How HHS Can Reframe Its Hospital Pricing Effort—and Why It Must Do So

April 26, 2019
An analysis published last week in Health Affairs by a team of healthcare policy analysts has shed light on how HHS might rework its failed mandate on hospital price reporting

Could the new-ish HHS (Department of Health and Human Services) mandate requiring Medicare-participating hospitals to post prices, have turned out any worse? Probably not. Let’s be honest: the rule published last August, and which went into effect on January 1, requiring acute-care hospitals to post their prices publicly, has turned out to be rather a disaster. And someone really could have predicted that from the start.

But now, a team of healthcare policy researchers has taken the time and effort to analyze the price-reporting rule and look at exactly what’s wrong with it; and they’ve contrasted that situation with a recent voluntary initiative among 11 ambulatory surgery centers (ASCs) involving their posting actual charges.

The researchers—Ge Bai, Pavan Patel, Martin A. Makary, and David A. Hyman—shared their findings in an article posted online in Health Affairs on April 19, entitled “Providing Useful Hospital Pricing Information To Patients: Lessons From Voluntary Price Disclosure.”

As the authors noted in their article, “For most goods and services, pricing information is readily available to consumers. Sellers have a strong incentive to voluntarily disclose their prices because they know consumers will consider them when making purchasing decisions. Regulators intervene only when prices are disclosed in a misleading or deceptive way. Hospital care is different. Patients who undergo common medical services usually have no idea how much the total bill will come to—let alone what their out-of-pocket costs will be. The news media is full of stories about “surprise medical bills” and patients’ lack of access to useful pricing information.”

As a result, “To address the problem of nontransparent markets in health care, the Department of Health and Human Services (HHS) required all hospitals to make a list of their “standard charges” for all services available online, starting on January 1, 2019. The HHS mandate was intended to improve price transparency and enable patients to engage in comparative shopping. However, many hospitals responded by posting their chargemasters—bookkeeping tools that were not designed for price comparison purposes,” they noted. “They include thousands of discrete items, each ‘described’ with an unintelligible acronym. Chargemasters are difficult for most patients to interpret and do not reflect what most patients actually pay. Not surprisingly, initial feedback to the posting of chargemaster prices was negative.”

And of course, right there, that was a gigantic flaw in the plan. As everyone in healthcare knows, chargemaster charges bear absolutely no relation to what health insurers (and a small number of self-pay patients) actually pay.

In their article, the authors outlined the several problems involved in the posting of chargemaster prices, including the fact that “Hospitals often use the chargemaster price as a starting point in their negotiations with private insurers, but market dynamics play a dominant role in determining the ultimate agreed-upon price,” and the fact that “Medicare and Medicaid pay hospitals a government-set price that takes no account of a hospital’s chargemaster price.” As a result, chargemaster prices have virtually no direct relationship to the actual prices paid by health insurers and consumers. And, they point out that “The problem is compounded by the reality that chargemasters are virtually impossible for patients to interpret. For example,” they note,  “the New York Times recently reported that a cardiac procedure was listed as ‘HC PTC CLOS PAT DUCT ART’ on a hospital’s chargemaster. Even sophisticated patients will find it almost impossible to identify all the items they will need during a hospitalization and locate them on a hospital’s chargemaster—let alone make meaningful price comparisons across hospitals.”

Next, these researchers compared and contrasted the HHS-mandated reporting program with what’s happening among 11 ambulatory surgery centers (ASCs) across eight states, that have been posting their actual charges, for healthcare consumers who are interested in pricing, particularly those who are very price-sensitive due to being in high-deductible health plans.

As the authors noted, with regard to the 11 ambulatory surgery centers posting their prices on their websites, “First, prices are readily accessible. Pricing information is presented online, in a simple and straightforward manner, using patient-friendly interfaces… Second, all 11 ASCs quote a single bundled price for common surgical procedures, instead of forcing patients to identify the discrete components (that is, facility fee, surgeon’s fee, anesthesiologist’s fee, and follow-up care) that they will require. Third, all 11 ASCs quote a real price—that is, the price that any and all patients who are not using insurance will be asked to pay to receive the specified services.” And, they noted, “Finally, the direct-pay prices quoted by these ASCs are reasonably comparable to the prices for the same services provided by the ASCs to in-network insured patients and by other providers in the same geographic region.”

Now, what’s interesting about all of this is that the voluntary ASCs that are reporting their charges to payers and patients, are doing so on a small scale, with procedures whose prices are at least theoretically easily compared, and which are discrete and clear enough to be understood by consumers. Both of those aspects are not present when it comes to the thousands of charges required to be posted under the HHS rule. Things are far more complex in that situation, and involve a vast group of organizations.

So what’s the solution? “Our findings and those of Hempstead and White suggest an obvious strategy for improving HHS’ pricing transparency mandate,” the researchers wrote in Health Affairs online. “Instead of allowing hospitals to simply post their chargemasters, they should be required to post online the lower of their direct-pay prices for the most common 50 diagnosis-related group (DRG) codes and 50 leading CPT codes, or the median amount they receive from major commercial payers for the same DRG and CPT codes when services are provided on an in-network basis. For hospitals whose direct-pay prices exceed the median negotiated in-network price, the latter provides an alternative benchmark for a court trying to determine the true value of the provided services (in the case of litigation on the issue).”

Further, they wrote, “By making real prices visible, our approach will facilitate price competition and comparative shopping and will help address ‘surprise medical bills.’ Hospitals might argue that mandated disclosure of median in-network prices will affect their ability to negotiate with insurance companies. We are skeptical that this will be a problem, but hospitals can mitigate this concern by setting cash prices equal to or lower than their negotiated in-network price—further intensifying price competition in this space. And, as competition intensifies, more hospitals may decide to start voluntarily disclosing bundled fees on their own—like the 11 ASCs we studied and the East Coast health system studied by Hempstead and White.”

So, HHS clearly needs to relaunch its pricing mandate, with a completely new frame and approach around pricing. The result could potentially be revolutionary—but, as this team of researchers has written—it has to be done right. And it’s worth redoing it all to get it right.

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