A new vision for hospital price transparency

Start the countdown now: On January 1, 2021, hospitals will enter a new world of price transparency. CMS put hospitals on track to face expanded price transparency requirements with a final rule released November 15, 2019. The CY 2020 Hospital Outpatient Prospective Payment System (OPPS) Policy Changes: Hospital Price Transparency Requirements final rule pushed ahead with many of the price transparency requirements originally included in the 2020 OPPS proposed rule.

After the release of the 2020 OPPS proposed rule, many in the industry doubted CMS would finalize all of its original proposals, including requiring hospitals to post payer-specific negotiated charges. Some believed that CMS would mute its more radical proposals, while others assumed that the agency would scrap its price transparency proposals altogether. Although experts cautioned that CMS was unlikely to back down, when the agency pulled the price transparency proposals out of the 2020 OPPS final rule and announced that those proposals would be addressed in separate rules, it was anyone’s guess how the chips would fall.

Although the Hospital Price Transparency Requirements final rule is likely to face legal challenges, hospitals can’t assume the rule will be overturned before taking effect. Preparing to meet the requirements will be a massive undertaking, with experts suggesting that it will greatly exceed CMS’ time, labor, and cost estimates.

Revenue integrity needs to act now. Understand the ins and outs of the final rule and get perspective on the implications of CMS’ new requirements. This will let you come up with a plan of action—and advocacy.

“My initial reaction was that Christmas came early this year—one whole extra year to prepare, advocate/petition/take legal action to try to get this revised into something that might actually be helpful for our patients,” says Tracy Cahoon, MBA, CHRI, director of revenue integrity at Southwest General Health Center in Brecksville, Ohio.

Definitions

When CMS finalized its first hospital price transparency requirements in the 2019 Inpatient Prospective Payment System (IPPS) final rule, one of the biggest questions left unresolved was how the agency defined “standard charges.” In the 2019 IPPS final rule, it appeared that CMS defined price transparency as the information contained in the chargemaster. Hospitals and experts pointed out that charges listed in the chargemaster don’t necessarily reflect what patients will see on their bill. CMS provided only limited clarification on how it was defining the term “standard charges.” In a November 2018 Open Door Forum call, CMS stated that by using the term “standard charges,” it intended for hospitals to publish “all items and services.” A December 2018 FAQ clarified that “all items and services” included drugs and biologicals even if those items didn’t have a standard charge in the chargemaster. But that information still left hospitals with unanswered questions.

CMS appears to have responded to those concerns by getting more granular in the Hospital Price Transparency Requirements final rule. Revenue integrity will need to take a close look at how CMS is defining “hospital,” “items and services,” and “standard charges.”

Defining “hospital”

Defining just what counts as a hospital for the purposes of the final rule isn’t cut and dried. According to the final rule, a hospital is an institution in any state in which state or applicable local law provides for the licensing of hospitals, and is an institution that is either:

• Licensed as a hospital pursuant to such law
• Approved, by the agency of such state or locality responsible for licensing hospitals, as meeting the standards established for such licensing, including critical access hospitals (CAH) and other facility types such as inpatient rehabilitation facilities, sole community hospitals, inpatient psychiatric facilities, or long-term care hospitals that otherwise meet the definition of a hospital

The definition includes facilities that aren’t enrolled in Medicare.

Although commenters suggested that CMS expand the definition to include ambulatory surgery centers (ASC), particularly as numerous CMS initiatives are encouraging the shift of services to ASCs, the agency declined to do so. It also appears that clinics, community health centers, and skilled nursing facilities aren’t subject to the final rule, at least for now.

But there’s a big catch: CMS stated that it will defer to states’ or localities’ hospital licensing standards to determine whether an entity falls under the definition of a hospital; therefore, the agency isn’t creating a list of the specific types of organizations subject to the final rule. So, to figure out if a facility is subject to the new requirements, first find out how the facility is defined by the state or locality. While acute care hospitals and CAHs will clearly need to comply, other facility types may not. Organizations will need to be extremely careful when vetting facilities for compliance with the new requirements. Compliance and legal staff need to be on the ground floor of these conversations and should guide policies for each type of facility.

However, federally owned or operated hospitals are off the hook. The requirements don’t apply to Indian Health Service facilities (including tribally owned and operated facilities), Veterans Affairs facilities, and Department of Defense Military Treatment Facilities.

Defining “items and services”

“Items and services” also got a more specific definition in the final rule, although one that’s still likely to cause confusion—potentially for patients. Under the final rule, items and services are defined as all items and services provided by hospitals, including both individual items and services and service packages, for which the hospital has a standard charge. This includes items and services provided by employed physicians and non-physician practitioners (NPP). Examples include:

• Professional charges
• Room and board
• Supplies and procedures
• Use of the facility and other items (i.e., facility fees)
• Any other items or services for which a hospital has a standard charge

Some commenters suggested that CMS expand the definition of items and services to include the services of all practitioners affiliated with a hospital, regardless of whether those practitioners are employed by the hospital. Commenters suggested that this approach would help address concerns about surprise billing practices, in which a patient receives a separate, unexpected bill from a non-employed physician. In contrast, other commenters stated that services provided by physicians and NPPs should not be included in the definition because hospitals that employ physicians and NPPs would be at a disadvantage when compared to hospitals that do not. Specifically, a hospital that does not employ physicians or NPPs would be able to post a lower standard charge, even though that would not reflect the true cost to the patient as it would not include the charges for the physicians or NPPs. CMS declined to include services provided by all affiliated practitioners under the definition, stating that non-employed practitioners’ services do not fall under the definition of hospital services. CMS disagreed that hospitals that employ practitioners would be at a disadvantage because practitioners’ services may be charged as ancillary services and, therefore, listed separately from the primary shoppable service.

Defining “standard charge”

The definition of standard charge was finalized as “the regular rate established by the hospital for an item or service provided to a specific group of paying patients.” The final rule also defines five types of standard charge:

1. Gross charge, “the charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discount”
2. Payer-specific negotiated charge, “the charge that the hospital has negotiated with a third-party payer for an item or service,” with “third-party payer” defined as “an entity that, by statute, contract, or agreement, is legally responsible for payment of a claim for a healthcare item or service”
3. The de-identified maximum negotiated charge when provided to inpatients and outpatients
4. The de-identified minimum negotiated charge when provided to inpatients and outpatients
5. Discounted cash price, “the charge that applies to an individual who pays cash (or a cash equivalent) for a hospital item or service”

In the final rule, CMS said knowing the negotiated charge is important to patients because it believes that insured individuals are finding some services to be more affordable when paying for them out of pocket. “For example, stakeholders and reports indicate that an increasing number of consumers are discovering that sometimes providers’ cash discounts can mean paying lower out-of-pocket costs than paying the out-of-pocket costs calculated after taking into account a third-party payer’s higher negotiated rate,” CMS said.

However, others question whether that argument holds up. California is one of a handful of states that has had price transparency laws, including publishing charges, on the books for a number of years. Kay Larsen, CRCR, CHRI, revenue integrity specialist at Adventist Health Glendale in Glendale, California, says that she’s received many calls from patients trying to estimate expenses for an upcoming surgery. Many wanted to know the cost difference between using their insurance or declaring they were uninsured.

“Although we have a good uninsured program, 90% of the time, using insurance was still better than the uninsured rate once you started adding up all the different bills and the possibility of future services,” she says. “[And] I just don’t see the benefit to a patient to know what other payers are paying. It’s not like they can cancel their insurance and select a new insurance any time during the year to take advantage of a better price through a different insurance.”

The AHA and other hospital groups have already made it clear that they oppose requiring hospitals to share payer-specific negotiated charges and that they believe CMS has exceeded its legal authority. Commenters on the proposed rule shared that opinion. In the final rule, CMS dismissed those concerns by citing Section 2718(e) of the Public Health Service (PHS) Act, which requires hospitals to make public standard charges for items and services. However, that section of the PHS doesn’t define “items and services”; CMS stated that it has the authority to create such definitions. Revenue integrity, and the industry as a whole, need to keep a close eye on legal developments as any decision could have far-reaching consequences.

In December 2019, the AHA followed through on their comments and filed a lawsuit challenging the final rule.

“I think that the public posting of negotiated payer rates may be blocked, but I do think courts may allow posting de-identified minimum and maximum and discounted cash prices,” says Valerie Rinkle, MPA, CHRI, regulatory specialist with HCPro.

CMS believes that publicizing this data will help drive down costs, but stakeholders and experts are questioning whether that’s true. America’s Health Insurance Plans has stated it believes that CMS’ new requirements will actually stifle competition and drive up prices. And even if hospitals do try to lower their prices, that might not translate into lower payments.

But what if hospitals give in to the shaming and reduce their prices after seeing how they measure up to others? For hospital contracts where the insurer pays based on a percentage of charges, lowering prices could have an impact on what the patient pays depending on their benefit plan, says Debra May, CHRI, executive partner with Bluetree Network in Reno, Nevada. But that’s likely only a minority of patients.

“Today there are very few insurers that contract to pay a percentage of charges, and if they do it is often only for certain services within the contract, not all of the services covered in the contract,” May explains. “Unless hospitals lower their prices to less than the insurance allowable, what each insurer allows for that charge, the patient would only pay less if the contracted rate with the insurer was lowered. This would require each organization to renegotiate each of their contracts with each insurance plan.”

For self-pay patients, lower prices should immediately translate into lower costs, she adds, although most hospitals have only a small self-pay population.

However, Medicare would benefit from reduced prices by a two- to three-year period because of the time lag of cost reporting in their rate-setting process, Rinkle says

Conclusion

Even CMS admits its new requirements may not actually lower healthcare costs. “We noted that although there are no definitive conclusions on the effects of price transparency on markets, one study found that it can either increase or decrease prices depending on the strength of the bargainers and the size of the market,” CMS said in the final rule. “While price transparency gives buyers and sellers important information about the value of items and services, the effect may result in price increases by changing the incentives for buyers and sellers may also enable traders to observe deviations from collusive practices. Allowing weaker bargainers to see prices negotiated by stronger bargainers will change incentives facing buyers and sellers, and can lead to price increases.”

Most stakeholders can agree that would be the least desirable outcome. It’s well established that healthcare costs in the United States are rising at an unsustainable rate and efforts to contain costs overall have not seen much success. Hospitals, however, can’t shirk their responsibility and must take an active role in finding and testing solutions.

Hospital prices are driven by a wide variety of factors, including labor costs and technology. While it’s easy to apportion blame for rising costs, hospitals should see the push for price transparency as a rallying cry. Change will, and must, happen. Hospitals should seize the opportunity to be active and collaborative participants or risk being sidelined.

Revenue integrity professionals have their work cut out for them to prepare for 2021. But by planning and acting now, stepping up as leaders and advocates, they can help ease the transition.