Growing pressure by policymakers, employers, consumers and the media to publicly reveal the prices charged by healthcare providers and reimbursed by payers is forcing providers and payers to reconsider their longstanding opposition to price transparency.
By Joe Carlson
Last week, the CMS announced it would start providing information under Freedom of Information Act requests on how much Medicare pays individual physicians. Employers, news organizations and watchdog groups have been seeking that information for many years. The American Medical Association immediately protested that the policy could violate the privacy rights of doctors and patients.
In addition, experts are pointing to a little-noticed 56-word provision buried in the Patient Protection and Affordable Care Act requiring all hospitals to publish a list of their standard charges for items and services, including Medicare DRG charges. While HHS hasn’t yet issued a rule implementing that provision, Sect. 2718 (e), some experts say that when it is implemented, it could create powerful pressure for even greater price transparency.
Over the past year, there’s been increasing public attention to the issue of high U.S. healthcare costs. A major factor in the growing movement to reveal prices is the rapid increase in the number of Americans who are covered by health plans with high deductibles and coinsurance. Since they have to pay more out of pocket, consumers need to know which providers offer lower prices. Both public officials and private-sector groups have taken steps to provide more information.
Last year, the CMS published data disclosing what hospitals charge and what Medicare pays them for common inpatient and outpatient procedures. Providers complained that the widely varying charges for the same services were misleading because the numbers did not reflect what patients and insurers are actually billed. But the Obama administration said the disclosures would help consumers make more informed healthcare decisions.
Also last year, North Carolina passed one of the strongest state laws in the country on price disclosure, requiring the state’s hospitals and ambulatory surgery centers to publicly disclose on a state website what they’re paid by public and private insurers for 140 medical procedures and services.
“It is shocking to us, as a full-service academic medical center, to see that we have to pay 35% more when our employees end up at another hospital.” —Steven Sonenreich, CEO of Mount Sinai
Research shows price transparency can drive down costs. An analysis by business school researchers at the University of Chicago last year found that government regulations forcing providers to reveal their prices resulted in an overall 7% reduction in the cost of common elective procedures.
Prices, however, aren’t the only type of information needed to make smart choices under consumer-directed care. Data on individual providers’ performance on quality of care measures also are essential because evidence shows that more expensive providers may not be better quality-wise than cheaper providers.
“We’ve made strides in making information about the quality of healthcare available to consumers,” said Suzanne Delbanco, executive director of the San Francisco-based not-for-profit Catalyst for Payment Reform, which works with employers to promote transparency in prices and quality information. “But all of us have been largely in the dark about what our healthcare will cost us at the end of the day.”
Despite the growing clamor for transparency, providers and insurers continue to argue that the prices they charge and pay are business secrets and that publicly disclosing those rates would hurt their bargaining positions and jeopardize their finances.
But even some healthcare providers are losing patience with that argument. “It is shocking to us, as a full-service academic medical center, to see that we have to pay 35% more when our employees end up at another hospital,” said Steven Sonenreich, CEO of Mount Sinai Medical Center in Miami Beach. “We need to continue to inform the public that a lack of price transparency is driving up expenses for employees and employers.”
Click to enlarge
Some experts have criticized the Obama administration for talking a good game about transparency but not doing as much as it could. For example, CMS officials declined a request for comment from Modern Healthcare about why the government hasn’t issued rules implementing the healthcare reform law’s provision requiring hospitals to post their prices.
Some say the administration has shied away from enforcing that provision because it has its hands full implementing many other aspects of the law and doesn’t want to anger hospitals and insurers, whose cooperation it needs to make the law work.
“Neither (Democrats nor Republicans) really likes it,” said Jonathan Gruber, a healthcare economist at the Massachusetts Institute of Technology who advised the Obama administration during the drafting of the reform law. “When you have a good public policy but both sides don’t like the policy, it’s hard to make it happen. I think it’s going to happen, but it’s going to be a slow process.”
A former Democratic congressional aide who worked on the drafting of the law in 2009 said the transparency section was written during negotiations as a sweetener for skeptical Republicans worried about cost control. “We started to have conversations very late about this issue,” said the former staffer, who did not want to be identified. “This whole transparency discussion is so important, it’s so difficult, and it always gets short shrift. We spent more time making sure that illegal immigrants didn’t get healthcare and that people couldn’t get abortions than we did on this. Ten times more.”
But some observers say publishing hospital charges would have limited value because charges represent inflated retail rates that almost no one actually pays. That was the chief criticism last year when the CMS for the first time published rack-rate charges on the top 130 most common inpatient and outpatient services at 3,000 hospitals. “Looking at charge data in isolation does not take into account a full picture of the complex reimbursement environment in which all hospitals must operate,” Health Management Associates, a Naples, Fla.-based hospital chain said in a written statement. “Realistically, all hospitals only collect a small percentage of charges.”
Both the American Hospital Association and the Federation of American Hospitals declined to comment for this article.
Still, charge data could offer valuable insights. And experts say publishing comprehensive charge data could trigger a wider national discussion about why prices vary so widely among hospitals.
Even though hospital retail charges do not affect most patients’ out-of-pocket costs, they do have some effect on costs for both Medicare and private insurers. That’s because Medicare and private insurers reimburse hospitals extra for extraordinarily expensive cases under outlier payments, and those payments are based partly on retail prices. So hospitals with higher prices receive higher outlier payments.
It’s not clear that the Obamacare provision would not require the publication of actual prices paid by purchasers. “If I was in HHS, I would interpret it as being the amount that is actually paid,” said Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins University. “That would be my reading of congressional intent, that they wanted actual price transparency.”
While much of the discussion about price transparency has focused on hospitals, last week’s policy shift by the CMS will put a brighter spotlight on physician prices as well. Since 1979, the federal government has been prohibited by a federal court injunction from releasing Medicare payment data on individual physicians. The judge at the time ruled such releases could violate physicians’ right to privacy in their practices. When a federal judge in Florida lifted the injunction last year, the CMS moved to establish a process to begin disseminating the information.
The agency now will consider requests to disclose individual physicians’ Medicare payments through the Freedom of Information Act, which contains an exemption for data that would be considered an invasion of privacy. Each request will be considered on a case-by-case basis, and it remains to be seen how the CMS will construe the privacy protections.
“Given the advantages of releasing information on Medicare payment to physicians and the agency’s commitment to data transparency, we believe replacing the prior policy with a new policy in which CMS will make case-by-case determinations is the best next step for the agency,” CMS Principal Deputy Administrator Jonathan Blum wrote in a blog post last week.
“The AMA strongly urges HHS to ensure that physician payment information is released only for efforts aimed at improving the quality of healthcare services and with appropriate safeguards.” —Dr. Ardis Dee Hoven, AMA president
But Dr. Ardis Dee Hoven, president of the AMA, which has long opposed release of data on payments to individual physicians, said the AMA “strongly urges HHS to ensure that physician payment information is released only for efforts aimed at improving the quality of healthcare services and with appropriate safeguards.”
Other physician leaders say the Medicare payment data contain little, if any, information that individual consumers would find useful because of their complexity. “While health systems, news outlets, government agencies, and other major healthcare players may be able to find useful information in physician payment data, the general public will not,” Dr. Manoj Pawar, a vice president with Catholic Health Initiatives, wrote in response to the CMS policy.
But providers’ efforts to block transparency reforms probably are doomed because they run counter to the strong movement toward “consumer-directed” healthcare, said Uwe Reinhardt, a healthcare economist at Princeton University. As Americans are forced to pay for a greater share of their healthcare bills, they need to know more about the real costs. “I’ve told hospitals, ‘If you do your five-year plan, you might as well assume that your prices will eventually be known,’ ” he said.
Follow Joe Carlson on Twitter: @MHJCarlson