On the first day of the year, one of the most consequential health policy regulations of the last 10 years went into effect, and it went largely unnoticed. Under the new rule, virtually every hospital in the United States must publish an easy-to-understand catalog of prices for consumers — and competitors — to see.
Price transparency efforts are intended to help consumers make informed choices, reduce the prices they pay, and increase competition within the health care market. Transparency measures are coming at a time when Coloradans are struggling to afford the cost of health care. According to the 2019 Colorado Health Access Survey (CHAS), nearly one in five Coloradans (18.1%) said they have had problems paying medical bills. These problems result in less spending on other needs, taking on debt, or even declaring bankruptcy.
The new federal regulations aim to specifically address these high prices. But will they work? What effect will they likely have on the prices patients pay for health care, and what will this new change means for Coloradans?
Evidence suggests that increased transparency will likely clarify charges across the health system — but it is just one of many steps necessary to actually reduce the prices consumers pay.
Setting the Ground Rules
The new rule, administered by the Center for Medicare & Medicaid Services (CMS), mandates that hospitals publish more information on what consumers pay for hospital services. Hospitals must provide clear, accessible charge information for their services in two ways: a machine-readable file for all services offered by the hospital, and a consumer-friendly display of 300 shoppable services, 70 of which are mandated by CMS to promote consistency across hospitals.
A “charge” is the value a hospital sets for services it provides. Charges are established by hospitals before negotiating with insurers or patients about what they will actually pay; this means they are often different from the actual cost of care seen on a bill, just as the Explanation of Benefits that patients often receive following a hospital visit often doesn’t reflect what that patient will actually pay. Providers were already required to publish a complete list of charges, often called a chargemaster, by the Affordable Care Act, but the chargemaster often offers little information about what consumers end up paying out of pocket.
To comply with the new hospital price transparency rule, hospitals had to publish the following types of charges by January 1, 2021:
- The Gross Charge: The charge for standard items or services from the hospital, without any discounts. These are the same charges included in a hospital’s chargemaster.
- The Discounted Cash Charge: What the hospital charges an individual who pays cash for standard items or services.
- The Payer-Specific Negotiated Charge: One charge the hospital has negotiated with a health insurer for a service, as an example of the hospital’s negotiated rates.
- The De-Identified Minimum Negotiated Charge: The hospital’s lowest negotiated charge with an insurer for standard items or services.
- The De-Identified Maximum Negotiated Charge: The hospital’s highest negotiated charge with an insurer for standard items or services.
Failure to comply with this new rule could put a dent in a provider’s bottom line. Hospitals face fines of up to $300 per day — or over $100,000 per year — if they do not publish charges after receiving written notice and fail to submit a corrective action plan. CMS has already started monitoring hospital participation and will publicize which hospitals fail to satisfy the new requirements.
But it is unclear whether fines will be enough to outweigh the advantage of noncompliance. A 2019 report from health care analyst Allan Baumgarten highlighted that hospitals in the Denver-metro area saw over $2 billion in pre-tax profits in 2018 – the highest level on record. It’s possible that some hospitals may choose to pay the fine rather than follow the new CMS rule.
Hospitals are not happy with the new CMS requirement. Publicly disclosing the prices they charge allows insurers to more aggressively negotiate reimbursements and allows hospitals to undercut each other’s rates. Collecting, organizing, and publishing these charges is no small task either, costing hospitals time and money even as they navigate unprecedented challenges in the face of the pandemic.
Even before the pandemic, the American Hospital Association, which represents 5,000 health care organizations across the country, sued CMS in December 2019, contesting the agency’s authority to enforce the new requirement and claiming it violated First Amendment rights, among other objections. The U.S. District Court that heard the case sided with CMS and upheld the rule during an appeal in late 2020.
A Tool, Not a Solution
As of February 2021, the largest health systems in Colorado appear to meet the new standards, though data can be challenging to find at this point. (Find information from UCHealth, Denver Health, SCL Health, Centura Health, and HealthONE on their websites.) The charge lists for other hospitals should be available or clearly linked to on their websites. Consumers can report hospitals directly to CMS if these data are difficult or impossible to find.
But quality over quantity is the golden rule when it comes to transparency. Hospitals and insurers will continue to publish more mandated pricing data, but if consumers can’t make sense of the data or feel unequipped to explore the market and compare their options, increased transparency will likely have no effect on prices.
Advocates of greater transparency, including CMS, say that consumers’ ability to compare prices and “shop around” will lower health care prices by increasing market competition. Competition is vital, but other factors are needed for market forces to exert downward pressure on prices.
First, people need to be able to understand the value and quality of the services they are paying for. Costs differ by hospital, as does expertise and the quality of care — which might justify higher prices. However, useful data about the quality of services at different hospitals can be difficult to find.
Second, people need to be able to understand the information released by hospitals, including what they will pay after any insurance coverage is factored into a charge. The new CMS rule is a step toward helping consumers make informed choices — if hospitals comply — but the details, and the actual amount a given consumer will pay, may still be hard to come by.
Most importantly, consumers need to have the power and understanding to act on the information they get when it comes to spending their health care dollars. Empowering patients to be smart spenders is easiest when they can plan for a hospital visit; it is next to impossible during an emergency, or if your insurance plan covers just a few providers.
Taking Charge in the U.S. and Colorado
The new CMS rule is one of a number of new federal transparency regulations. For example, the most recent COVID-19 stimulus bill includes a nationwide ban on surprise billing from out-of-network medical providers, which will take effect in 2022. Another CMS rule will hold health insurers more accountable for sharing the cost of services for their members, starting in 2023: The Transparency in Coverage rule will require some health plans to post their negotiated in- and out-of-network rates for 500 shoppable services and develop new tools for consumers to compare costs by provider.
Colorado policymakers have also championed more transparency in health care costs. House Bill (HB) 1001, passed during the 2019 legislative session, requires hospitals to share their financial statements, operating expenses, and uncompensated care costs in the Department of Health Care Policy & Financing’s annual Hospital Expenditures Report. Another 2019 law, HB 1320, mandates that Colorado’s nonprofit hospitals report their community benefit activities to the state instead of only to the Internal Revenue Service. This information should help state policymakers craft more targeted policies aimed at reducing health care costs. But these efforts are often contentious, as they raise questions for some legislators about acceptable levels of government intervention in the market.
The 2021 legislative session is likely to feature efforts to increase prescription drug price transparency. Bills addressing this topic failed in 2020, in part due to the COVID-19 pandemic’s impact on the session but also due to firm industry opposition.
Moving Beyond Transparency
Increasing price transparency in health care is an ongoing experiment. Colorado policymakers continue to pass ambitious legislation, now bolstered by federal rulemaking, but solutions to complicated affordability issues remain elusive. The price consumers see on a charge is still unlikely to be the one they will actually pay, and helpful context about the quality of services is frequently missing.
Transparency is a crucial first step in addressing the high prices patients pay for health care services, but it is only that — a first step. There are larger issues and difficult conversations looming that must be addressed if policymakers hope to educate consumers and tackle underlying cost drivers.
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