Today, the department of Health and Human Services (HHS) announced that the Centers for Medicare and Medicaid Services (CMS) had issued two rules governing price transparency in our health care system. The first is a final rule governing outpatient and ambulatory surgery center price transparency, while the other is a proposed transparency-in-coverage rule. Proposed rules are typically opened to a comment period after which a final rule is issued.
The Hospital Outpatient Prospective Payment System (OPPS) transparency rule impacts hospitals directly. In order to comply, hospitals will have to post standard charge information, including list prices (the rule says “charges”, but these are the same thing), discounted cash prices, payer-specific negotiated prices and minimum- and maximum-negotiated prices. For up to 300 “shoppable” services, hospitals will be required to display the price information in a way consumers can use it to shop for services. In my way of thinking, this is only a mildly helpful rule.
- Hospitals are being compelled to provide high-level pricing information, not granular information. Thus, the rule is helpful in that it will allow competing hospitals and health insurers in a local market to learn a bit about what one another are paying and being paid. This, over time, will probably drive more competitive behavior, especially if further reforms are assumed to be forthcoming.
- Individual customers (patients) don’t get a lot out of this, in my opinion. While they will be able to “shop” for up to 300 common services, there appears to be a lot of latitude governing what’s a consumer-friendly tool in the world of health care. Will a consumer needing a partial knee replacement really know to shop for this specific procedure correctly at each hospital and whether the offering is what their doctor has recommended (e.g. the Oxford unicompartmental prosthetic from Zimmer Biomet)? Even if they did, will they know whether the most affordable hospital is in network, and what their out-of-pocket obligation might be? I doubt consumers will easily go from hospital website to hospital website comparing gross, cash-pay and negotiated rates for a procedure their physician has recommended they undergo.
The “Transparency in Coverage” proposed rule requires health plans to give consumers real-time, personalized access to cost-sharing information, through an online tool that most group health plans and health insurance issuers would be required to make available. In principle, that’s a fairly important statement. Theoretically, persons scheduling a procedure would be able to shop for the best location at which to have a procedure done. Best, in my way of thinking, means the most affordable to the patient, while maintaining high quality. Because cost-sharing often ties to a percentage of the overall cost of the procedure, persons would, as a side-consequence, learn something about the contractual rates agreed to between their health insurer and the hospitals at which the procedure is offered. While CMS doesn’t make clear exactly what will be required, today’s announcement goes on to say that health insurance issuers will be required to disclose negotiated rates for in-network providers (i.e. hospitals, clinics, etc.), and allowable rates of reimbursement for out-of-network providers. Depending on the level of granularity demanded by the government, this will also help shed light on the actual (not list) prices hospitals charge their various customers. In today’s health care environment, list prices bear very little resemblance to negotiated prices, with the former often reaching multiples of the latter. Finally, CMS proposes in the rule that health insurance issuers be allowed to take credit for “shared savings” payments in their loss ratio calculations. This is important because it removes a potential dis-incentive amongst health insurers tied to the calculation of loss ratios and statutory minimums. Put simply, if insurers were to offer lower cost plans and their customers were to choose lower-cost providers under the new transparency rules, loss ratios could improve to the point where insurers were dis-incentivized financially.
While these rules are certainly good news for health care consumers, there are a few wrinkles that may impede the rate and magnitude of impact of these rules.
- First, only beneficiaries of a particular plan will have immediate access to the cost-sharing information. Certainly, there could be organizations interested in aggregating the data for the purposes of publishing broader analyses, but we don’t know what the results of these efforts might be. A lot will probably depend on whether CMS is able to demand plan-by-provider level pricing, including how cost-sharing is calculated on the various constituents’ websites.
- Second, there’s the issue of the caregivers, including the doctor. Health care is a fairly clubby industry. Doctors have admitting privileges to certain hospitals, and these often tie to soft relationships the doctors and hospitals have with one another. In addition, doctors are most comfortable with the other doctors and caregivers with whom they’ve developed a relationship (e.g. O.R. nurses, anesthesiologists). Thus, if a patient wants to use a particular hospital, especially one a bit out-of-the-way geographically, he or she might have to choose a different doctor – one with whom he or she has little familiarity.
- Third, there’s a question of what plans will be covered. Given the exemptions the Employee Retirement and Income Security Act (ERISA) affords self-funded plans, I would expect this rule to impact only risk-based individual and group plans. Thus, we are talking about less than half of the covered workers in this country having access to an estimate of cost-sharing at the inception of this rule. Here’s the Kaiser Family Foundation chart on that subject:
- Fourth, there’s the question of implementation. According to today’s press release, the Outpatient Prospective Payment transparency rule will go into effect January 1, 2021, while the Transparency in Coverage rule will go into effect one year after finalization. That’s actually quite fast in the world of health care, although this schedule means we probably won’t witness dramatic effects on the system until 2022 and beyond. On the one hand, hospitals will be required to develop and publish information under the OPPS transparency rule within the coming year; this is the easier of the two rules with which to comply. On the other hand, proposed rules carry with them a 60-day comment period. Thus, the Transparency in Coverage final rule won’t be issued until 2020, which means that health insurers will likely have until open enrollment in the fall of 2021 to come up with 1) the information, 2) the consumer friendly shopping tool and the high-level negotiated rate website, and 3) any plan design changes they deem desirable or necessary. If the Transparency in Coverage final rule is implemented on such a schedule, it will then take added time for stakeholders to adapt to the new environment.
Although it’s frustrating to see just how slowly and incrementally health care moves, I do feel as though we are finally poised to follow through with some pretty material changes to our health care system. For what feels like the first time, there are persons with both intent and deep understanding in positions of influence both at the Federal and State level. Persons such as Seema Verma and Alex Azar do appear to understand how our sausage is made and are moving ahead with reform that will ultimately have teeth. The same can be said for persons influencing reform in states like Colorado and North Carolina, among others. At the same time, health care is routinely cited as the number one issue amongst voters, and we are heading into what’s arguably a very contentious election year. I’m fairly certain the nature and scope of policy proposals in health care will receive significant attention in 2020, and that these will be compared with what’s been the experience under Obamacare and initiatives spearheaded under the Trump administration. Over time, changes – whether driven first at the federal or state level – will likely lead patients to shop more aggressively for care, and high fixed cost entities like hospitals will have to respond by competing more aggressively for volumes. I would hope and expect that quality information improves in lock step with the financial information such that consumers can incorporate this into their thinking when it truly matters, and emphasize the financial information instead when providers are considered to be largely interchangeable. It’s a bit early to be making predictions about the future role of health insurers, since their fate likely hangs in the balance of whether a true public option becomes available at the federal level and whether a plurality of our population is compelled to take advantage thereof.