Hospitals Now Must Post Prices Publicly, but Will New Rule Work?

Roll Call

January 6, 2021 6:00 am

Hospitals started the year with new requirements to post information they had long sought to obscure: the actual prices negotiated with insurers and the discounts they offer their cash-paying customers.

The change is part of a larger push by the Trump administration to use transparency to curtail prices and create better-informed consumers. Yet there is disagreement on whether it will do so.

As of Jan. 1, facilities must publicly post on their websites prices for every service, drug and supply they provide. Next year, under a separate rule, health insurers must take similar steps. A related effort to force drugmakers to list their prices in advertisements was struck down by the courts.

With the new hospital rule, consumers should be able to see the tremendous variation in prices for the exact same care among hospitals and get an estimate of what they will be charged for care — before they seek it.

The new data requirements go well beyond the previous rule of requiring hospitals to post their “chargemasters,” hospital-generated list prices that bear little relation to what it costs a hospital to provide care and that few consumers or insurers actually pay.

Instead, under the new rule, “these are the real prices in health care,” said Cynthia Fisher, founder and chairman of Patient Rights Advocate, a group that promotes price transparency.

What’s the scope of the intel?

Each hospital must post publicly online, in a machine-readable format easy to process by computers, several prices for every item and service they provide: gross charges; the actual, and most likely far lower, prices they’ve negotiated with insurers, including de-identified minimum and maximum negotiated charges; and the cash price they offer patients who are uninsured or not using their insurance.

In addition, each hospital must make available, in a “consumer-friendly format,” the specific costs for 300 common and “shoppable” services, such as delivering a baby, getting a joint replacement or having a hernia repair.

The data for those 300 services must total all costs involved — including hardware, operating room time, drugs given and fees of hospital-employed physicians — so patients won’t face the nearly impossible job of figuring it out themselves.

Hospitals can mostly select which services fall into this category, although the federal government has dictated 70 that must be listed, including certain surgeries, diagnostic tests, imaging scans, new patient visits and psychotherapy sessions.

Will prices be exact?

No. At best, these are ballpark figures.

Other factors influence consumers’ costs, like the type of insurance plan a patient has, the size and remaining amount of their annual deductible and the complexity of the medical problem.

An estimate on a surgery, for example, might prove inexact. Complications could arise, adding to the cost.

“You’ll get the average price, but you are not average,” said Gerard Anderson, a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.

Tools to help consumers determine in advance the amount of deductible they’ll owe are already available from many insurers. Experts say the information becoming available this month will prompt entrepreneurs to create apps or services to help consumers analyze prices. For now, though, the hospital requirements are a worthy start, say experts.

“It’s very good news for consumers,” said George Nation, a Lehigh University professor of law and business. “Individuals will be able to get price information, although how much they are going to use it will remain to be seen.”

Will consumers use this info?

Zack Cooper, a Yale University associate professor of public health and economics, doubts that the data alone will make much of a difference for most consumers. 

“It’s not likely that my neighbor — or me, for that matter — will go on and look at prices and, therefore, dramatically change decisions about where to get care,” he said.

Some cost information is already made available by insurers, particularly out-of-pocket costs for elective services, “but most people don’t consult it,” he added.

That could be because many consumers carry types of insurance in which they pay flat-dollar copayments for such things as doctor visits, drugs or hospital stays that have no correlation to the underlying charges.

Still, the information may be of great interest to the uninsured and the increasing number of Americans with high-deductible plans, in which they are responsible for hundreds or even thousands of dollars in costs annually.

For them, the negotiated rate and cash discount information may prove useful, said Nation.

“If I have a $10,000 deductible plan and it’s December and I’m not close to meeting that, I may go to a hospital and try to get the cash price,” Nation said.

Employers may have a keen interest in the new data, said James Gelfand, senior vice president at the ERISA Industry Committee, which lobbies on behalf of large employers. They’ll want to know how much they pay each hospital compared with others and how well their insurers stack up in negotiating rates, he said.

For some employers, he said, it could be eye-opening to learn how hospitals cross-subsidize by charging exorbitant amounts for some things and minimal amounts for others.

“The rule puts that all into the light,” Gelfand said. “When an employer sees these ridiculous prices, for the first time they will have the ability to say no.” That could mean rejecting specific prices or the hospital entirely, cutting it out of the employer plan’s insurance network. But, typically, employers won’t limit workers’ choices by outright cutting a hospital from a network.

More likely, they may create financial incentives to use the lowest-cost facilities, said Anderson.

“If I’m an employer, I’ll look at three hospitals in my area and say, ‘I’ll pay the price for the lowest one. If you want to go to one of the other two, you can pay the difference,’” Anderson said.

Will price transparency reduce overall health spending?

Revealing actual negotiated prices may push more-expensive hospitals in an area to reduce prices in future bargaining talks with insurers or employers, potentially lowering health spending.

It could also go the other way, with lower-cost hospitals demanding a raise, driving up spending.

Bottom line: Price transparency can help, but the market power of the players might matter more.

In some places, where there may be one dominant hospital, even employers “who know they are getting ripped off” may not feel they can cut out a big, brand-name facility from their networks, said Anderson.

Is the rule change a done deal?

The hospital industry went to court, arguing that the rule unfairly forces hospitals to disclose trade secrets and violates their First Amendment rights. That information, the industry said, can be used against them in negotiations with insurers and employers.

The U.S. District Court for the District of Columbia disagreed with the hospitals and upheld the rule, prompting an appeal by the industry. On Dec. 29, the U.S. Court of Appeals for the District of Columbia affirmed that lower court decision and did not block the rule.

In a written statement, the American Hospital Association cited “disappointment” with the ruling.

The AHA plans to talk with the Biden administration “to try to persuade them there are some elements to this rule and the insurer rule that are tricky,” said Tom Nickels, an AHA executive vice president. “We want to be of help to consumers, but is it really in people’s best interest to provide privately negotiated rates?”

Fisher thinks so: “Hospitals are fighting this because they want to keep their negotiated deals with insurers secret,” she said. “What these rules do is give the American consumer the power of being informed.”