How much does a health insurance company actually pay the hospital for an MRI? Nobody really knows — except the hospital and the payer. That is about to change, thanks to a new rule that requires hospitals to disclose secret negotiated rates with payers.1

The new CMS rule “is a huge step in the right direction. It will be a tipping point in healthcare pricing, billing, and payment,” predicts George A. Nation III, a professor of business and law at Lehigh University.

Hospitals have closely guarded this information. “Under the status quo, healthcare prices are about as clear as mud to patients,” said CMS Administrator Seema Verma in a recent statement.2

As of January 2021, hospitals will have to post payer-specific negotiated charges online for 300 “shoppable” medical services (X-rays, outpatient visits, imaging, and other services scheduled in advance). The rule specifies 70 of these services, and allows hospitals to choose which additional 230 services to post. The sheer amount of data posted for each hospital will be “enormous,” says Ross C. D’Emanuele, JD, a partner at Minneapolis-based Dorsey & Whitney. Revenue cycle departments can expect to field calls from confused patients.

“I have no doubt that hospitals will get more questions and complaints from cash-pay customers and others,” D’Emanuele predicts.

For patients to make any sense of the posted prices, they will need to know some specifics — namely, all items and services to be provided during their outpatient visit or hospital stay. As if that were not daunting enough, fees for services provided by any clinicians who are not hospital employees will not be disclosed. “Services and items that a hospital provides to a patient are far more variable, elastic, and complex than, say, used car pricing,” D’Emanuele explains.

The big question is whether hospitals can continue to justify their current pricing arrangements. “Or, will they be put on the defensive, and ultimately start to rethink current practices and strategy?” D’Emanuele asks. “CMS clearly thinks the latter.”

Revenue cycle employees will need to explain why patients are paying more than the posted price. “The published price is an average. Many patients will have a bill that is larger than average because they have complications or are sicker than average,” says Gerard Anderson, PhD, professor at Johns Hopkins Bloomberg School of Public Health.

Nation says it is not too much to ask of hospitals to explain the bill in a way that makes sense to the average person. For example, if the charge for an uncomplicated vaginal delivery is $1,200, but the patient’s delivery involved complications, then the hospital can explain why the bill is $1,500.

“The list price of a car may be $35,000, but if I get the leather seats it’s going to increase the price. I think consumers are able to understand that,” Nation offers.

Hospitals must develop a new mindset and stop trying to hide price information from patients, according to Nation. “The system that hospitals have been using — that is, stating that ‘The charge master price of a delivery is $20,000, but we gave your insurer a $19,000 discount’ — is ludicrous,” he says.

Under a proposed rule from CMS, health insurance companies would have to publicly disclose their negotiated rates for in-network providers and the amounts paid to out-of-network providers. Health plans also would be required to give their members real-time, personalized information on what they are going to owe. “This would empower consumers to shop, and enable them to compare costs between specific providers before receiving care,” according to CMS.3

However, those out-of-pocket costs might exceed the amounts that the hospital has negotiated with private insurers. If so, says Nation, “hospitals should expect blowback and, in my opinion, rightfully so.”

If health plans and hospitals really do all this, presumably people would not have to seek financial information from revenue cycle employees. In that kind of situation, says Ge Bai, PhD, CPA, “the demand from the public to seek price estimates would be reduced.”

Collecting information on what hospitals pay to health plans could be a big advantage for self-pay patients. For instance, if they see a hospital pays health plans $100 for an MRI, self-pay patients could use that information to argue against paying $700 for the same MRI. “The information provided by the new rule will absolutely be of use to all self-pay patients, whether those who lack insurance, have high deductible plans, or receive care out of network,” Nation says.

Hospitals have two choices, according to Nation. They can fight price transparency, or they can fully embrace it and use that to differentiate from competitors. If hospitals choose the latter option, they can market themselves as more efficient, with more reasonable prices. “Or, they may be able to command higher prices — if they can provide higher-quality outcomes or better service,” he adds.

As the public learns even more about secretly negotiated healthcare prices, some hospitals will inevitably come off as more consumer-friendly than others. “I don’t see much challenge for hospitals that are already offering competitive prices,” says Bai, an associate professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.

According to Nation, one thing will really determine whether hospitals succeed or fail in the new world of price transparency: whether they are willing to give up the confusing, controversial charge master pricing system.

“Hospitals will no longer be able to try to enforce these prices going forward without suffering serious hits to their reputation,” Nation argues. There is growing awareness that few patients actually pay the exorbitant prices listed in the charge masters.

“After this rule goes into effect, everyone will know it,” Nation predicts. “Hospitals will find this ridiculous system impossible to defend.”

Nation says hospitals should comply with price transparency in full by taking two steps:

Differentiate what they offer to patients. If a hospital’s MRI machine is really that much better than competitors’, a higher price tag is justified. “Hospitals need to offer better quality, better service, or a lower price,” Nation says. “As in any other industry, those who can do all three will thrive.”

Create realistic, all-inclusive prices for procedures that vary no more than 10% or 15% from the average negotiated rates the hospital pays in-network insurers. If this happens, says Nation, “then things would be much simpler with regard to registration, financial counseling, and giving price estimates.”

Some hospitals undoubtedly will try to continue to collect charge master-based prices whenever possible. For these hospitals, says Nation, “life will become more complicated and more difficult.”

Patients are finally going to know that the hospital charges the insurance company $100 for a CT scan, but demands $600 from the out-of-network patient. They will not be happy about it.

It makes sense to charge self-pay patients a little more, Nation notes, because an insurance company assures quick payment, and offers the potential of a large volume of members. “But paying double or more simply makes no sense. It is price gouging,” Nation says.

REFERENCES

  1. U.S. Department of Health and Human Services. Price transparency requirements for hospitals to make standard charges public. Federal Register, Nov. 27, 2019. Available at: http://bit.ly/2XRIfGE. Accessed Nov. 27, 2019.
  2. U.S. Department of Health and Human Services. Trump administration announces historic price transparency requirements to increase competition and lower healthcare costs for all Americans, Nov. 15, 2019. Available at: http://bit.ly/2qHg0P0. Accessed Nov. 27, 2019.
  3. Centers for Medicare & Medicaid Services. Transparency in Coverage Proposed Rule (CMS-9915-P), Nov. 15, 2019. Available at: https://go.cms.gov/2OSN1jj. Accessed Nov. 27, 2019.