CMS is proposing that hospitals make public their payer-specific negotiated charges for a limited set of “shoppable” services.
Hospitals and insurers have made clear their opposition to the Centers for Medicare and Medicaid Services proposed rule requiring the disclosure of their privately negotiated contract rates.
CMS is proposing that hospitals make public their payer-specific negotiated charges for a limited set of “shoppable” services or face civil monetary penalties, in a rule to go into effect on January 1, 2020. Comments were due by September 27.
Under the rule, hospitals would display payer-specific negotiated charges for at least 300 shoppable services, including 70 selected by CMS and 230 by the provider.
The American Hospital Association called it the wrong approach, even though it said it supported ensuring patients have the information they need, including knowing what their expected out-of-pocket costs would be. However, the AHA said, “Instead of helping patients estimate their out-of-pocket obligations, it would introduce confusion and fuel anticompetitive behavior among commercial health insurers in an already highly-concentrated insurance industry, seriously limiting the choices available to patients.”
America’s Essential Hospitals said, “We are particularly concerned that the agency’s proposals regarding the public posting of charges, in particular the posting of negotiated rates, offer little benefit to the consumer, add substantial burden to hospitals, and pose harm to competition, potentially driving up prices.”
America’s Health Insurance plans said that forcing disclosure of privately and competitively negotiated rates will not provide consumers with information that is actionable or helpful. I
“Instead,”AHIP said, “it will hamper competitive negotiations and push healthcare prices and premiums higher for patients, consumers, businesses and taxpayers. This proposed rule also has significant implications for, and is interconnected with, other proposed rules regarding interoperability of health care data. We are concerned that unknown entities will have open access to the data, with few restrictions on how they may use it.”
WHY THIS MATTERS
CMS released the proposals on July 29 in the 2020 hospital outpatient prospective payment and ambulatory surgical center payment rule.
The rule also has three additional proposed policies that run afoul of the law, the AHA said.
Specifically, the AHA opposes completion of the phase-in of payment reductions for the hospital outpatient clinic visit in excepted off-campus provider-based departments to the “physician fee schedule equivalent” rate of 40% of the outpatient prospective payment system rate.
The AHA said the proposal “exceeds the Administration’s legal authority and should be abandoned.”
The AHA has already won a case in court on the government’s site neutral payment policy.
“On the clinic visit policy, we remind CMS that the agency was recently found by the courts to have exceeded its statutory authority when it cut the payment rate for clinic services at excepted off-campus provider-based departments,” the AHA said.
Hospitals also object to continuing the current policy that pays for separately payable drugs acquired through the 340B drug savings program at the rate of average sales price minus 22.5%.
And the AHA objects to the implementation of a prior authorization process for five categories of outpatient department services.
THE LARGER TREND
On September 17, a federal judge ruled in favor of the AHA and hospital organizations, saying CMS exceeded its statutory authority when it reduced payments for hospital outpatient services provided in off-campus provider-based departments that were grandfathered under the Bipartisan Budget Act of 2015.
The AHA, joined by the Association of American Medical Colleges and several member hospitals, had filed the lawsuit in December.
ON THE RECORD
America’s Essential Hospitals said, “These cuts deter hospitals from expanding access in communities with the most need for healthcare services and run counter to CMS’ goal of integrated, coordinated healthcare.
“Taken together, these proposals would have a chilling effect on beneficiary access to care while also increasing regulatory burden,” the AHA said.
As I spoke recently with colleagues at a conference in Florence, Italy about health care innovation, a fundamental truth resurfaced in my mind: the U.S. health care industry is just that. An industry, an economic force, Big Business, first and foremost. It is a vehicle for returns on investment first and the success of our society second.
This is critical to consider as presidential candidates unveil their health care plans. The candidates and the electorate seem to forget that health care in our country is a huge business.
Health care accounts for almost 20% of GDP and is a, if not the, job engine for the U.S. economy. The sector added 2.8 million jobs between 2006 and 2016, higher than all other sectors, and the Bureau of Labor Statistics projects another 18% growth in health sector jobs between now and 2026. Big Business indeed.
This basic truth separates us from every other nation whose life expectancy, maternal and infant mortality or incidence of diabetes we’d like to replicate or, better still, outperform.
As politicians and the public they serve grapple with issues such as prescription drug prices, “surprise” medical bills and other health-related issues, I believe it critical that we better understand some of the less visible drivers of these costs so that any proposed solutions have a fighting chance to deflect the health cost curve downward.
As both associate chief medical officer for clinical integration and director of the center for health policy at the University of Virginia, I find that the tension between a profit-driven health care system and high costs occupies me every day.
Housing prices are market-driven. Car prices are market-driven. Food prices are market-driven.
And so are health care services. That includes physician fees, prescription drug prices and non-prescription drug prices. So is the case for hospital administrator salaries and medical devices.
All of these goods or services are profit-seeking, and all are motivated to maximize profits and minimize the cost of doing business. All must adhere to sound business principles, or they will fail. None of them disclose their cost drivers, or those things that increase prices. In other words, there are costs that are hidden to consumers that manifest in the final unit prices.
To my knowledge, no one has suggested that Rolls-Royce Motor Cars should price its cars similarly to Ford Motor Company. The invisible hand of “the market” tells Rolls Royce and Ford what their vehicles are worth.
Ford can (they won’t) tell you precisely how much each vehicle costs to produce, including all the component parts that they acquire from other firms. But this is not true of prescription drugs. How much a novel therapeutic costs to develop and bring to market is a proverbial black box. Companies don’t share those numbers. Researchers at the Tufts Center for the Study of Drug Development have estimated the costs to be as high as US$2.87 billion, but that number has been hotly debated.
What we can reliably say is that it’s very expensive, and a drug company must produce new drugs to stay in business. The millions of research and development(R&D) dollars invested by Big Pharma has two aims. The first is to bring the “next big thing” to market. The second is to secure the almighty patent for it.
U.S. drug patents typically last 20 years, but according to the legal services website Upcounsel.com: “Due to the rigorous amount of testing that goes into a drug patent, many larger pharmaceutical companies file several patents on the same drug, aiming to extend the 20-year period and block generic competitors from producing the same drug.” As a result, drug firms have 30, 40-plus years to protect their investment from any competition and market forces to lower prices are not in play.
Here’s the hidden cost punchline: concurrently, several other drugs in their R&D pipelines fail along the way, resulting in significant product-specific losses . How is a poor firm to stay afloat? Simple, really. Build those costs and losses into the price of the successes. Next thing you know, insulin is nearly US$1,500 for a 20-milliliter vial, when that same vial 15 years ago was about $157.
It’s actually a bit more complicated than that, but my point is that business principles drive drug prices because drug companies are businesses. Societal welfare is not the underlying use. This is most true in the U.S., where the public doesn’t purchase most of the pharmaceuticals – private individuals do, albeit through a third party, an insurer. The group purchasing power of 300 million Americans becomes the commercial power of markets. Prices go up.
I hope that most people would agree that physicians provide a societal good. Whether it’s in the setting of a trusted health confidant, or the doctor whose hands are surgically stopping the bleeding from your spleen after that jerk cut you off on the highway, we physicians pride ourselves on being there for our patients, no matter what, insured or not.
Allow me to state two fundamental facts that often seem to elude patient and policymaker alike. They are inextricably linked, foundational to our national dialogue on health care costs and oft-ignored: physicians are among the highest earners in America, and we make our money from patients. Not from investment portfolios, or patents. Patients.
Like Ford or pharmaceutical giant Eli Lilly, physician practices also need to achieve a profit margin to remain in business. Similarly, there are hidden-to-consumer costs as well; in this case, education and training. Medical school is the most expensive professional degree money can buy in the U.S. The American Association of Medical Colleges reports that median indebtedness for U.S. medical schools was $200,000.00 in 2018, for the 75% of us who financed our educations rather than paying cash.
Our “R&D” – that is, four years each of college and medical school, three to 11 years of post doctoral training costs – gets incorporated into our fees. They have to. Just like Ford Motors. Business 101: the cost of doing business must be factored into the price of the good or service.
For policymakers to meaningfully impact the rising costs of U.S. health care, from drugs to bills to and everything in between, they must decide if this is to remain an industry or truly become a social good. If we continue to treat and regulate health care as an industry, we should continue to expect surprise bills and expensive drugs.
It’s not personal, it’s just…business. The question before the U.S. is: business-as-usual, or shall we get busy charting a new way of achieving a healthy society? Personally and professionally, I prefer the latter.
The bill would require Kaiser Permanente to provide more data about the revenue and profits of individual hospitals.
Legislation requiring healthcare giant Kaiser Permanente to follow more of the same financial disclosure laws as other healthcare providers in California passed the Senate Monday and now heads to Gov. Gavin Newsom, who has 10 days to decide whether to sign it into law.
The bill, SB 343, would require Kaiser Permanente to provide more data about the revenue and profits of individual hospitals, whereas now it lumps those figures for all facilities into two broad categories: “Northern California” and “Southern California.” Of the roughly 400 hospitals operating in California, all but the 35 owned by Kaiser Permanente must comply with financial reporting requirements on a per-facility basis.
WHAT’S THE IMPACT
The new requirements for Kaiser Permanente would include breaking out expenses and revenue at each facility; breaking out revenue by type of payor at each facility (Medicare, Medi-Cal or private insurance); and breaking out rate increases by type of service (hospital, physician services, pharmacy, radiology and laboratory).
For Kaiser Permanente to comply with the legislation, it is estimated it would need to hire two workers to compile and distribute related data on a quarterly basis. The corporation has 250,000 employees and operating revenue of nearly $80 billion.
Kaiser Permanente, despite being a nonprofit healthcare system, has reported $11 billion in profits since Jan. 1, 2017 — including $5.2 billion just in the first half of 2019. It has made more in profits in the first six months of 2019 than it has ever recorded in an entire year and sits on reserves of more than $37 billion. Meanwhile, premiums for Kaiser patients have gone up year after year as part of a rate-setting process.
With Kaiser controlling more than 65% of insured Californians with large group healthcare coverage, SB 343 would allow employers and others to negotiate fair rates when purchasing health insurance for their workers.
The measure passed the California Assembly 58-13 on Aug. 22, and it is supported by a coalition of healthcare, consumer, business and worker advocates.
Kaiser Permanente did not immediately respond to a request for comment.
THE LARGER TREND
In June, Kaiser Permanente announced plans to construct a new headquarters — The Kaiser Permanente Thrive Center — in Oakland, bringing together staff currently spread out across multiple locations. The health system said the impetus behind the $900 million project is reducing annual operating costs and delivering more affordable care and coverage.
Officials say the new downtown Oakland building will reduce operational costs by more than $60 million annually, addressing facilities maintenance, inefficient utility expenses, and rising commercial real estate leases. Reinvesting these savings will help the health system advance its mission of providing quality, affordable care.
ON THE RECORD
“For too long, Kaiser Permanente has operated under a different set of rules when it comes to financial transparency, and this bill will finally bring the corporation more in line with other hospitals and insurance companies,” said Sen. Richard Pan, D-Sacramento, the author of SB 343. “Employers and individual Kaiser customers deserve to know if they are getting value when Kaiser increases their premiums and copays.”
Far-reaching rules mandating industry price transparency could mark a major shift, but experts are skeptical the efforts will meaningfully lower prices for patients without a more fundamental system overhaul.
President Donald Trump’s executive order signed Monday directs HHS and other federal departments to begin rulemaking to require hospitals and payers to release information based on their privately negotiated rates. Providers would also have to give patients estimates of their out-of-pocket costs before a procedure.
The moves come amid efforts from the federal government and Congress to push the healthcare industry to address patient anger over high prices, particularly regarding what medical bills they can expect to receive.
Many details must still be worked out as HHS and CMS craft their proposals, but providers and payers were quick to condemn any notion of making negotiated rates public. A legal challenge to the rules is also likely.
Many policy analysts and economists said that while price transparency is good in theory, current evidence shows patients don’t take advantage of pricing information now available, said Ateev Mehrotra, associate policy of healthcare policy and Harvard Medical School.
Patients are wary of going against a doctor’s advice to undergo a certain procedure or test, and to get it done at a certain facility. A difference in price may not be enough to sway them.
Also, the healthcare system has so many moving parts and unique elements that understanding a medical bill and how the price was calculated is daunting, to say the least.
“That complexity hinders the ability of people to effectively shop for care,” Mehrotra told Healthcare Dive “It’s not like going to Amazon and buying a toothbrush or whatever.”
The executive order has two main directives:
The order also outlines smaller steps, including a report from HHS on how the federal government and private companies are impeding quality and price transparency in healthcare and another on measures the White House can take to deter surprise billing.
It also directs federal agencies to increase access to de-identified claims data (an idea strongly favored by policy analysts and researchers) and requires HHS to identify priority databases to be publicly released.
The order requests the Secretary of the Treasury expand coverage options for high-deductible health plans and health savings accounts. It specifically asks the department to explore using HSA funds for direct primary care, an idea Senate HELP Committee Chairman Lamar Alexander, R-Tenn., said he “especially like[d].”
The order itself wastes no time in pointing the finger at industry players for current patient frustrations with the system. “Opaque pricing structures may benefit powerful special interest groups, such as large hospital systems and insurance companies, but they generally leave patients and taxpayers worse off than would a more transparent system,” according to the document.
As expected, payer and provider groups slammed any attempt to force them to reveal the rates they negotiate behind closed doors, though they expressed appreciation for the general push toward more transparency.
The American Hospital Association shied away from strong language as details are still being worked out, but did say “publicly posting privately negotiated rates could, in fact, undermine the competitive forces of private market dynamics, and result in increased prices.”
The Federation of American Hospitals took a similar tone in a statement from CEO Chip Kahn. “If implementing regulations take the wrong course, however, it may undercut the way insurers pay for hospital services resulting in higher spending,” he said.
Both hospital groups highlighted more transparency for patient out-of-pocket costs and suggests the onus should be on payers to communicate information on cost-sharing and co-insurance.
Mollie Gelburd, associate director of government affairs at MGMA, which represents physician groups, said doctors don’t want to be in the position of explaining complex insurance terms and rules to a patient.
“While physicians should be encouraged to talk to patients about costs, to unnecessarily have them be doing all this education when they should be doing clinical care, that sort of gets concerning,” she said.
Practices are more concerned about payer provider directories and their accuracy, something not addressed in the executive order. Not having that type of information can be detrimental for a patient seeking care and further regulation in the area could help, Gelburd said.
Regardless, providers will likely view with frustration any regulations that increase their reporting and paperwork burdens, she said.
“I think the efficacy of pricing transparency and reducing healthcare costs, the jury is still out on that,” she said. “But if you have that onerous administrative requirement, that’s certainly going to drive up costs for those practices, especially those smaller practices.”
Payer lobby America’s Health Insurance Plans was quick to voice its opposition to the order.
CEO Matt Eyles said in a statement disclosing privately negotiated rates would “reduce incentives to offer lower rates, creating a floor — not a ceiling — for the prices that hospitals would be willing to accept.” He argued that current tools payers use to inform patients of cost expectations, such as cost calculators, are already offering meaningful help.
AHIP also said the order works against the industry’s efforts to shift to paying for quality instead of quantity. “Requiring price disclosure for thousands of hospital items, services and procedures perpetuates the old days of the American health care system paying for volume over value,” he said. “We know that is a formula for higher costs and worse care for everyone.”
One potential effect of making rates public is that prices would eventually trend toward equalization. That wouldn’t necessarily reduce costs, however, and could actually increase them for some patients. A payer able to negotiate a favorable rate for a specific patient population in a specific geographic area might lose that advantage, for example, Christopher Holt, director of healthcare policy at the conservative leaning American Action Forum, told Healthcare Dive.
John Nicolaou of PA Consulting told Healthcare Dive consumers will need help deciphering whatever information is made available however. Reams of data could offer the average patient little to no insight without payer or third-party tools to analyze and understand the information.
“It starts the process, just publishing that information and just making it available,” he said. “It’s got to be consumable and actionable, and that’s going to take a lot more time.”
The order does require the information being made public be “easy-to-understand” and able to “meaningfully inform patients’ decision making and allow patients to compare prices across hospitals.” That’s far easier said than done, however, Harvard’s Mehrotra said. “We haven’t seen anybody able to put this information in a usable way that patients are able to effectively act upon,” he said.
Holt said patients are also limited in their ability to shop around for healthcare, considering they often have little choice in what insurance company they use. People with employer-based plans typically don’t have the option to switch, and those in the individual market can only do so once a year.
Another aspect to consider is the limited reach of the federal government. CMS can require providers and payers in the Medicare Advantage program, for example, to meet price transparency requirements, but much of the licensing and regulations for payer and providers comes at the state level.
One of the biggest questions for payers and providers in the wake of Monday’s announcement is how far exactly the rulemaking from HHS will go in mandating transparency. One one end, the requirements could stick close to giving patients information about their expected out-of-pocket costs without revealing the details of payer-provider negotiations. Full transparency, on the other hand, would mean publishing the now-secret negotiated rates for anyone to see.
“I think it’s the start of a much longer process,” Holt said. “It’s going to depend a lot on how much information is going to be required to be divulged and how that’s going to be collected.”
It’s almost certain that as soon as any concrete efforts at implementation are made, lawsuits will follow.
That’s what happened after Ohio passed a price transparency law in 2015 that required providers give patients information on out-of-pocket costs before a procedure — a proposal the executive order also puts forward.
The law still has not been enforced, as it has been caught up in the courts. The Ohio Hospital Association and Ohio State Medical Association sued over the law, arguing it was too vague and could lead to a delay in patient care.