551-6
Lesson six
Transparency in Pricing
In 2019 the federal government issued regulations with an effective date of January 1, 2021. The regulations were designed to create greater transparency in the long opaque world of hospital billing.
The rule is designed to give healthcare consumers useful information about the cost of hospital services. Public disclosure of what have long been viewed as trade secrets is required by the recent regulations.
Fundamental economic principles allow insurance companies that can “deliver” more patients to a hospital to negotiate more aggressively on price than those that can’t’ deliver as many patients. Conversely hospitals that are perceived by patients as being desirable, can negotiate more aggressively with insurance companies. As a consequence, in this part of the country Aetna and Anthem can ordinarily convince hospitals to take less money than can the Farmers and Planters Insurance Co-op of Washtenaw County; and world renowned hospitals like the Cleveland Clinic can get hirer fees than the run down 30 bed hospital that patients eschew. Everyone has long suspected that there was wide variance in fees. Now, as more hospitals are beginning to comply with the rule the quantifiable evidence to confirm that suspicion mounts.
The rule requires all licensed hospitals to provide to the public with two sets of data which I have conveniently labelled as part one and part two.
Part One. For all products or services provided to patients hospitals are to make available to the public :
(a) The list price
(b) The discounted price for cash customers
(c) The lowest negotiated fee
(d) The highest negotiated fee
To comply with part one the hospital does not have to disclose the name of the insurance company with whom they have negotiated the highest and lowest fees.
Part Two: the rule creates a class of services referred to as “shoppable services”. Shoppable services are “service(s) which can be scheduled by a healthcare consumer in advance”. Examples include annual mammograms, groin hernia repair surgery and screening colonoscopies. The rule lists 70 services that must be included in the shoppable category and then leaves it to the hospital to fill out the list with a total of at least 300 such services. For shoppable items the hospital must disclose the list price, the discounted cash price and the name and price of each entity that has a negotiate price for one of the shoppable services. Picture a spread sheet with 300 vertical lines and a horizontal column for each insurance company that has negotiated a price schedule with the hospital.
For both part one and two there is in the commentary associated with the rule the strong suggestion that this public disclosure be done on the internet. The rule specifically says that if the information is disclosed on the internet that satisfies the need to publicly disclose. The rule also prohibits hospitals from making patients register online to get the information and prohibits hospitals from requiring patients to give “personal health information” to obtain access to the information. Personal Health Information is a term of art borrowed from the HIPAA privacy rules and includes among other things a patient’s name.
Under part two, (the shoppables), instead of (c) and (d) there would potentially be dozens of entries listing by name each insurance company that has a negotiated rate, and next to the name of that company the rate that has been negotiated with that insurance company and the hospital.
So what do the numbers look like? As one might expect they are all across the board. I don’t pretend to have done a scientific based study of all hospitals, but as I sit here in mid August of 2021 I have spent many hours looking at the data from hospitals in Kentucky, Ohio, New York and California. So far I have only seen one hospital whose website I considered to be fully compliant. For those that have complied partially it is not surprising to see numbers like this from a New York’s Columbia Presbyterian Hospital: endoscopic removal of a gallbladder –list price $24,664.03; highest negotiated fee $20,964.43; lowest negotiated fee $2,804.20. Columbia Presbyterian does not have a standard cash discount, but rather deals with each case on a means testing basis. Lab tests and medicines can have wild swings. One Kentucky hospital charges $19.10 for a 400mg tablet of Ibuprofen, the lucky person that pays cash can get it for only $13.37 –the lowest discounted fee two cents. I understand that in a hospital setting there is paperwork involved and labor involved in administering even the simplest of drugs, but the cynic in me asks then why is the room $1500 a day.
It will surprise no one those consumers applauded the new rule, while hospitals did all they could to fight it. Like all good things in America that fight led to a lawsuit filed by the hospitals. They sought from the court an injunction that would prevent the enforcement of the transparency rule. The hospitals lost at the trial court and lost at the Court of Appeals. The rule became effective on January 1, 2021. The rule didn’t come out of nowhere, it like all things has a history. The history looks like this:
March 7, 2019 The Wall Street Journal reports that the trump administration is considering a rule to require hospitals to disclose pricing that is made available to insurance companies.
July 29, 2019 CMS publishes notice with a proposed transparency rule, following the laws regarding the promulgation of rules they seek public comment on the proposed rule
September 10, 2019 The comment period comes to a close. Over 3800 comments have been filed by interested parties.
November 1, 2019 The final rule is published, the proposed rule had called for a start date of January 1, 2020, but the final rule moved the effective date to January 1, 2021 to give the hospitals additional time to prepare to comply. Within hours of the publishing date of the final rule the American Hospital association and three other hospital organizations issue a joint statement announcing that they will file suit to try to stop the rule.
December 4, 2019 the suit is filed
June 2020 the trial court rules against the hospitals, the hospitals promptly appeal.
December 21, 2020 Hospitals fearing the worst move from the legal arena to the political arena sending a letter linked below to President-elect Biden’s transition team asking for help. A copy of the letter appears below in this week’s assignment.
December 29, 2020 the Court of Appeals rejects the arguments of the hospitals.
January 1, 2021 the rule becomes effective.
The story doesn’t end there. Compliance is not swift. Articles begin to appear indicating that compliance is far short of what CMS had hoped for. In March of 2021 the Wall Street Journal reported that hundreds of hospitals were embedding code into their disclosure webpages. The code caused efforts to search for those pages using Google and other search engines to fail. Articles in Modern Healthcare and the Washington Post showed levels of compliance to be under 10%. More than one hospital executive was quoted as saying that they had talked to other executives, (always unnamed), who had decided to defy the rule and pay the fines rather than give up the information.
Bipartisanship is not dead; it just doesn’t get headlines. The rule created during the Trump administration had been handed off to the Biden administration. Biden expressed approval for the rule. In April of 2021 the House subcommittee on Health sent a letter signed by its Democratic chair and the ranking Republican member of the committee calling on CMS to engage in vigorous oversight of the rule and to seek “full compliance with the rule”. Citing multiple articles that reported dismal levels of compliance the letter said, “we are concerned about troubling reports of some hospitals either acting slowly to comply with the requirements of the final rule, or not taking any action to date to comply”.
CMS has responded by sending warning letters to hospitals that it believes are not in compliance. It has also announced that it is considering a rule change that would increase penalties for most hospitals to $100/bed/day, with a maximum daily fine of $5500. For hospitals with 30 beds of less the fine would remain at $300/day.
In July the Washington Post under the headline “Nearly all hospitals flout federal requirements to post prices report finds”, revealed that a survey of 500 hospitals websites had found less than 7% fully compliant.
Even advocates of the rule find flaws in the rule. Particularly noteworthy is the fact that the law only applies to hospitals. It does not apply to ambulatory surgery centers and does not apply to physicians’ practices that are not owned by hospitals. This hole in the rule stems form the language in the Affordable Care Act that CMS used as a basis for their rule. Every regulation promulgated by a federal agency must be based on enabling legislation which gives the agency the authority to make the rule. In this case the enabling legislation didn’t reach as far as some critics now wish it had. Other critics, like the American Hospital Association claim the law didn’t reach broadly enough to allow the rule to apply to hospitals. It is this claim that the association took to court and lost.
CMS estimated that compliance with the rule would cost hospitals $11,898.60 in year one, and just over $3600 in subsequent years. My experience over the years has been that federal estimates of the time required to comply with their regulations are unrealistically low. Hospitals have complained that compliance will be far more costly.
Critics of the rule have also complained that the fines for non-compliance, $300 per day are not large enough when applied to large hospitals. As noted above CMS has announced that it is considering raising the daily fines.
Assignment lesson 6 transparency in pricing.
Complete both one and two below.
1. Pick your favorite of least favorite hospital. Check their website and see if you can find data that complies with both part one and part two of the rule. Spend no more than 10 minutes on the project. I don’t need to know what hospital you picked or anything about your adventure other than your answers to these questions:
a. Did you find what you were looking for? Yes or no
b. If you did find what you were looking for it look like it complied with
both part one and part two of the rule ? Yes or no.
b. If you did not find it in the 10 minutes allotted would you like to continue or would you rather light your hair on fire? Keep searching or light hair
2. In response to their loss at the trial court and their anticipated loss in the Court of Appeals the American Hospital Association sent the letter found at this link
to the Biden transition team in December of 2020. Do you find their arguments persuasive or unpersuasive? In either case tell me why you have reached your conclusion about their letter.