Hospital Price Transparency: Does it Matter?

Last Tuesday, the Center for Medicare and Medicaid Services (CMS) released a proposed rule that requires hospitals to post their standard charges “via the Internet in a machine-readable format and to update this information at least annually, or more often as appropriate.” It’s the latest in a series of legislative and regulatory efforts to increase price transparency in our industry.

Under this proposed regulation, which was included in CMS’ Inpatient Prospective Payment System (IPPS) proposed rule, a hospital could comply by posting its chargemaster or its equivalent. The new twist is this: in the proposed rule, hospital charge data must be accessible via the Internet—a change intended to “empower patients through better access to hospital price information.”

Reactions to the rule across the industry were generally favorable. Acknowledging that posting a hospital charge master is only a piece of the transparency puzzle, industry leaders felt CMS’ effort directionally a positive step. The policy is scheduled to take effect October 1, 2018 and is applicable to 3300 acute care hospitals.

But will it matter? Here’s what we know from the plethora of academic and industry analyses of price transparency in healthcare:

Consumers believe price transparency in healthcare is lacking. They do not accept that healthcare is unique and therefore unable to provide accurate pricing information more willingly and accessibly. Though accepting that healthcare is complex and its prices subject to complicating factors (risk factors, co-morbidities, et al) that might modify a list price, they believe the health system willfully negligent in its price transparency.

Insurance coverage, or lack thereof, plays a key role in consumer price sensitivity and correlates to lower utilization for elective services. Consumers whose health insurance requires significant out-of-pocket responsibility are more price sensitive than others. Notably, the number of Americans age 18 to 64 with a high-deductible plan increased from 26.3% in 2011 to 39.3% last year and is expected to reach more than 70% within 5 years. (CDC's National Center for Health Statistics). The CDC also found privately insured adults with employment-based HDHPs were more likely than adults enrolled in traditional plans to forgo or delay medical care. In the past 12 months, 9.2% of privately-insured adults with HDHPs didn't receive or delayed medical care due to cost, compared to 5.2% with traditional coverage.

Price sensitivity is increasing due to out-of-pocket costs considered unpredictable, surprising and harmful to their personal finances. Up to 40% of healthcare spending is susceptible to price shopping by consumers: these include elective procedures, outpatient tests, prescription drugs, and care provided by physicians, dentists and other professionals. But for serious medical conditions that impact 60% of costs impacting 20% of the population, price sensitivity is minimal today. These out of pocket costs, in addition to insurance premiums, are hurting household financial security: one in four U.S. households carries medical debt and half say medical bills are a source of stress.

Hospital prices are readily available to consumers but use is low. In 30 states, websites provide pricing information about hospitals and other services but their use is low. Virtually every health insurer provides a price comparison tool for its enrollees (Insight) but few enrollees use them (of Aetna’s commercial enrollees, only 3.5% are users of their cost estimator). Nearly two-thirds of hospitals provide pricing information in some form. However, the majority of hospitals (62%) believe their price transparency efforts are inadequate and require attention (Navicure) and consumers do find their pricing information misleading and confusing. (Pioneer Institute). Consumers want hospital price information that’s understandable, comprehensive and specific to their out of pocket responsibility and compared to other nearby options. They don’t get this from the websites at their disposal today, including their hospital websites.

The impact of price sensitivity by consumers on overall healthcare spending to date has been modest. A paired comparison study of 450,000 commercially insured employees—half given use of a price calculator and half withheld—found use minimal and savings negligible. The Health Care Cost Institute believes price sensitivity has reduced spending by as much as 7% to date. But the Health Care Pricing Project found hospital prices correlate more to a hospital’s market dominance than the underlying costs for the service, and also found prices varied by more than 400% for the same service provided in the same market. So, hospital pricing and utilization does not appear to have been impacted by prices nor have studies shown a positive or negative correlation between a hospital’s prices and its clinical quality or reputation. In short, prices for most hospital TODAY.

One can deduce from these studies that the issue of price transparency cuts across every sector in the industry. It’s not surprising. The basic business model in our system is built on the notion that consumers are users, not the primary purchasers. Like higher education that’s shifting its operational focus from its faculty focus to its students, healthcare is coming to grips with the significant transition to consumer-centricity in which prices, service, and brands matter.

So, what’s ahead?

Hospital price transparency is likely to get more attention from federal lawmakers. In recent speeches, US Secretary of Health and Human Services Alex Azar has espoused a vision for a value-based transformation of the health care system that “puts consumers in charge.” The four pillars of this strategy are giving consumers greater control over health information, encouraging price transparency, using experimental models in Medicare and Medicaid to drive value, and removing government burdens. Notably, research has shown the association between health care cost and quality modest whether the direction is positive or negative. So, it is likely regulators promoting price transparency for hospitals will require greater visibility about underlying costs in each organization as a basis for comparing prices. Federal laws requiring increased levels of price transparency akin the Health Transparency Law of 2016 (which did not pass) are likely.

Hospital prices will get more attention from media and payers. The combinations of media attention to healthcare prices, high-deductible insurance plans that encourage price shopping for elective procedures and the public’s demand for transparency mean the spotlight on prices will intensify. Studies showing no correlation between a hospital’s quality and pricing, expansion of bundled payment programs by Medicare and use of reference pricing programs by employers and insurers will heighten consumer awareness of widespread variability in hospital costs and prices.

The accuracy and usefulness of hospital price calculators will increase. Independent developers of price comparison tools are becoming increasingly sophisticated in the precision and personalization of their price estimators. The specific fixed and variable costs that a hospital imputes to set its prices will be the basis for comparisons by payers and consumers. Rebates and discounts between suppliers and hospitals, administrative overhead, drug and supply costs and labor costs will be captured in by price comparison tools to assess implicit profit margins built into each price. And these prices will be accessible in smart phone apps that are easily adapted to user-defined comparisons with customized search parameters that allow an individual to understand treatment options, underlying costs and prices, and their out of pocket requirements. The role independent, investor-funded price transparency platforms like Healthcare BlueBook, Change Healthcare, Castlight, MD Save and others play will increase as insurers, employers and individuals drive price sensitivity.

More hospital services will be subject to price sensitivity pressure. The clinical continuum of hospital services includes inpatient, outpatient and physician services. In coming months, most will add post-acute and retail health services and larger systems will also offer insurance plans. Though inpatient programs carry the highest sticker prices, they represent only 19% of total healthcare spending. Price sensitivity will expand to all but quaternary services provided in destination hubs; the full gamut of hospital services is susceptible to price comparisons that could impact utilization.

What’s this all mean?

It means the proposed rule by CMS is only part of the transparency avalanche that’s hitting hospitals. It means prices and their underlying costs will be widely known and matter more to the fiscal success and reputation of the hospital. It means simply posting a charge master in a machine-readable format is only a small part of becoming patient centered, but a necessary part.

Paul

P.S. Ironically, one of the more interesting storylines around the birth of Prince Louis Arthur Charles to the Duke and Duchess of Cambridge April 23, was a comparison of hospital charges. The royal birth in the exclusive Lindo wing of St. Mary’s Hospital cost $8900 vs. the price for a routine delivery in the NHS at $3000.  The U.S. price would for the standard would be at least 30% higher and at least double for the high end according media reports.

 

Resources:

“Fiscal Year (FY) 2019 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Acute Care Hospital (LTCH) Prospective Payment System Proposed Rule, and Request for Information” April 24, 2018

“The Consumerization of Health Care to Improve Value: Secretary Alex Azar’s “Radical” Vision, " Health Affairs Blog, April 23, 2018

Healthy Marketplace Index: Explore Local Prices Health Care Cost Institute www.healthcostinstitute.org

PwC Health Research Institute Consumer Insights Survey, 2016 PwC Health Research Institute, “2018 Industry Issues to Watch” www.pwc.com

The Pioneer Institute “Massachusetts Insurers have Made Good Progress in Price Transparency but Significant Work Remains” April 2018 www.pioneerinstitute.org

The Healthcare Pricing Project www.healthcarepricingproject.org

 “The association between health care quality and cost: a systematic review.”Hussey PS1, Wertheimer S, Mehrotra A. Ann Intern Med. 2013 Jan 1;158(1):27-34. doi: 10.7326/0003-4819-158-1-201301010-00006.

“Association Between Availability of a Price Transparency Tool and Outpatient Spending” Sunita Desai, PhD1; Laura A. Hatfield, PhD1; Andrew L. Hicks, MS1; et al Michael E. Chernew, PhD1; Ateev Mehrotra, MD, MPH1,2 JAMA. 2016;315(17):1874-1881. doi:10.1001/jama.2016.4288

 “Use patterns of a state health care price transparency web site: what do patients shop for?”

Mehrotra A1, Brannen T2, Sinaiko AD3. Inquiry. 2014 Jan 1;51.

"Meaningful Price Information Is Difficult for Consumers to Obtain Prior to Receiving Care," U.S. Government Accountability Office, Sept. 23, 2011, http://www.gao.gov/products/GAO-11-791.

“Do Healthcare Consumers Price Shop?” Kellogg Insight https://insight.kellogg.northwestern.edu/article/will-people-price-shop-for-healthcare

D. Sinaiko and M. B. Rosenthal, "Increased Price Transparency in Health Care—Challenges and Potential Effects," New England Journal of Medicine, 2011 364(10):891–4

Public Opinion About Costs And Transparency: Learning From Massachusetts Katherine Hempstead Health Affairs December 12, 2012 https://www.healthaffairs.org/do/10.1377/hblog20121228.026362/full/