After a troubled year involving a lawsuit by the American Hospital Association, the price transparency rule for hospitals went into effect on Jan. 1, 2021. The rule, issued by the Centers for Medicare & Medicaid Services (CMS), is intended to not only make pricing for common services clear and easy for consumers to understand, but also to foster competition among providers to drive prices down. When consumers can compare and contrast services from different providers, the thinking goes, market forces will prevent gouging and bring more equitable pricing to the healthcare marketplace. That might sound promising in theory, but in practice, the road to transparency has been anything but clear, as a new study from Peterson-KFF revealed.
Complicated from the Start
The reason the rule has been problematic becomes somewhat apparent from the legislation’s text. It says that for 300 “shoppable services,” hospitals must publish the “gross charges and payer-specific negotiated charges … plus the discounted cash price, the de-identified minimum negotiated charge, and the de-identified maximum negotiated charge.” Furthermore, the rule says that the hospitals must provide this information in a “machine-readable” file, package it in a “consumer-friendly manner,” and provide an internet-based price estimator.
That somewhat onerous task was part of the AHA’s lawsuit, which argued against providing pricing in two formats and also alleged that it was impossible to reveal rates because they were unknowable until after procedures were conducted. It’s also part of the reason why a study conducted earlier this year showed a lack of compliance among the 100 largest hospitals in the U.S.
Conducted by HealthAffairs, the study examined these facilities between late January and early February 2021, and found that 65 hospitals were “unambiguously non-compliant.” Most of those did not post the payer-specific negotiated rate and/or did not have a searchable database that didn’t first need to be downloaded.
In the new study, released last week, Peterson-KFF examined the pricing details from the two biggest hospitals in each state. Among the findings was that many hospitals did not post payer-specific negotiated rates, and if they did, they came at a data cost to the consumer.
“Only three of the hospitals in our sample provided payer-specific negotiated rates on their consumer tools without requiring a patient to provide personally identifying information (including their insurance membership details),” stated the report. “Meanwhile, while 35 of the hospitals we examined provided payer-negotiated rates on a machine-readable file, it is unclear whether all participating insurers were included in these files. Also, in some machine-readable files, hospitals provided payer names, but did not include actual negotiated rates from those payers. In some cases, payer names were provided, but the associated plan name or market was not listed.”
Even though the study found that about three in four hospitals did provide gross charges for services, the report points out that gross charges are rarely what consumers wind up paying, and can often be discounted for uninsured individuals. Only 56 percent of hospitals revealed such discounts in their consumer tools, while only 42 percent did so in the machine-readable files.
Same Hospital, Different Price
What’s even more fascinating is that the study found wild pricing differentials for the same procedure in the same hospital, based on who was paying. The researchers looked at the rates for an MRI of the lower spine across 10 hospitals and found that they ranged from $144-$4,740 across the hospitals, with the largest swing coming from Grady Memorial Hospital in Georgia, where the price for the test went from $144 to $4,307.
In terms of differences by payer, the report provides the following example: “At University of New Mexico Hospitals, for an MRI of the lower spine, the range of negotiated rates varied between $486 – $1,821 in the private insurance market; from $221 – $331 for Medicare Advantage plans; and from $350 – $485 for Medicaid managed care plans.”
Watch Your Language
The report also pointed out issues with the ways hospitals derive their prices. Some, for example, included the professional fee for service as well as the facility fee, while others only included the facility fee. Hospitals also largely failed to distinguish prices for inpatient or outpatient care in their searchable databases, and variability was also found among hospitals in the way they defined “standard rates.”
In the end, the report casts a good deal of doubt on the success of the new transparency rule. After all, if rates vary so widely in each individual hospital, if the terminology is not standardized, and if hospitals are complying with the transparency rules in varying degrees, it becomes clear just how far away we still are from having clear, understandable and useful data to enable patients to truly shop around for services.
“Anyone attempting to make comparisons across hospitals using these data should therefore exercise caution,” concluded the report.
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