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Experts call for wider reform as US rolls out hospital pricing transparency rule

A new policy from the Trump administration requiring hospitals to publicly post the prices of some services is a "step in the right direction," but healthcare industry experts say the rule needs to be paired with broader reforms to truly address the escalating cost of care.

The U.S. Centers for Medicare and Medicaid Services finalized the price transparency rule in November 2019, requiring hospitals to make public the costs of certain services, including rates privately negotiated with insurers.

"For this rule to work, it really requires competition and it requires consumers to be able to shop. And the ability for both of those things to happen is pretty limited," said Emily Gee, a health economist from the liberal-leaning Center for American Progress.

Gee said other issues like market concentration and consolidation need to be addressed to truly lower hospital spending, which makes up nearly one-third of all healthcare spending. National hospital spending is projected to grow annually by 5.7% and hit $1.96 trillion by 2027, according to the 2019 National Health Expenditures Projections report.

Christopher Whaley, a policy researcher with the RAND Corporation, a global policy think tank, said patients could be incentivized to use lower-cost services or facilities, as an example.

Price transparency could reduce specific problems like prices varying significantly depending on location, according to Gee. But she is skeptical that consumers will have time to shop for hospital services — especially in emergency situations — and does not think the pricing data will be user-friendly or allow for price comparison between hospitals. Hospital utilization is predominately local and patients will not be able to shop for services as they shop online for other products, she added.

Both Gee and Whaley agree that the scope of the Trump administration's rule is too narrow to see a significant change in prices. The 70 shoppable services that CMS would require all hospitals make public accounted for just 11.8% of total medical spending in 2017 among individuals with employer-sponsored insurance, according to the Health Care Cost Institute.

The rule could, however, spur hospitals to make changes to their prices and seek higher rates from insurance companies. Daniel Steingart, a senior credit officer for Moody's Investors Service Inc., told S&P Global Market Intelligence that hospitals may have a sense of the rates at competing facilities right now, but the regulation could shed light on just how much price disparity exists.

"When rates are actually published, I think in some cases hospitals are going to find out that they are much more underpaid than they ever thought," Steingart said.

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Lessons from California

The California Public Employees' Retirement System, or CalPERS, a state agency that manages pension and health plans for public employees, has previously used price transparency and incentives to combat price variation among California hospitals, according to Whaley. CalPERS set and capped prices for certain services, requiring patients to cover costs over the cap. After the program was initiated, many patients shifted toward lower-priced providers.

Some providers even lowered their prices below CalPERS price limits because the agency had the leverage of a large population that providers wanted to do business with, Whaley said.

Gee also flagged "all-or-nothing" contracting with insurers as a policy point that could reduce hospital spending. The contracting strategy is when hospital companies demand that an insurance plan covers all hospitals in a system or no hospitals, which can leave patients with little options in markets dominated by one company.

California's attorney general banned Northern California-based Sutter Health from participating in this practice as part of a $575 million antitrust settlement in December 2019.

If the price transparency rule is a start to broader reform, the hospital industry has shown it is ready to fight implementation. HCA Healthcare Inc. and Universal Health Services Inc. have resisted the rule, with Universal CFO Steve Filton saying in July 2019 that his company would not comply.

The hospital industry alleged in a December 2019 lawsuit that the agency does not have the authority to implement the regulation.

Benjamin Fee, a healthcare lawyer for the firm Hall Render Killian Heath and Lyman, said the financial and operational burden of implementing the rule could be significant for hospitals, an argument the industry asserts in its lawsuit. Yet Moody's Steingart said in February that the financial impact on hospitals has yet to be quantified.

Jonathan Kanarek, a senior credit officer for Moody's, expects the rule to have more of an effect on a market-by-market basis rather than on individual health systems or companies like HCA.

The Federation of American Hospitals, the American Hospital Association, the Association of American Medical Colleges, the National Association of Children's Hospitals, and three hospital systems have all signed on to the suit brought against the U.S. Department of Health and Human Services, which oversees CMS. Fee believes the strongest argument in the lawsuit is that CMS does not have the statutory authority to enforce the regulation, but other arguments include that the rule violates the groups' First Amendment rights.

Fee said the lawsuit against the Trump administration's regulation "almost felt like an inevitable fight."

Even if the hospitals win the lawsuit and subsequent appeals, Fee said price transparency will not go away: the issue gets bipartisan support and will most likely survive changes in Congress or even a change in the White House.