Hospitals are way behind in price transparency efforts

Enhanced penalties from the Centers for Medicare & Medicaid Services (CMS) on hospitals out of compliance with transparency orders went into effect in June 2022. Many people across the country consider making the prices negotiated between hospitals and insurers an important milestone in our health care system’s reluctant journey to a more patient-centric orientation, but suffice it to say, we are not there yet.

Price transparency really can’t come soon enough. In every other realm of commerce in which consumers can choose the provider from whom they will buy goods and services, transparency in pricing leads to a more efficient market – better products and lower costs for buyers. There is no reason for health care delivery to remain an exception; and yet the system remains a tangled mess, and reformers are rightfully forcing the hands of hospital systems where opaque practices serve to inhibit innovation and competition.

Related: Hospital Price Transparency Rule adherence early results not promising

A pilot study run in California empowered patients to make choices among providers in which they at least had a reasonable estimate of costs to go on, effectively demonstrating how visible prices and competition can work to the benefit of patients. CMS instituted similar rules nationally requiring each hospital operating in the U.S. to provide clear, accessible pricing information about the items and services they provide in two ways. The first is a comprehensive machine-readable file with all items and services; the second is a display of shoppable services in a consumer-friendly format.

This serves patients and also feeds data to a whole new industry born to help hospitals comply with the law and to make all this published pricing data usable for consumers. Many are already using the data to compile comparable pricing across institutions, attempting to create a true marketplace for health care services. This will take time to fully blossom, but it also won’t do a thing where systems are not yet in compliance.

Getting the hospital industry to comply has been an uphill battle from the beginning. Major hospital groups and several individual facilities filed a lawsuit balking at the cost of implementing the Trump-era rule. A DC district court upheld the rule, yet hospitals have continued to drag their feet.

Implementation was delayed further because the toothless penalty structure that CMS initially rolled out was easy to ignore. Predictably sluggish action on the part of hospital systems then led to bigger penalties being increased on the larger ones— which went into effect on June 1, 2022. For a full calendar year of noncompliance, the minimum total penalty amount would be $109,500 per hospital, and the maximum total penalty amount would be $2,007,500 per hospital. This new muscular approach is meant to underscore the administration’s commitment to enforcement and public access to pricing information. Still, early results aren’t promising.

So far, a spot check of random hospitals shows a dismal compliance rate of under 15%, and only 6% in full compliance with both statutory requirements. But since hefty fines are actually being levied for the first time, how long can systems sustain penalties of this size? Two hospitals in Georgia are accruing the daily “Civil Monetary Penalties” right now. CMS has also sent more than 300 warning notices to other hospitals and has further issued requests for corrective action plans to hospitals that didn’t make the requisite changes.

Many are wondering how useful price transparency will be and whether it ultimately bends the cost curve down for American consumers. I think it will certainly help. But in order for this to work, patients must be armed with the right information to make an informed decision in a timely way in advance of securing service. Payers will have every reason to facilitate informed medical decision-making and may even further incentivize it by highlighting the lowest cost and highest quality provider in the market area.

Also: Hospital price transparency is necessary, but is it enough?

Once the larger markets approach full compliance, patients seeking care will be able to compile a reasonable estimate of what their financial responsibility will be when they acquire hospital care and services. This can help patients begin to meaningfully weigh the value of their care.

Of course, the public pricing of items and services doesn’t tell the whole story. What consumers also need to make an informed decision is answers to questions like:

• What are the quality metrics like for this institution compared to others in the mix?
• How many such procedures are done each year?
• And what does that look like by a specific provider?

Answers to such questions are not mandated by the new rule, but hospitals would be wise to provide them and make them accessible. To provide only what is required is to set the stage for a race to the bottom on cost, which no sensible health care organization wants.

Health care organizations will also need to create an annual process to review and revise the data to ensure that the pricing they provide is continually accurate.

Complicated work, sure, but there is another benefit for these organizations. Making pricing public, especially for shoppable services, will almost certainly drive them to look more closely at their price competitiveness, especially on big-ticket procedures like knees and hips. That is likely to spur hospitals that have successfully negotiated premium pricing to look more closely at their underlying costs, and perhaps to consider lowering their prices so as not to be an outlier.

Transparency benefits payers will also have every reason to facilitate informed medical decision-making and may even further incentivize it by highlighting the lowest cost and highest quality provider in the market area. The prospect of digitally highlighting opportunities for the consumer to save money will be hard to resist for most payers.

Finally, health care consumers will have an expanded opportunity to play a more active role for themselves in evaluating their health care options. Given the complexity of our system, the increased transparency of cost data may encourage the development of personalized health care navigators who help consumers find the best cost/quality deals. An easy-to-use interface, like the kind seen in banking, investing, and even fast food apps, can suggest what these might look like and how they’ll operate.

Price transparency is win-win for everybody. The implementation of these reforms is a positive move toward recasting health care as a more market-responsive patient-centered activity. This path is our strongest hope for lowering costs and improving both quality and the patient experience in our country today. For too long, secrecy served the interest of entrenched interests in the industry, and this transparency effort is a positive step into the light.

Michael Abrams is managing partner of Numerof & Associates.