The Ongoing Saga of Hospital Price Transparency
September 30, 2021
John McCracken, Ph.D.
Price discovery is a cornerstone of a market economy. In order to shop effectively, healthcare payers must be able to compare prices among providers, which in turns fuels competition and works to restrain healthcare spending.
Hospital pricing has traditionally been cloaked in a veil of secrecy, shielded from public view by confidentiality (gag) and most-favored nation (MFN) clauses. Gag clauses prohibit the contracting parties from disclosing negotiated prices to third parties, while MFN clauses prohibit a provider from giving a deeper discount to another payer, thus protecting the dominant insurer’s position by making it impossible for a competing insurer to negotiate a lower price
One consequence has been that hospitals, which represent 31% to total healthcare spending, were able to increase their inpatient prices a cumulative 14% between 2014-18, during the same period that utilization fell by -2.3% Another consequence has been the creation of wide price disparities for similar services within the same market. A Government Accountability Office report found that hospital prices for the same service within the same local market can vary by a factor of as much as 12:1. The price paid for a service can vary substantially across commercial insurers, the result of insurers and providers holding positions of varying negotiating strength.
The government’s initial effort to make hospital pricing more transparent was in the 2010 Affordable Care Act, which required hospitals to make public “a list of the hospital’s standard charges for items and services provided by the hospital.” Hospitals responded by publishing their chargemasters, a detailed listing of up to 30,000 separate chargeable items, which individually and collectively bore no relationship to actual negotiated prices. This remained standard practice until November 2019, when CMS published a final rule entitled Price Transparency Requirements for Hospitals to Make Standard Charges Public.
The rule took effect Jan. 1, 2021, 13 months after it was published. To be compliant, hospitals must publish pricing in machine-readable format for 300 shoppable services, including 70 that are standard for all hospitals, including:
- gross charge (chargemaster list price)
- discount cash price (amount billed to individuals who pay cash)
- payer-specific negotiated charges for each third payer party with whom the hospital contracts
- de-identified minimum and maximum charges
The rule applies to all licensed hospitals, regardless of whether the facility is enrolled in Medicare, and requires the information to be updated no less than annually. CMS has stated its belief that “these requirements will allow health care consumers to directly make apples-to-apples comparisons of common shoppable hospital services across health care settings.”
Since publishing the rule in late 2019, CMS has battled fierce industry resistance, led by the American Hospital Association, including a barrage of negative comments on the rule’s design to a multi-stage legal challenge in federal court. The AHA argued that the administration did not have the legal authority to require publication of negotiated prices, and that the publication of price data could have perverse economic effects. A bipartisan array of district and appeals court judges, however, has rejected every one of those legal challenges and the rule has been upheld.
Lack of Industry Compliance
Several months have passed since the price transparency rule took effect, but the vast majority of hospitals are still not in compliance. Hospitals are undermining the rule with incomplete information, burdensome access restrictions and tools to obfuscate access to mobile app developers and to private and commercial payers.
Studies by Millman, Hilltop Institute, the Kaiser Family Foundation and others have shown that a majority of hospitals are non-compliant, and an investigative report by the Wall Street Journal that found hundreds of hospital data-pricing websites had used blocking codes to shield price information from search engines.
In July, 20 months after the rule was published and seven months after it went into effect, Patient Rights Advocate released a report on 500 randomly sampled hospitals from across the U.S. assessing their compliance. The analysis found that 95% were still largely non-compliant:
- 81% (403 hospitals) did not publish payer-specific negotiated charges “clearly associated with the names of each third-party payer and plan” as required.
- 52% (258) did not publish any negotiated rates at all.
- 40% (198) did not publish any discounted cash prices.
A follow-up survey commissioned by Patient Rights Advocate revealed that 82% Americans support the federal government requiring hospitals to make their prices publicly available, and that 56% of adults feel like they or a close family member were overcharged when seeking medical care.
One explanation for limited compliance might be that the penalty for non-compliance is only $300 per day, while the competitive cost of disclosure could potentially be significant. In the Medicare Outpatient Prospective Payment System (OPPS) rule for 2022, however, CMS is proposing to increase the penalty for noncompliance for hospitals with a bed count greater than 30 to $10/bed/day, not to exceed a maximum daily dollar amount of $5,500. For a full calendar year of noncompliance, the minimum total penalty would be $109,500 per hospital, and the maximum total penalty amount would be $2,007,500.
Price transparency is an issue that’s not going away for hospitals, and they can ill-afford to address growing bi-partisan demand for it by claiming the costs of compliance are burdensome, or that consumers only care about their out-of-pocket costs. Large employers in particular, who provide health insurance coverage for approximately 157 million employees and their families (49% of total U.S. population), are keen to equip and incentivize price comparisons for hospital services. The road to hospital price transparency likely will be long and bumpy, but there are no off-ramps. Hospitals would be well-advised to intensify their efforts to comply with the requirements of the rule.
John McCracken is Director of the Alliance for Physician Leadership, an educational partnership between the University of Texas at Dallas and The University of Texas Southwestern Medical Center. The Alliance offers an MS/MBA program in healthcare leadership and management exclusively for physicians.