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Hospital Price Transparency Rules: Reducing Healthcare Costs and Increasing Competition

Written by Admin | Feb 24, 2020 7:54:00 AM

Many consumers are frustrated with the high cost of healthcare in the United States, from procedures to prescription drugs. Hospitals, especially, carry high fees. The average outpatient visit costs $500, and most inpatient stays run more than $22,000. Compared to other developed countries, the U.S. consistently has the highest healthcare costs for both types of services. However, it’s not easy for consumers to research healthcare prices to find the highest quality of care at the lowest cost.

Two consumers can receive the exact same healthcare services but end up paying drastically different prices. Part of this problem emanates from healthcare providers’ contracts with different insurance providers. Other facets like deductibles and copayments also cause cost variations. Even hospitals having published list prices rarely results in patients paying those exact amounts.

Publishing Prices of Hospital Services

A key effort to address the high cost of healthcare in the U.S. has been promoting price transparency, the goal of which is to reduce healthcare costs and spur competition among providers by enabling consumers to shop for healthcare services. According to Public Agenda, more than 50 percent of Americans report trying to find out the price of healthcare before receiving it.

Although the idea of price transparency in healthcare sounds favorable, achieving it isn’t easy. Rules implemented under the Affordable Care Act require hospitals to publish the standard prices for the services they provide, otherwise known as chargemaster rates. These prices have to be listed on hospitals' websites in a machine-readable or computer-friendly format. The problem with this rule is that much of the data is still too complex for many consumers to understand, and most of the prices don’t take into consideration insurer-negotiated rates.

CMS Final Rule on Price Transparency

In June 2019, President Trump issued an executive order aimed at further stimulating healthcare price and quality transparency. About five months later, on November 15, 2019, the Centers for Medicare & Medicaid Services (CMS) issued two rules designed to “increase price transparency to empower patients and increase competition among all hospitals, group health plans and health insurance issuers in the individual and group markets.”

This final rule is slated to go into effect on January 1, 2021 but has faced opposition from some health systems and payers. For example, The American Hospital Association (AHA), the Federation of American Hospitals (FAH), the Association of American Medical Colleges (AAMC) and the Children's Hospital Association (CHA) announced that they will challenge the final rule in court.

According to the Department of Health & Human Services, the final rule will require hospitals to make their standard charges public in two ways beginning in 2021 

  • Comprehensive Machine-Readable File: Hospitals will be required to make public all hospital standard charges (including the gross charges, payer-specific negotiated charges, the amount the hospital is willing to accept in cash from a patient, and the minimum and maximum negotiated charges) for all items and services on the Internet in a single data file that can be read by other computer systems. The file must include additional information such as common billing or accounting codes used by the hospital (such as Healthcare Common Procedure Coding System (HCPCS) codes) and a description of the item or service to provide common elements for consumers to compare standard charges from hospital to hospital.
  • Display of Shoppable Services in a Consumer-Friendly Manner: Hospitals will be required to make public payer-specific negotiated charges, the amount the hospital is willing to accept in cash from a patient for an item or service, and the minimum and maximum negotiated charges for 300 common shoppable services in a manner that is consumer-friendly and update the information at least annually.

Advantages for Healthcare Consumers

In addition to reducing the cost of healthcare, price transparency has the potential to provide numerous benefits to both consumers and providers, such as real-time online access to estimated out-of-pocket (OOP) costs, enhanced patient engagement and reduced market prices for various procedures. Other benefits include:

  • Reduced claims payments for lab tests, advanced imaging and clinician office visits
  • More educated healthcare purchasing decisions
  • Easier comparison of hospital products and services
  • Better knowledge of prices/fees pre-procedure
  • Increased patient knowledge of payment responsibility
  • Elimination of surprise medical bills
  • More profitable revenue collection from lack of surprise medical bills

For healthcare providers, the American Medical Association has outlined eight ways to increase price transparency in healthcare to prompt value-based decisions.

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