DISCUSSION WEEK 4

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Price Transparency: Realities and Implications

It’s not a matter of whether it will happen, but how fast and how much.

Paul H. Keckley, PhD

On June 24, President Donald Trump issued an executive order with far- reaching implications for hospitals. The Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First (Executive Order 13877) requires hospitals to provide public access to its prices for up to 300 shop- pable services that have been negoti- ated with health insurers.

The administration’s rationale for the executive order is straightfor- ward: “… Making meaningful price and quality information more broadly available to more Americans will protect patients and increase competition, innovation, and value in the healthcare system.”

The order directs the U.S. Department of Health and Human Services to work with other federal agencies to implement it by the end of this year. Specifically, Executive Order 13877 requires that:

• “Within 60 days … hospitals [are] to publicly post standard charge information, including charges and information based on negoti- ated rates and for common or shoppable items and services, in an easy-to-understand, consumer- friendly, and machine-readable format using consensus-based

data standards that will meaning- fully inform patients’ decision making and allow patients to compare prices across hospitals.”

• “Within 90 days … [HHS and other federal agencies] shall issue an advance notice of proposed rulemaking … soliciting com- ment on a proposal to require healthcare providers, health insur- ance issuers, and self-insured group health plans to provide or facilitate access to information about expected out-of-pocket costs for items or services to patients before they receive care.”

• “Within 180 days … [HHS, in consultation with other federal agencies] shall issue a report describing the manners in which the Federal Government or the private sector are impeding healthcare price and quality transparency for patients, and providing recommendations for eliminating these impediments in a way that promotes competi- tion. The report should describe why, under current conditions, lower-cost providers generally avoid healthcare advertising.”

• That HHS and the Departments of Defense and Veterans Affairs develop a Health Quality

Roadmap that defines standard quality measures within 180 days.

• That HHS, in consultation with other federal agencies, increase access to de-identified claims data across all federal government pro- grams for researchers, innovators and others within 180 days.

• That within 120 days, the U.S. Treasury issue a regulatory guid- ance that synchronizes the use of high deductible health plans and health savings accounts with price transparency, and a report that addresses the intersection of surprise medical billing and price transparency within 180 days.

Notably, the order also calls out increased use of direct primary care as a key consideration to regulators in advancing price transparency.

The Realities This order came as no surprise to industry watchers. The administra- tion has consistently signaled its belief that price transparency is inadequate in healthcare.

• In October 2017, the adminis- tration issued Executive Order 13813, Promoting Healthcare Choice and Competition Across the United States.

• In October 2018, the president signed two bills into law, the Know the Lowest Price Act, and the Patients’ Right to Know Drug Prices Act. Both focused on drug price disclosure and removal of gag clauses imposed by pharmacy benefit managers on pharmacists so they can discuss drug prices with customers.

PUBLIC POLICY UPDATE

• In January 2019, hospitals were required to post their charge- masters in a machine-readable format per the administrative directive from the Centers for Medicare & Medicaid Services.

• In May 2019, HHS announced that direct-to-consumer

advertisements of prescription drugs on television will be required to include price information if the average consumer pays more than $35 per month for their script.

Polls show the public believes price transparency is inadequate. Academic research in healthcare

demonstrates a correlation between price transparency and lower costs for certain services. Moreover, there is bipartisan support for greater price transparency in Congress. However, there are at least three issues:

1. The disclosure of prices negotiated between hospitals and insurers is problematic. Price variability in healthcare is widely documented. The Health Care Cost Institute has noted in its Healthy Market Index research a 25-fold median price difference for six widely shoppable services. Insurer agree- ments between hospitals are con- tracts wherein disclosure is precluded. Critics rightly cite this as the root cause of the problem, but the executive order faces court challenges before it’s imple- mented. At least in the near-term, the executive order will have nom- inal impact on hospital costs.

2. What constitutes “shoppable ser- vices” is debatable: simple services, including diagnostic tests, office visits or nonemergent surgical pro- cedures, might be shoppable, but the most expensive hospital ser- vices involving complex procedures or higher risk patients are not. The executive order cites the Council of Economic Advisers’ 2019 Annual Report, which asserts that of the categories of medical cases requir- ing inpatient care, 73 percent of the 100 highest-spending catego- ries were shoppable, and among the categories of medical cases requiring outpatient care, 90 per- cent of the 300 highest-spending categories were shoppable.

3. Most consumers do not pay attention to hospital prices,

PUBLIC POLICY UPDATE

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according to research published in the May 3, 2016, issue of The Journal of the American Medical Association. In addition to federal actions, legislation advancing price transparency in healthcare has passed in 29 states. But, the vast majority of consumers have not used the websites to search for shoppable services. Incentives or penalties that encourage price- shopping by consumers remains a major challenge.

The Implications Executive Order 13877 is not law. Rather, it is a directive to HHS, CMS and several federal agencies to advance rules, regulations and, in some cases, legislation that advance increased hospital price transparency.

Implementation will take 12 to 24 months owing to court challenges, technical considerations and industry resistance. But the reality is that hos- pital prices and underlying costs will be readily accessible to consumers and increasingly key to a hospital’s com- petitive positioning.

For hospitals, the implications are clear:

• How the hospital’s prices and underlying costs compare to competitors should be objectively evaluated and monitored closely. In tandem, outcomes, accessibil- ity and amenities associated with each designated shoppable service should be aligned with prices and costs to optimize competitive differentiation.

• Contracts with insurers should be revisited. If negotiated prices are disclosed and competing hospitals enjoy more favorable terms, adjustments should be made.

• Investment in price calculator tools and website enhancements to make hospital prices more easily accessible to consumers should be a priority.

Increased price transparency for hos- pitals is disruptive but certain. It’s not a matter of whether it will hap- pen, but how fast and how much. s

Paul H. Keckley, PhD, is managing edi- tor of The Keckley Report (pkeckley@ paulkeckley.com).

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