New efforts to improve medical cost transparency
January 1, 2020
While President Trump has not had much success on the drug price reform front, his administration is making modest progress on a different front – announcing two regulatory changes that Trump hopes will provide more easy-to-read price information to patients.
The first effort targets hospitals, finalizing a rule that requires them to reveal and display their secret, negotiated rates to patients, beginning in January 2021. This proposal has been resisted for months by a large portion of the health care industry. It would require hospitals for the first time, to reveal in a consumer-friendly format, the discounted rates they negotiate privately with insurers for a list of 300 services that patients can schedule in advance, including X-rays and Caesarean sections. This could potentially help people shop for better deals on a range of medical services, from hip replacements to brain scans.
The administration is also proposing to require most health plans that Americans get through their jobs to disclose the rates they negotiate with hospitals and doctors in their insurance networks, as well as the amounts they pay to out-of-network doctors.
The second is a proposal to require insurers to allow patients to get advanced estimates of their out-of-pocket costs through an online tool before they see a doctor or go to the hospital. It remains unclear when or if it will go into effect.
Trump and administration officials suggest these moves will be both historic and transformative. Centers for Medicare & Medicaid Services administrator Seema Verna said that health care prices are “about as clear as mud to patients,” and says these new rules “usher in a new era that upends the status quo to empower patients and put them first. “
Hospitals are already required to post their “list prices” online but that information has been pretty much useless; it’s very complicated and doesn’t tell you much about what you are likely to pay. The new rules make hospitals show what they really pay for services, not the list prices and require them to make that information easy to read and easy to access.
The hospital industry labels it “radical” and said it plans to challenge the proposal in federal court. The American Hospital Association says the administration doesn’t have the authority to compel them to disclose their private negotiations and compares the order to forcing private parties to reveal trade secrets. In Ohio, a similar state law requiring price transparency that was passed two years ago is still waylaid in the courts. Hospitals say that disclosing prices would lead to higher costs, not reduce them, because each institution would know the prices of its competitors and could be reluctant to settle for less.
Critics argue the health industry uses the secrecy of their negotiations to keep prices high. A recent study by the nonprofit RAND Corp. found that private insurers pay some hospitals two to three times more than the federal Medicare program pays for the same care. In a few cases, that figure was even larger. Colorado employers were shocked to learn they were paying nearly eight times what the federal government did for outpatient services like an X-ray, an emergency room visit or a checkup with a specialist at Colorado Plains Medical Center, northeast of Denver. Even employers say they have little visibility into the prices being paid by the insurers on behalf of their workers, the study found.
There is a serious risk to the hospital industry with this position politically. It allows consumer groups to tag hospitals as against transparency. If – and that’s a big if – the rule survives, health care analysts say it could be a “game changer” for consumers to know the price of knee or hip surgery before it takes place.
Understanding the politics
The transparency rules are a critical piece of President Trump’s 2020 re-election strategy. He is trying to capitalize on polls that show health care ranks among voter’s top domestic concerns. Public opinion surveys consistently show that consumers are looking to the federal government to ease the burden of escalating out-of-pocket costs.
Just last June, the administration held an elaborate signing ceremony at the White House where the president affixed his signature on an executive order that would push the Health and Human Services Department to develop far-reaching regulations – including the disclosure of negotiated rates that have always been secret. The transparency rules flow from that order.
What Trump is counting on is that just proposing these rules could be a political counter-narrative to legislation the Democratic-controlled House of Representatives has approved to allow Medicare to negotiate for prices and to try and gain control of out-of-pocket health spending. Those measures, approved on December 12, 2019, have so far gone nowhere in the U.S. Senate. In an election year – with control of the White House and both houses of Congress at stake – both parties need to appear to be finding health care price solutions, even if they aren’t actual solutions.
The new Trump administration transparency rules would certainly give more information to patients than they currently have. The other promise of these rules that they will bring down health care costs remains more of an open question.
Not surprisingly, hospitals argue that having to make their negotiated rates public would backfire if a hospital is charging less than another nearby one; it could theoretically raise its prices to more closely match its competitors. But Health and Human Services Secretary Alex Azar, talking with reporters, dismissed that argument as “a canard.” He said there’s no place where disclosure of price information in a competitive marketplace leads to higher prices.
Consumer advocates also note that the proposed penalties for hospitals that defy Trump’s transparency rule – about $300 per day – are “extremely weak”, or as Larry Levitt, executive vice president of the Kaiser Family Foundation called it: “chump change.” Hospitals would likely just pay the fines.
Hospitals say the rule is “unlawful, several times over.” Recently, another Trump proposal to show drug list prices in television ads was blocked in the courts.
Insurers are also not
happy with the transparency proposal. The rules don’t help consumers better understand what health services cost and don’t help lower costs either, insurance executives say. Earlier this year, the Trump administration withdrew a major effort to rein in drug prices by prohibiting rebates to insurance middlemen following criticism the changes could increase Medicare premiums before next year’s election.
The second rule would also affect insurance companies. Routinely – a little while after you get a hospital bill – your insurance company provides an “explanation of benefits” (EOB), outlining how much a service costs, what your plan pays for, and how much you owe. Now if this becomes law, hospitals would be forced to give that EOB up front.
The idea is that patients could use that information to shop around ahead of time for a better deal. But this concept also has some serious flaws. First, it assumes people can find a better deal. More difficult is what happens if the situation is an emergency, which is often the case for patients.
What it means to a consumer
A recent podcast series called “An Arm and a Leg” about the costs of health care, illustrates the problems this new policy is intended to help, but might not. The chilling situation that Sarah Macsalka faced when her 7-year-old son Cameron, tripped and gashed his knee in the backyard is a good example from the podcast.
Worried about avoiding a big bill to get Cameron’s knee stitched up, Sarah took him to an urgent care clinic – one that provides patients with prices ahead of the service. There, the staff said stitching up Cameron’s knee would cost $150. But there was a problem. The clinic didn’t have the topical anesthetic the doctor would need to numb Cameron’s skin first. “and Cameron is like screaming and crying” Macsalka said. “He doesn’t take pain well.” They reluctantly headed to the local emergency room.
Despite her son’s anguishing pain, she tried to be a smart shopper there too. As the emergency room was taking her insurance information, Macsalka was over a barrel. Cameron’s screams were ear-piercing. His knee was a mess and she wasn’t about to drive him back to the urgent care place and start again. They got the stitches in the ER like most parents would. A few weeks after, she got a bill for the doctor’s service and paid it – $214 after insurance. Then there was another bill from the hospital for $2,824.
So Macsalka went back into smart consumer mode and called the hospital billing office to ask if there had been a mistake. As she recalled in the podcast, the person she spoke with on the phone told her that “just walking through the doors” of the emergency room cost $4,200 and that amount matches a number on her insurance statement. It’s the amount before the insurance company’s negotiated discount. After that discount, the bill was $2,824 and because her family had a high deductible, they were responsible for paying it all.
So Macsalka smartly asked the billing representative what would happen if they didn’t have insurance. He told her in that case, the hospital would accept 10 percent of its total bill to make sure it collected something. Without the negotiated rate from insurance, that total would have been $6,000, so 10 percent would have been about $600.
While Macsalka could have lived with the $600 price tag, the billing department told her they couldn’t do that because it had already gone through insurance, so that wasn’t an option. She wishes someone could have told her the price up front. As tough as it is to admit, Macsalka said “I would’ve have said thank you very much. And walked out and gone back to our lovely urgent care and been like, Cameron, bite on this stick,” she said.
Also contributing to this story were: NPR, Kaiser Health News, Washington Post and New York Times.