Piercing the Healthcare Veil: an Argument for Healthcare Pricing Transparency
| Publication year | 2020 |
Piercing the Healthcare Veil: An Argument for Healthcare Pricing Transparency
Rich Spiker
Jeanne Pinder, former New York Times journalist and current healthcare pricing transparency advocate, called doctors and hospitals throughout the United States and asked a simple question: "What would you accept as a cash payment for an MRI, a blood test or an Echocardiogram?"1 Jeanne received hang-ups from some and the run-around from others, but the prices quoted from those willing to help was startling.2 In the New York City area, paying cash for an Echocardiogram in Brooklyn cost $200.3 Just a few miles away in Manhattan, the same Echocardiogram cost $2,150.4 A blood test in New Orleans cost $19 at one provider and $522 at a different provider a few blocks away.5 In San Francisco, an MRI cost $475 at one location and the same MRI cost $6,221 at a location 25 miles away.6 The question stemming from these responses is "why?" Why is there a 975% difference in cost of an Echocardiogram in Brooklyn and Manhattan? A 2,647% difference in cost for the same blood test in New Orleans? A 1,209% difference in cost for the same MRI in San Francisco?
Contributing in part to the immense margins in price for the same test or procedure is the current opaqueness of pricing within the healthcare industry.7 Being a consumer of shoppable services, the term for healthcare procedures that can be planned for in advance, is unlike any other aspect of the consumer experience in America.8 For example, the patient receiving a $522 blood test in New Orleans has no idea about the test's cost before she receives it, or that the same blood test is only $19 at another provider within walking distance.9
Other issues with the wide price margins of shoppable services among different providers is the rising cost of healthcare and the increasing burden of
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out-of-pocket expenditures on patients.10 Overall healthcare costs—including all private and public spending—are anticipated to rise by an average of 5.5% per year over the next decade—growing from $3.5 trillion in 2017 to $6 trillion by 2027.11 Healthcare spending is projected to grow faster than the economy, increasing from 17.9% of gross domestic product (GDP) in 2017 to 19.4% of GDP in 2027.12 While healthcare costs continue to rise, increased enrollment in high-deductible health plans (HDHPs) and co-insurance healthcare plans, in which patients pay a percentage of the amount of a test or procedure, result in patients bearing a greater financial burden to access care.13
To address these issues, President Donald Trump issued the highly anticipated Executive Order 13877, Improving Price and Quality Transparency in American Healthcare to Put Patients First, on healthcare price and quality transparency on June 24, 2019.14 The Executive Order calls for increased transparency of healthcare pricing and quality information, citing the need to take on opaque pricing structures that benefit special interest groups.15 The Trump Administration wants to enable consumers to make fully informed decisions about their healthcare by ensuring they know the price and quality of a good or service in advance.16 Increased transparency, in the Administration's view, would help to protect patients from surprise medical bills: by knowing cost information in advance, patients could avoid unexpected and excessive charges from out-of-network providers.17 Executive Order 13877 significantly emphasizes the disclosure of "actual" prices of shoppable services by providers and insurers, also known as the negotiated price of a shoppable service after
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taking into account the percentage of the hospital's list price that the insurer is willing to cover.18
In furtherance of the policies enumerated in Executive Order 13877, the Centers for Medicare & Medicaid Services (CMS) published a Final Rule and a Proposed Rule in the Federal Register that aim to increase the transparency of hospital and insurer prices on November 27, 2019.19 The Final Rule, effective January 1, 2021, requires hospitals to provide patients with easily accessible information about standard charges, including payer-specific negotiated rates for items and services offered.20 The Proposed Rule would require issuers and health plans to publish provider-specific negotiated rates and give members personalized out-of-pocket cost estimates.21 The comment period for the Proposed Rule concludes on January 27, 2020.22
According to the Final Rule, United States hospitals must publish a machine-readable list of standard charges for each item or service provided in the hospital inpatient setting or outpatient department setting that is "easily accessible."23 United States hospitals must also include a description of each item or service provided and any code used by the hospital for the purposes of accounting or
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billing for the item or service.24 The Final Rule also demands that hospitals display payer-specific negotiated rates and discounted cash prices for a limited set of 300 shoppable services in an easy-to-read format.25 Hospitals can meet this requirement by offering an easily accessible, consumer-friendly list that is searchable by service description, billing code and payer.26 Alternatively, hospitals can offer an online price estimator tool, prominently displayed on the provider's website, that allows patients to instead obtain an estimate of the amount they will be obligated to pay.27
Regarding hospital noncompliance, the Final Rule establishes that individuals and entities may file complaints against a hospital, subject to an independent CMS review, in addition to CMS audits of hospitals websites.28 CMS will provide a written warning notice to the hospital specifying the violations if CMS concludes that a hospital is noncompliant with one or more of the price transparency requirements after independent analysis .29 CMS' written warning notice provides the hospital an opportunity to take voluntary corrective action without incurring any penalties.30 If CMS determines that a hospital remains in noncompliance after a written warning notice was issued, the
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noncompliance constitutes a material violation of the Final Rule.31 CMS will then issue a notice of violation and require the hospital to submit a Corrective Action Plan (CAP).32 Failure of a hospital in material violation of the Final Rule to submit a CAP in the form requested or to abide by the terms of an approved CAP permits CMS to impose Civil Monetary Penalties (CMPs) on the noncompliant hospital, which must be paid in full within sixty days of the hospital receiving notice of the CMP's imposition.33 Continuing violations by noncompliant hospitals may result in additional CMPs until compliance is maintained.34
CMS' Final and Proposed Rules, by furthering the policies in Executive Order 13877, will facilitate fiscal responsibility within the healthcare industry, decrease the margin in price between different providers of shoppable services and promote consumer choice.35 Currently there is no incentive for healthcare providers to be cognizant of the cost of shoppable services, and CMS rules furthering the policies set forth in Executive Order 13877 provides the necessary incentives for the healthcare industry to reign in out of control pricing for shoppable services.36
This Comment analyzes the current problem of opaqueness regarding patient access to pricing of shoppable services within the healthcare industry, the trend of increasing out-of-pocket costs paid by patients for shoppable services, and
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how consolidation among health care providers contributes to increased costs to patients. Analysis of the price transparency in the cosmetic procedure industry and successful state healthcare price transparency initiatives is conducted to demonstrate that transparency in pricing can contribute to increased competition, consumer knowledge and lower costs of shoppable services. Finally, this Paper concludes with suggestions for both federal and state-level policymakers on the proper course of action for putting patients' interests first by putting insurance companies and healthcare conglomerates second.
Imagine walking into Best Buy with the desire to purchase a television.37 A nice flat screen catches your eye and meets your needs, but Best Buy maintains a policy of not posting prices for their goods in store or on the internet.38 After summoning a Best Buy employee to inform you about the price of the television, she assures you, of course, that you are getting the deal of the century.39 "You hit the jackpot today, the list price of this television is $15,000, but after a hearty discount you only have to pay $3,500 to take this television home with you!"40 You ask the Best Buy employee why prices are not publicly available, and she gets mad at you, saying, "Nobody pays the list price for televisions anyways, who cares?"41 You shrug it off and purchase the television, because Netflix is not going to watch itself.
The above is analogous to the current opaqueness within the negotiation process between hospitals and insurers, which is part of the scheme to keep prices high.42 Hospitals use a list price, similar to a MSRP or retail price of other goods, as the starting number in negotiating the percentage of the list price that insurers will cover for their policy holders.43 Hospitals compile list prices of all billable services and items into a hospital chargemaster, which captures the costs
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of each procedure, service, supply prescription drug, and diagnostic test provide at the hospital, as well as any fees associated with services, such as equipment fees and room charges.44
A. Artificially High List Prices Keep the Cost of Healthcare High
Hospitals set list prices at a much higher rate than the true cost of...
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