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CMS Price Transparency Rules Push Hospitals and Health Insurers to Reveal Hidden Costs

Tuesday, February 4, 2020

Learn about two new price transparency rules, how stakeholders are reacting, and what the rules mean for hospitals, insurers, and patients in the US health care system.

On November 15, 2019, the Centers for Medicare & Medicaid Services (CMS) announced a final rule requiring all hospitals operating in the United States to provide patients with clear, accessible pricing information about their services on their websites. The rule was developed to make it easier for consumers to shop and compare across hospitals and to decrease the number of surprise charges in patients' hospital bills. On the same day, CMS also proposed a second price transparency rule, focused on increasing transparency requirements for health insurers.

The administration hopes that these policies will give patients more accurate estimates of out-of-pocket costs and make previously unavailable pricing information accessible in a standardized way. Additionally, the administration hopes that these policies will allow for easier comparisons across the health care industry, and that price transparency from providers and health insurers more broadly will lead to consumers having access to meaningful pricing information. The administration believes this will empower consumers to make more informed health care decisions before they receive care, and prepare for out-of-pocket costs they may face.

This blog post provides a summary of both rules, an overview of how key stakeholders have reacted to the rules over the last couple months, and a list of key dates relevant to the rules’ passing.

We also highlight a tool IMPAQ Health created to improve health cost transparency in New York State.

Final Rule Requires All Hospitals to Go Public with Pricing

According to the final rule issued by CMS (“CY 2020 Outpatient Prospective Payment System & Ambulatory Surgical Center Price Transparency Requirements for Hospitals to Make Standard Charges Public”), all US hospitals must disclose their negotiated rates and display their standard charge information on their website by January 1, 2021. The implementation date is one year later than was initially proposed by CMS, and applies to all types of hospitals.

Hospitals will be required to publish and annually update all standard charges, which CMS defines in the final rule as including gross charges, discounted cash prices, payer-specific negotiated charges (e.g., both the third-party payer and their associated rates), and the de-identified minimum and maximum negotiated charges for 300 common, “shoppable” services, such as x-rays. This information must be prominent, accessible, and current (updated annually) on their websites.

The rule grants CMS additional enforcement and auditing capabilities, including the authority to fine hospitals $300 per day (a civil penalty) if they do not comply after a written warning notice. CMS maintains that this maximum daily fine for hospitals is a sufficient compliance incentive.

In order to relieve some burden for hospitals that already display consumer-friendly charge information, CMS is finalizing a policy to categorize hospitals that offer online price estimator tools as having met the requirements for making public their consumer-friendly list of shoppable services. The administration also noted that some hospitals already publish list prices for Medicare, which they can build on for this new requirement.

While the rule’s mandates might prove to be time-intensive and costly for hospitals, the Trump administration argues that consumers’ need for transparency takes precedence.

At the Federation of American Hospitals conference in March 2019, CMS Administrator Seema Verma, maintained that "transparency creates competition, and competition keeps prices down because patients can shop" for effective health care options across hospitals and hospital systems. In an address to members of the American Hospital Association in September 2019, Verma said that she has “heard the doomsday warnings about price transparency, and they typically come from those who want to protect the status quo because it works for them.”

Hospitals React to Final Rule with Lawsuit

Hospital groups have openly opposed this now final rule since its proposal. Four prominent organizations including the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), Children's Hospital Association (CHA), and Federation of American Hospitals (FHA) protested the finalized rule in a joint statement hours after it was announced, and filed a lawsuit over the final rule on December 4. These organizations cited multiple reasons why they believe the rule would harm both hospitals and patients. Viewing insurance companies as the group to blame for surprise billing, hospitals espouse that the rule punishes them unfairly.

First, hospitals argue that the rule does not provide patients with out-of-pocket cost information, so it may lead to confusion and undermine patient choice.  Second, the rule could disrupt incentives for health plans to create comprehensive networks, which could create unintended consequences for patients (e.g., higher costs and discontinuity of care).

Third, hospitals say the rule threatens their rights by allowing the government to influence prices within the private sector and force the hospitals to disclose proprietary information. Lastly, the organizations say that the rule wrongfully includes patients in the middle of deliberations between providers and insurers, thereby threatening the integrity and effectiveness of private negotiation.

Key Dates Associated with Final Rule

 

In conjunction with the price transparency requirements for hospitals, the administration has also proposed a separate rule for insurers (discussed in the next section) to provide transparency in health insurance coverage. CMS states that if consumers do not know whether their insurer will cover certain services, knowledge of the service price is inadequate.

Proposed Rule Requires Insurers to Disclose their Rates

Separately, a proposed rule released on November 15, 2019 by CMS, in conjunction with the Department of Labor and the Department of Treasury, requires most employer-based group health plans and health insurance issuers offering group and individual coverage to disclose price and cost-sharing information upfront to participants, beneficiaries, and enrollees. Health plans would be required to prominently disclose their negotiated rates for in-network providers, as well as the allowed amounts paid for out-of-network providers on a publicly accessible website.

The proposed rule builds on existing transparency provisions in the Affordable Care Act, which require transparency in coverage reporting from issuers seeking to offer qualified health plans on the Health Insurance Exchange.

The rule will take effect one year after the rule is finalized if it withstands legal battles already threatened by health insurance companies and their advocates. It will not apply to grandfathered health plans.

Similar price transparency legislation has been passed in over 20 states, including Massachusetts and New York. In New York, with funding from the New York State Health Foundation, IMPAQ Health developed the NYPlanCosts Calculator—a first-in-the-nation price transparency platform that helps consumers with chronic conditions compare out-of-pocket costs (OOPC) when shopping for health insurance plans. The NYPlanCosts Calculator is a New York-specific OOPC calculator for high-cost chronic conditions and life events (e.g. HIV, diabetes, pregnancy and childbirth). Developed to provide rigorous cost estimates in a user-friendly, publicly available platform, the NYPlanCosts Calculator helps consumers compare health plans and make informed plan selections based on their conditions.

Screenshot of the NYPlanCosts Calculator, a user-friendly tool developed by IMPAQ to help New York consumers with chronic health conditions estimate their out-of-pocket medical costs in order to select the best insurance plan. 

Insurers Point Fingers at Providers

Insurance companies oppose the government's planned intervention in their current practices and are actively fighting both the finalized and proposed transparency rules.

They argue that providers are largely responsible for high healthcare costs and believe hospitals should bear the burden of decreasing prices for patients.

The insurance lobby group America’s Health Insurance Plans (AHIP) commented that the forced disclosure of rates will “hamper competitive negotiations and push healthcare prices higher.” AHIP also said that service prices, if posted at all, should be posted with quality indicators that clarify for consumers that the price of a service is not indicative of its quality.

AHIP’s president and CEO, Matt Eyles, stated, “disclosing [privately negotiated] rates will make it harder to bargain for lower rates, which will create a ‘floor’—not a ceiling—for the prices that hospitals would be willing to accept.”

Key Dates Associated with Proposed Rule

Consumer Advocacy Groups Commend Both Rules, but Worry about Enforcement

Groups speaking on behalf of consumers argue that the rules increase the amount of information available to consumers and are therefore necessary to patient efficacy and well-being. Cynthia Fisher, founder and Chairman of Patient Rights Advocate, argues that price transparency will “allow patient choice, creating a functional healthcare marketplace,” thus transitioning it to operate like many other industries.

Advocacy groups argue that the rule is economically sound since price transparency should put pressure on insurers to lower premiums for consumers and employers. However, consumer groups also maintain that a $300 daily fine, which would amount to just over $100,000 per year for perpetually noncompliant hospitals, is a non-issue for most hospitals and is therefore an insufficient incentive for compliance.

Ted Okon, executive director of Community Oncology Alliance, said that “by arming patients with more information and transparency about hospital costs, CMS is helping to shine a light on major site-of-care differences.”

Your Source for Solutions

IMPAQ is a policy research and analytics firm committed to tracking these two rules and the effects of these policies on patients, stakeholders, and the broader health care industry. Through cutting-edge research, advanced analytics, and technology capabilities, our experts bring deep policy expertise to help our partners understand and comply with new regulations.

Authors

Leah Dillard, Surakshya Karki, Talia Fish, Kevin Van Dyke