In January, as many parts of the country still battled surges in COVID-19 cases, the new hospital Price Transparency regulations went into effect with little fanfare. Since then, the conversations and coverage have centered around a general lack of compliance and apparent little use of the information by consumers to effectively price shop for healthcare.
Many hospital executives may be underestimating the potential for the rule to accelerate the role of the consumer in shaping healthcare policy and practice, while providing the impetus for healthcare systems to make the foundational investments needed to succeed in a value-based payment environment. But, like so many things in healthcare, price and the regulation are just pieces of a larger puzzle.
The new regulations require hospitals to post the prices they have negotiated with payers and/or that they charge cash-paying patients for 300 shoppable services. In coming years, the payer-focused aspects of the rule go into effect, requiring insurers to provide online, self-service tools that patients can use to determine their personal out-of-pocket costs for an increasing range of services and items, including procedures, tests, supplies, drugs, equipment and facility fees, among others.
Since January, numerous studies have noted limited compliance by many hospitals. An April “Health System Tracker” report found a lack of consistent or reliable price transparency data across more than 100 hospitals, while another study estimated only one-third of the nation’s hospitals have fully complied. Meanwhile, a Health Affairs studydetermined that consumers are not (yet) using the information to choose less expensive care options. Skepticism about the regulations’ impact on consumers is just one of a myriad reasons why hospitals may be slow to comply.
Illuminating the disconnect
As for consumers, it may just be too early to tell. With limited compliance, the data may not be robust enough to act upon, and it may require education to overcome an often incorrect assumption that more expensive care is better care. Perhaps the biggest gamechanger will be wider recognition of the disconnect between the prices charged by hospitals, the amount they are reimbursed and the actual cost of delivering care.
In other industries (and even other parts of healthcare), price is a function of the costs – fixed and variable – to produce a product or provide a service – with a margin for profit added based on what the market will bear. Under fee for service (FFS), hospitals have historically been paid based on the volume of services provided with the price either determined by the Centers for Medicare and Medicaid Services (CMS) or negotiated with private payers.
As a friend of mine puts it: Hospitals do price-based costing, not cost-based pricing. As a result, many hospitals have not invested in the infrastructure to fully understand their costs, which is foundational to an effective and market-responsive pricing strategy. Even with the move to value-based payment methodologies, half or more of healthcare is still reimbursed under the FFS model, although with increasing consideration of the quality of care provided.
As consumers get more savvy, they will also see firsthand the vast differences in prices paid for the same procedure, not only across the country or by different health systems, but even within the same hospital. Researchers found that the price paid for a magnetic resonance imaging (MRI) of the lower spine in major metropolitan areas ranged from $400 to $1,100. The variation for the same MRI in a single hospital in New Mexico was even greater, from $221 for Medicare Advantage plans to $1,821 in the commercial insurance market.
As consumers learn more, they, too will demand more value for their money, and value will differ by patient. For example, cost may be more important to one consumer, while others may be willing to pay more for convenience. Informed consumers will be able to weigh their healthcare purchasing decisions on a myriad of factors, including cost, quality performance, convenience and their personal preferences and risk tolerance.
Hospital executives, meanwhile, are concerned that letting payers know the rates they have negotiated with other insurers could make it easier for payers in general to seek the lowest rates possible. This isn’t a bad thing for consumers, but it could also benefit everyone.
What if payers and providers were to collaborate to reduce the total cost of care, under which lower reimbursement rates would be less of a risk to providers? Better yet, what if providers could leverage the trend toward clinical-supply chain integration, through which clinicians and supply chain collaborate to reduce variation in care process and products to lower costs and improve quality, to support payor risk-based contracts?
Eying new opportunities
Here is where providers are missing another opportunity. Hospital executives have argued that there are too many variables that could influence the kind of care a patient receives and the associated costs to effectively post prices in advance. Physicians, meanwhile, are best positioned to help consumers understand that – in the delivery of care - additional products or services could be required, which could impact the final price. Research by Lumere and Deloitte both found that most physicians want more data about the costs of the care they provide or prescribe for their patients, while less than 30% say they have access to such information. For this reason, it is concerning that nearly half of hospital executives recently surveyed said they have no educational methods in place to educate clinicians about the price transparency rule.
The move to value-based healthcare is designed to break down the traditional silos between the various stakeholders that impact both the cost and quality of care. Meanwhile, the price charged for products and services, as we have seen, is still unrelated to cost or quality. Could it then be that the price transparency rule is what brings the various parties together to not only bridge the gap between price, cost and quality, and in the process uncover the information we need to truly deliver better value for patients?