some providers have used to prevent payers from sharing price or quality information with purchasers.

Equipped with payer-specific discounts and the other details required by the rule,  purchasers should be able to determine:

Greater hospital transparency could also contribute to improved health plan and pharmacy benefit management pricing visibility.

A multi-pronged approach

As important as price transparency is, it represents only one tool for addressing the enormous problem of over-priced, variable-quality health care. New payment models that align Medicare and Medicaid with private sector purchasers are necessary to ensure that efficiency and quality are consistently prioritized across the system.

And while well-functioning markets continue to represent the best way to get lower prices and higher quality, policymakers need to revise marketplace rules to ensure that drug manufacturers, hospitals and physicians don’t use anti-competitive practices to gain market power and raise prices.

Finally, protecting patients from surprise medical billing must be a key priority. Certain physician groups, often backed by private equity firms, can’t be allowed to exploit their monopoly positions to extract high prices from health plans and self-insured employers.