The Push for Transparency: New Federal Regulations Hold Promise, Face Scrutiny
Will enlightened consumerism finally put the brakes on escalating health care costs? Despite mixed evidence thus far, this is the premise and hope of a pair of recently released federal regulations — one finalized, the other proposed.
“Today’s rules usher in a new era that upends the status quo to empower patients and put them first,” predicts Seema Verma, a top Trump administration official.
The finalized reg requires detailed financial disclosures by hospitals while the proposed one requires the same of health plans and insurers. In principle, the regs could make smarter consumers out of employers as they contract with health plan providers and insurance carriers. But the regs face intense scrutiny and even litigation from the industries they would most directly affect.
Standard charges, shoppable services
Although a similar scenario last year involving regulations that would have mandated disclosure of prescription drug prices ended in defeat at the courthouse, Trump administration officials are confident the newly issued and proposed rules will avoid that fate.
“We may face litigation, but we feel we are on sound legal footing for what we are asking,” said Alex Azar, secretary of the Department of Health and Human Services (HHS), when the regulations were published.
If he’s correct, here are the basic rules governing hospital financial disclosures that will take effect in 2021. Hospitals will be required “to provide patients with clear accessible information about their ‘standard charges’ for the items and services they provide,” according to the HHS. These disclosures include:
- Gross charges
- Payer-specific negotiated charges (that is, deals worked out with particular health plans)
- The amount the hospital is willing to accept in cash from a patient
- Minimum and maximum negotiated charges
Hospitals will also be required to “display ‘shoppable’ services in a consumer-friendly manner.” Shoppable services (such as outpatient visits, imaging and lab tests) or “bundled” services (such as a cesarean delivery) are described as those “that can be scheduled by a consumer in advance.” Hospitals will need to identify at least 230 shoppable services, in addition to 70 defined by the HHS.
What’s more, this information must be made available for public consumption “in a prominent location online that is easily accessible,” and shoppable services “must be displayed and grouped with charges for any ancillary services the hospital customarily provides with the primary shoppable service.” The goal is to keep consumers from being blindsided by “surprise” bills.
Hospitals assert they shouldn’t have to disclose varying prices negotiated with different health plans on the grounds that they’re proprietary information. Also, the American Hospital Association maintains that the rule will have a “negative impact on competition among insurers to compete for business by entering into innovative, value-based arrangements with hospitals.”
Another perspective is that price disclosure will induce hospitals to devise their own innovative, value-based arrangements to keep their costs down so they can disclose competitively priced services.
The practical effect of the required disclosure of hospital fees, assuming this finalized reg isn’t shot down in the courts, will be shaped in part by the competitive environment in the geographic areas served by each institution. For example, in relatively remote regions with only one hospital, it’s reasonable to suppose that price disclosure will have a diminished impact.
However, such areas, and more densely populated ones, could see more medical services market disruption from the proposed regulation. It would, according to the HHS, “give consumers real-time, personalized access to cost-sharing information, including an estimate of their cost-sharing liability for all covered health care items and services.” That data would be accessible through an online tool produced by the health plan or insurer, as well as in paper form on request.
As noted, the disclosed price tags are required to be only an individualized estimate, not a fixed price. Unpredictable factors could change the cost. For example, suppose, under the terms of the health plan, that coverage for a medical service is subject to “step therapy” rules. Under these, the patient must first receive less expensive and comprehensive care before the full-blown treatment to determine whether the complete treatment is necessary. The original estimated cost of the full treatment could become irrelevant in such cases.
The rules under the proposed regulation also call for health care plans and insurers to disclose negotiated rates for in-network providers, as well as how much they’re willing to pay out-of-network providers. Concern over this provision isn’t limited to provider networks. For example, the public policy leader of the National Business Group on Health, whose members are large employers, has expressed doubts that part of the rules will “work as intended.”
Presumably employers whose negotiated network rates are more attractive than average could ultimately see their advantaged position erode over time if employers paying more cry foul and demand equity. On the other hand, that could work out well for those who cried foul.
Finally, the proposed reg would change current medical loss ratio formulas to incentivize insurers to devise new benefit formulas in which consumers and health plans share savings resulting from using lower-cost, high-value providers.
An element left out of the proposal is required disclosure of extra charges the consumer will incur (“balance billing”) for services provided by out-of-network providers. But health plans would be required to give consumers a heads-up about the prospect of surprise bills.
The proposed regulation also features some disclosure requirements on the part of health plan sponsors that overlap with existing ERISA rules governing the content of summary plan descriptions. However, the required customization of disclosure data at the level of the individual employee may saddle not only the health plans with greater administrative effort and compliance expenses, but employers as well.
Even if health plans or third-party administrators were to incur the immediate cost of building and deploying the required online or mobile cost-estimator tools, employers and employees ultimately would pay some of the freight. Still, it could be a small price to pay if improved health care cost transparency eventually generates the efficiencies and dollar savings its advocates hope for. Given the opposition both the final reg and proposed reg face, it could be awhile before this theory is put to the test.