Push for Healthcare Price Transparency Affects Providers
Federal and state legislators have pushed for enhanced healthcare price transparency for several years. Healthcare providers and insurance companies had hoped to work out an alternative cost-sharing solution that includes information on the patient’s out-of-pocket costs, but the initial legislation failed to deliver. Healthcare providers also argue that the latest requirements threaten the integrity and effectiveness of private negotiation and could unintentionally raise the cost of healthcare.
Typically, the price for a healthcare service or product is the result of negotiations between the healthcare provider and the patient’s insurance company. Historically, these prices have not been available to the general public, meaning the patient is often unaware of the price until they receive the associated bill. However, under this method, vast discrepancies exist between what private health plans and Medicare pay for the same hospital services. According to a study by RAND, relative prices rose from 236% of Medicare rates in 2015 to 241% in 2017.
Healthcare Price Transparency Laws & Regulations
Under the Affordable Care Act (ACA), effective as of January 2021, hospitals are required to publish a list of unnegotiated, undiscounted, standard charges for all given services in a machine-readable file. Additionally, hospitals must make payer-negotiated rates for common services available to consumers through an online tool. The Centers for Medicare & Medicaid Services (CMS) built onto the ACA’s price transparency rules and included all payer-negotiated rates.
Under CMS’s final rule, as of January 2022, private health insurers must post three separate machine-readable files containing information on in-network provider negotiated rates, out-of-network provider billed charges and allowed amounts, and prescription drug negotiated rates and historical net prices. On January 1, 2023, health plans must offer an online shopping tool to consumers, showing the rate negotiated between their provider and plan and a personalized estimate of their out-of-pocket cost for 500 of the most shoppable items and services. Effective in 2024, most private health insurance plans must provide patients with out-of-pocket costs and negotiated rate information if the patient requests it. Also effective in 2024, the private health insurance plan’s shopping tool must include the costs for all remaining items or services.
Evolving Legislation & Litigation
In addition, the Consolidated Appropriations Act included provisions relevant to the ACA’s protections from surprise medical bills and several new provisions aiming to increase healthcare price transparency. The Omnibus Appropriations and Emergency Coronavirus Relief Act also included surprise billing legislation.
CMS’s final rule has been met with opposition in the courts. In 2019, The American Hospital Association (AHA), Association of American Medical Colleges, Children’s Hospital Association, and Federation of American Hospitals filed a lawsuit against the Department of Health and Human Services (HHS). “Instead of giving patients relevant information about costs, this rule will lead to widespread confusion and even more consolidation in the commercial health insurance industry,” said Rick Pollack, president and CEO of the AHA. While the lawsuit was not fruitful on all fronts, it opened up the conversation for change. In August 2021, the U.S. Chamber of Commerce filed a separate lawsuit in Texas. The Chamber dismissed their claim, as HHS decided to defer enforcement and conduct a new rulemaking. However, it’s clear that litigation has an effect and may continue to change the application of transparency laws.
Dispute Resolution & State Laws
Setting pricing still relies on voluntary negotiations between providers and insurers; however, in the event negotiations fail, the process is backed up by independent dispute resolution. In states with laws in place, those laws will establish payment amounts, regardless of whether the state has a payment standard. States also set the laws around data collection and presentation. Massachusetts uses an All-Payer Claims Database to collect health care claims data from state employee health plans, Medicare, Medicaid, and state-regulated private insurers. The Commonwealth also uses a consumer-based information platform, CompareCare.
Potential Consequences
Without comprehensive qualitative information, consumers may equate lower prices with lower quality, which defeats the purpose of enhancing healthcare price transparency. Providers with higher fixed costs, as well as those that are not able to quickly adjust their operations and cost structures, are at a disadvantage. Facilities that provide Medicare, Medicaid, and indigent care are not wholly compensated for those claims, and financing such care requires cross-subsidies from commercial payers. Enhanced healthcare price transparency could impact the availability of these subsidies and, in turn, the availability of under-compensated and uncompensated care.
Contact Livingston & Haynes
My team at L&H is made of healthcare industry leaders. We help sole practitioners, group medical practices, and nursing homes develop strategic plans that focus on every aspect of finance and operations. Contact me today if you have questions about price transparency or would like to discuss your facility’s tax, accounting, and advisory needs.
by Maria Bunker, CPA
Maria Bunker, CPA, became a partner at Livingston & Haynes in 2017. She specializes in audits and tax planning and has worked with clients in diverse industries, including healthcare, financial services, real estate partnerships, and nonprofit organizations.