On November 15th 2019, the Trump administration issued a pair of new rules intended to improve price and quality transparency in American healthcare in order to fix what many refer to as a “broken system.” As industry experts, and fellow health care consumers, we at Bond are very interested in updates like these, and welcome the opportunity to examine them objectively and summarize them for our clients.

The two new rules are entitled “the Calendar Year (CY) 2020 Outpatient Prospective Payment System (OPPS) & Ambulatory Surgical Center (ASC) Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule” (Final rule) and “the Transparency in Coverage Proposed Rule” (Proposed rule). At the heart of both the finalized rule and the proposed rule are designs to increase competition among health insurers, hospitals, and group health plans by forcing these parties to release a list of “standard charges” for the products and services that hospitals provide. The definition of “standard charges”[1] has been clarified as the following:

-The gross charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discounts.

-The discounted cash price that hospitals are willing to accept.

-The charge that a hospital has negotiated with a third-party payer, such as a health insurer or health plan, for a product or service.

-The minimum and maximum negotiated charges that a hospital has negotiated with all third-party payers for a product or service.

The finalized rule will require hospitals to make their standard charges public beginning in 2021, and make them accessible in two ways:

(1) Comprehensive Machine-Readable File: In a single data file on the internet that can be read by other computer systems, hospitals must make public all standard charges.  

(2) Display of Shoppable Services in a Consumer-Friendly Manner: In addition to the internet file, hospitals will be obligated to release the standard charges for three hundred (300) common services to the public. They must display the information in a consumer-friendly way, have it indexed so that it is searchable, and update it at least annually. Examples of these services would be x-rays, outpatient visits, lab tests, or bundled services that cover an episode of care such as a surgery.

The finalized rule also grants the Centers for Medicare and Medicaid (CMS) additional enforcement tools including monitoring, auditing, corrective action plans, and the ability to impose monetary penalties of up to $300 per day.

The proposed rule is also intended to make health care price information more accessible to consumers through two approaches.

(1)Health insurers and group health plans would be required to provide all participants, beneficiaries, and enrollees with “personalized out-of-pocket cost information for all covered health care items and services through an internet-based self-service tool and in paper form upon request.”[2]

(2)These same parties would also have to “make available to the public, including stakeholders such as consumers, researchers, employers, and third-party developers the in-network negotiated rates with their network providers and historical payments of allowed amounts to out-of-network providers through standardized, regularly updated machine-readable files.”[3]

The idea behind these two approaches, if finalized, is that with easier access to information, the American healthcare consumer will become a better consumer. In the proposed rule, the Department of Health and Human Services (HHS) also proposes to allow insurers that provide incentives to consumers to be good healthcare shoppers to take credit for the “shared savings” in their medical loss ratio (MLR) calculations. MLR is a measure of the percentage of premium dollars that a health plan spends on medical claims and quality improvements versus administrative costs.[4] This addition to the proposal encourages competition and incentivizes health insurers to engage their members in their healthcare shopping.

HHS Secretary Alex Azar states that “[these] transparency announcement[s] may be a more significant change to American healthcare markets than any other single thing we’ve done, by shining light on the costs of our shadowy system and finally putting the American patient in control.”[5] Although the intentions of these rules are noble, there are some doubts to the validity of Azar’s statement. The assumed benefits of these proposals are easily identified, but we must be careful of unintended consequences. For one, healthcare has been allowed to follow the free market system in the past, but it is a complicated industry that doesn’t always like to play according to the rules of traditional economic theory.[6] Some could even argue that free market healthcare is what led to costs spiraling out of control in the first place, and in turn, government intervention in the form of the Affordable Care Act.

There are even some arguments that transparency in healthcare will cause prices to go up even more. First, there is the often-cited Danish concrete example.[7] In an effort to improve competition in the concrete industry, Denmark required manufacturers to disclose their negotiated prices with their customers, which in turn caused the price to rise fifteen to twenty percent. The reasoning behind this was that once these manufacturers knew what their competitors were charging, they could essentially all raise their price in unison. Due to the consolidating nature of hospitals, and lack of competition, it’s not so farfetched to envision a similar outcome. Second, people (not just Americans) tend to associate cost with quality, so it’s not unrealistic to assume that some consumers will actually seek out higher prices.[8]  So, will transparency be a net positive for American healthcare? You can bet that we will be watching this one closely.

[1] https://www.cms.gov/newsroom/fact-sheets/cy-2020-hospital-outpatient-prospective-payment-system-opps-policy-changes-hospital-price

[2] https://www.cms.gov/newsroom/fact-sheets/transparency-coverage-proposed-rule-cms-9915-p

[3] https://www.cms.gov/newsroom/fact-sheets/transparency-coverage-proposed-rule-cms-9915-p

[4] https://www.healthinsurance.org/glossary/medical-loss-ratio/

[5] https://www.hhs.gov/about/news/2019/11/15/trump-administration-announces-historic-price-transparency-and-lower-healthcare-costs-for-all-americans.html

[6] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3210041/

[7] https://www.nytimes.com/2019/06/24/upshot/transparency-medical-prices-could-backfire.html

[8] https://hbr.org/2019/07/price-transparency-in-health-care-is-coming-to-the-u-s-but-will-it-matter