Dance to a new tune: transparency laws usher in new era

As promised, the federal government began levying fines against hospital systems this month for failure to comply with new laws requiring them to publicly release their internal dates on the rates they charge for medical procedures.

But with inflation racing at levels unseen for decades, hospital executives are already claiming their data is out of date. Their costs for everything from new equipment to cafeteria fare are increasing.

Does this mean insurers and plan sponsors that have been awaiting this flood of data will find it essentially obsolete? Will the notoriously close relationship between  insurers and providers be strained as insurers struggle to set reimbursement rates?

In the short term, inflation may throw a kink in the national transparency campaign. Hospitals may well set higher rates, citing inflation. Insurers, also under pressure to be more open about how they set their rates, will likely engage in finger-pointing at health systems. Plan sponsors, suddenly under the gun themselves to publish hospital rate information for plan members, may feel especially overwhelmed.

But all that will likely be merely a blip in health care transparency history. With the laws now being enforced against plan sponsors as well as health systems, the forces they set in motion will inevitably usher in a new era in the marketplace. The data may need to be adjusted for inflation, but the numbers are now public and ripe for analysis and exploitation.

That’s the consensus from long-time players who have advocated for greater transparency from hospitals and insurers. Beginning this year, transparency requirements, backed with enforcement, will have “a massive effect on the health care marketplace,” says Mark Galvin, President and CEO, MMS Analytics, Inc. As transparency rules are enforced and ever more sophisticated transparency tools and advisors emerge, true costs will become known, understood, and hopefully harnessed at last.

The looming disclosures required by the federal transparency laws have clearly created anxiety  within health care systems and larger insurers. Since plan sponsors previously had little to no access to the true cost of medical procedures or to the compensations structures of the insurers, most were forced to accept whatever those parties told them about costs. Now, the curtain is slowly being pulled back.

Initial disclosures did set off sparks between the providers and insurers. But will the disclosures cause a permanent rift between those parties?

“Not really,” says Dave Chase, co-founder, The Health Rosetta. “Those in the know understand that the carrier-health system Kabuki Dance is meant to distract.”

Congress’s “No Surprises” bill did contain consumer protection measures that have caused some disagreements between systems and insurers, says Galvin of MMS Analytics, Inc. (MMS’s main product is a transparency tool developed over four years by Galvin and his team that lets any user browse hospital rates by region.)

“No Surprises” included defined payments for specific procedures called Qualified Payment Amounts that insurers would pay the health care provider. Defined as “the median of contracted rates for a specific service in the same geographic region within the same insurance market,” QPA sets the basis for determining individual cost sharing between the parties.

“The only tensions I’ve noted so far [between providers and insurers] are around the Qualified Payment Amounts that payers are starting to pay providers,” Galvin says. “To some extent, this rhetoric is being used to point fingers back-and-forth. Ultimately, what they each think really doesn’t matter. The consumer will be the ultimate judge of what is good and what is bad.”

Any stress in the relationship would more likely occur because transparency demands are threatening their cozy relationship.

“For a very long time the customer of the insurance company has been the provider and hospital system, not the plan member or employer, because that relationship needs to be symbiotic,” says Allison Cohen De Paoli, founder of Altiqe. Together, provider and insurer could collaborate to raise rates as needed–for both parties.

Going forward, practices such as offering enticing “discounts” on coverage to plan sponsors that were based on inflated rates will be easier to spot, she says. Brokers whose compensation is tied to plan cost increases “driven” by health system charges will have to work harder to justify annual increases. Or find a new way to be compensated.

“If the parties have to base rates on an agreed-upon standard, then you can have an open and honest conversation about what the sponsor should pay for something,” she says.

Chase and others who advocate for plan sponsors and members say the disclosures are already revealing practices that far exceed their own expectations for greed and gouging.

Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, called the numbers “eye opening.” He was taken aback at the previously undisclosed profit margins of some systems, and the wide range of charges for the same procedures at different facilities. Charges were especially shocking within systems that have been bought out by private investment groups.

“As hospitals have consolidated, they are pricing to what the market will bear, not what they need to break even,” he says. “Generally hospital systems have been given the benefit of the doubt for years on what they charge. But looking at the data, it’s hard to defend what’s happening, the way things are being priced. It was readily apparent to me that normal market conditions are not in play.”

Little wonder plan sponsors felt helpless when faced with ever-escalating premiums. “Plan sponsors didn’t have access to those numbers. They had to take the health plan’s word for it,” says Joseph Hopkins, Director, Business Development – Western U.S., Premise Health.

Hopkins, a former insurance company executive, cautions that simply knowing the rates different providers charge for the same procedure is only the first step in improving a plan member’s experience. They need access to quality ratings as well.

“More affordable care doesn’t mean higher quality care, so transparency doesn’t necessarily mean reduced risk for health plans. If a plan sponsor has the ability to know where the highest quality of care at the lowest price facility is, then they could save thousands per referral.”

Whether plan sponsors and their members will benefit from these changes depends upon how proactive they are. Sponsors must make rate data available to their members, and members must use the information to make different choices. Otherwise they face per member per day penalties. Many will depend upon their brokers, or third party administrators, to guide them through compliance with the new laws. The way will not be easy.

“Employers and their advisers need to be activated,” says Thompson. “They have to be willing to entertain some of these tools like reference-based pricing and direct primary care. But they can’t go with business as usual. It would be unconscionable for me to continue doing business the same way, knowing what I know now about the actual charges.”

Chase says the pieces are in place for plan sponsors to provide better benefits, “if they shift their stance to being proactive. Many employers are now taking this approach. That is, bypassing value-extracting networks that are at the heart of why the working middle class hasn’t seen a net wage gain in 30 years.

“Fortunately, there are plenty of provider organizations who want to deliver real value to employers. At the same time, forward-looking employers can address key pain points for provider organizations such as patient accounts receivable (employers waive cost sharing), delayed payments, pre-authorizations, etc. when there is a fair arrangement. When both the purchaser and provider want to achieve the quadruple aim (versus focusing on Wall Street-centric returns), simple and fair 2-page agreements become imminently doable.”

It is a nuanced dance to a new tune. But once all parties have integrated the principles of transparency into their systems, plan sponsors and members should benefit both financially and health-wise. But it will depend upon the degree to which they have understood and released the power of the rate data.