By Sabrina Corlette, Marilyn Bartlett, and Maanasa Kona*
On January 1, 2021, a federal rule went into effect requiring hospitals to publish negotiated prices for hundreds of commonly used health care services. These new transparency requirements hold the potential to empower the purchasers of health care services—employers, state governments, and consumers—in their efforts to identify and use the most cost-efficient providers. However, as of July 2021, only 6 percent of hospitals had fully complied; another study found that, as of March 2021, only 33 of 100 randomly sampled hospitals had reported their payer-specific negotiated rates.
Bipartisan committee leaders on the Hill have urged the Centers for Medicare and Medicaid Services (CMS) to do more to enforce the transparency requirements. CMS subsequently issued a proposal to increase the penalties hospitals face if they don’t comply. If finalized, this rule could prod more hospitals to post their prices, but it is unclear whether CMS alone will have the necessary resources to monitor every violation to achieve broad compliance.
State governments, as one of the largest purchasers of health care services, can leverage their negotiating power to help CMS fully enforce the requirements of the hospital price transparency rule.
The Federal Hospital Transparency Regulations
Federal law now requires all hospitals to make the following pricing information public and to update it annually:
- payer-specific negotiated rates, de-identified minimum and maximum negotiated rates, and discounted cash prices (for the uninsured) for each item or service in a machine-readable format (a digital file that can be imported into or read by a computer); and
- all of the above for a set of 300 services that can be scheduled in advance (“shoppable” services) in a consumer-friendly format. CMS specifies 70 of the 300 shoppable services, but the rest are left up to each hospital to select.
The hospital industry has been united in its opposition to the new requirements, objecting to the publication of the regulations in 2019 and ultimately challenging them, unsuccessfully, in federal court.
The transparency requirements were a priority for the Trump administration, which argued they would help consumers identify and choose lower-cost providers, thereby reducing health care spending. However, evidence to date suggests that few consumers make good use of price transparency tools. The data are likely to be most powerful in the hands of health policy researchers, health care purchasers, and state regulators, who can use this data to support a range of cost containment strategies. The Biden administration stated its support for its predecessor’s transparency rules in a July 9 executive order. But to achieve these goals, stronger enforcement is needed for hospitals to comply in a meaningful way.
Under current regulations, when a hospital is identified as noncompliant, CMS can request that it submit a corrective action plan; if the hospital continues to violate the rule, CMS can impose a penalty of up to $300 per day. For many large hospital systems, the threat of this penalty is nowhere near enough to force them to comply. CMS also has limited resources with which to conduct proactive oversight and auditing to see whether and how hospitals are posting the price data. CMS is now proposing to increase the penalty amount to $300 per day for hospitals with 30 or fewer beds or $10 per bed per day for hospitals with more than 30 beds, up to a maximum of $5,500 per day, leading to annual fines of between $110,000 to $2 million. This rule, if finalized, would be a step forward, but there is no reason CMS has to fight this battle alone. Given states’ prominent role as health care purchasers, they too have opportunities to compel more transparency from hospitals.
States can step in to further ensure that every hospital discloses the pricing data required by law. For example, Texas has enacted legislation codifying the federal price transparency requirements into state law and putting in place its own enforcement mechanisms, including the ability for the state to fine non-compliant hospitals that bring in more than $100 million in annual gross revenue. Aside from such legislative action, there are other levers a state can use to support CMS’s enforcement efforts and ultimately ensure that hospitals’ pricing data are available to health care purchasers, researchers, and regulators.
States Are Purchasing Powerhouses Capable Of Exerting Market Pressure On Hospitals To Comply
States are the primary regulators of hospitals and can exert pressure on the facilities they license to comply with any applicable federal laws, including this one. Historically, state licensing bodies have focused on clinical and quality-based aspects of hospital operations, and not on prices. But, at minimum, states could require full compliance with federal and state laws as a requirement in licensing hospitals to do business.
Additionally, state employee health plans stand to gain from the pricing data hospitals are now required to report. Knowing payer-specific negotiated rates can help plan administrators identify cost drivers, optimize their provider networks, set cost sharing to encourage enrollees to use efficient providers, assess their third-party administrators’ performance against others, and potentially support direct contracting with providers. Our own interviews with state employee plan administrators revealed that these plans face challenges obtaining their claims data from their third-party administrators in a meaningful format, which can hinder their ability to identify the sources of high and rising costs and to evaluate the effectiveness of cost-containment programs.
But state employee health plans can’t benefit from hospital pricing data if the hospitals are not complying with federal law. These plan administrators hope that CMS can achieve more effective oversight and enforcement, but some may seek to leverage their own power, as one of the largest purchasers of health care in the state, to require hospitals to publish their prices. State employee health plan contracts typically require their third-party administrators to comply with all applicable federal and state laws. While it is rare for these plans to directly contract with hospitals, they can require their third-party administrators to ensure that downstream contractors, including hospitals, are complying with all applicable federal and state laws. There are of course limits to what a state employee health plan can achieve, especially when its enrollees expect access to a certain brand of health insurance or hospital system. But state purchasers, given their sheer size, still have significant market power to incentivize compliance. This power would be further enhanced if they coordinated with private-sector employers to use similar language when they contract with third-party administrators or hospital systems.
Looking Forward
States can leverage their market power to supplement CMS’s enforcement efforts and push hospitals into compliance with the new federal transparency rules. They have good reason to help ensure hospital pricing data are made public to get the best value possible for state employees and taxpayers alike. Working in tandem, CMS and states can ensure that hospitals comply with both the letter and spirit of the price transparency rule.
Authors’ Note
Grants from the Robert Wood Johnson Foundation and Arnold Ventures supported the development of this post.
*Sabrina Corlette, Marilyn Bartlett, and Maanasa Kona, “State Health Care Purchasers Can Push Hospitals to Comply with Federal Transparency Requirements,” Health Affairs Blog, September 21, 2021, https://www.healthaffairs.org/do/10.1377/hblog20210916.84009/full/. Copyright 2021, Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.