Newly Proposed CMS Hospital Transparency Rules & their Impact on Labs

It’s an all too common occurrence. You or a loved one require an in-hospital procedure, but you have no idea of what the out-of-pocket costs will be. Afterwards, you get hit with an enormous bill that you have to struggle to pay. But now CMS is trying to fix that problem. Proposed new “consumer-friendly” price transparency rules require hospitals to publish more detailed price information so that patients can determine what they’ll have to pay before accessing care. “All Americans have the right to know the price of their healthcare up front,” said CMS Administrator Seema Verma in a press release. But while it may sound good, the new rules may also have some unforeseen and unfavorable ramifications not only for hospitals but also labs.

Medicare Price Transparency

Price transparency for Medicare hospitals isn’t a novel idea. On Jan. 1, 2019, CMS began requiring hospitals to publish retail charges for healthcare services, a move which has been criticized as unhelpful to consumers since patients rarely pay those rates. (See National Intelligence Report (NIR), Sept. 24, 2018.) The new proposed rule issued in late July would go a step further by requiring hospitals to publish not only their gross charges, or list prices, but also the negotiated price by specific payer and plan for a set of “shoppable” services. Such services could include anything that can be scheduled by a patient in advance.

What the New Transparency Rules Require

If the proposed rule becomes law, starting on Jan. 1, 2020, hospitals would have to make real negotiated prices known to patients.  Specifically, hospitals would be required to make public their “standard charges” for both gross charges and payer-specific negotiated charges for all items and services.

Pricing information would also have to be available on the Internet in a machine-readable file and include information such as common billing or accounting codes used by the hospital, along with a description of the particular item or service. The pricing information would also have to be “consumer friendly” and include payer-specific negotiated charges for common “shoppable” services.

“Shoppable services” are those that can be scheduled by a health care consumer in advance, theoretically in the interest of shopping out the best price or deal. That would, of course, include most lab tests, as well as x-rays, outpatient visits, imaging tests and bundled services like pre- and post-delivery care and cesarean deliveries.

Hospitals would have to display negotiated charges for at least 300 services, including 70 selected by the CMS and 230 selected by the hospitals. The services could include both inpatient and outpatient procedures and affect all patients, not just Medicare beneficiaries. (CMS cites the Public Health Service Act as the source of its authority to impose these pricing requirements on hospitals not in Medicare.)

“Consumer-friendly“ means the hospital charge information must be made public in a prominent location online (or in written form upon request) that’s easily accessible, without barriers, and searchable. Product and service descriptions would also have to be in “plain language” with the shoppable service charges displayed and grouped with charges for any ancillary services the hospital customarily provides with the primary shoppable service. Hospitals would also have to update their posted pricing information at least annually.

The agency also said it wants to enforce the price transparency requirements by monitoring, auditing and imposing civil monetary penalties of up to $300 a day and more than $100,000 per year for hospitals that don’t comply.

What the Transparency Rules Don’t Require

However, the CMS transparency proposal stops short of requiring hospitals to post patient-specific price information, e.g., information showing particular patients where they are in meeting their deductibles.

Pushback & Impact on Labs

Hospital and health care industry groups are giving the proposal the thumbs down. Rick Pollack, CEO of the American Hospital Association (AHA), in a press release stated that requiring hospitals to post negotiated rates “could seriously limit the choices available to patients in the private market and fuel anticompetitive behavior among commercial health insurers in an already highly concentrated insurance industry.” The AHA also questions the legality of the proposal.

There’s also real concern about the potential costs and risks associated with the proposed transparency rules, particularly in terms of patient relations and expectations. Standard charges, for example, are based on customary care and don’t take into account emergency or acute situations. In other words, standard pricing assumes a best-case scenario which doesn’t always prove to be realistic. This puts labs in a ticklish position when actual patient charges end up being higher than the previously quoted prices. The potential result is damage to not only customer relations but the trust on which the patient relationship is based.

Takeaway: While price transparency and consumer empowerment are laudable objectives, the CMS proposal imposes new administrative burdens and puts potential new strains on patient relations. It remains to be seen whether the rule will actually take effect and, if so, with what changes. The deadline for submitting comments is Sept. 27.