Hospital Pricing to Become Transparent
New Rule About Hospital Pricing Will Come Into Effect January 1, 2019
As of January 2019, a major change is coming to healthcare payment. Starting on the first of the year, all hospitals and healthcare centers will be required to post prices for all surgeries and other medical procedures. The move is part of a larger trend towards reference based pricing (RBP) in medical care.
This sounds like a game changer—and it very well could be. However, there are many unanswered questions about how this will impact insurers, employers, and, ultimately, employees. Let’s break down what the new rule does, and what ripple effects we’re likely to see.
What the rule does
The Centers for Medicare and Medicaid Services (CMS) finalized the rule in August of 2018. It is part of the Trump administration’s desire to implement “value-based care” and drive down costs for patients.
Previously, all hospitals were required to provide prices to anyone who requested the information. Now, they must post this information online, and update it annually in order to reflect any changes to pricing. The goal is to help patients make better financial decisions about healthcare thanks to the greater transparency.
CMS has said that it will consider future changes to the rule based on public feedback.
An important caveat: Most patients will not actually pay the exact prices listed on hospital websites. That’s because private insurers and government payers like Medicare and Medicaid negotiate their own prices for services.
Potential implications of the rule
So while the new rule is a major shift, several major questions remain. Right now, we can only speculate about the potential effects. Here’s what we project.
Question 1: How will the rule impact geographical monopolies?
Reference based pricing (RBP) has a lot of potential to lower the costs of healthcare for consumers. However, there are a few limitations.
In many locations—particularly rural areas—there are limited options available for healthcare. In these geographical monopolies, it’s unlikely that publicly posting prices will make a major impact. These consumers don’t have the option of simply going to another hospital across town. It’s unclear whether this rule will make much of an impact for this subset of healthcare consumers.
Patients and/or employers do have the option of showing their local health centers prices from hospitals outside of the region in the hopes of negotiating a better price. However, in this situation they have significantly less leverage than patients in non-monopolized regions.
Question 2: How will the rule impact emergency services?
Emergency services face a similar problem. Due to the urgent nature of emergency care, patients don’t have the option of shopping around for the best price before deciding on a hospital.
However, it’s possible that emergency care providers in competitive regions will become more price conscious. This can help them to avoid developing a reputation as being significantly more expensive than comparable institutions.
Question 3: How will employees respond to the changes?
This remains a wild card. Typically, we might assume that greater transparency will impact consumer behavior. So if given the choice between a hospital that charges $1000 for a colonoscopy, and a hospital that charges for $1500 for the same procedure, most consumers will naturally select the former.
Still, there are other factors that impact consumers’ choices in healthcare: hospital reputation, references, and relationships with individual physicians. Some patients may very well select a moderately more expensive option based on these points of consideration.
Ultimately, we need to wait and see how consumers respond to the change.
Question 4: Will hospitals change their pricing in response to greater transparency?
It’s highly likely that hospitals will begin to monitor competitors’ pricing more closely—and make adjustments in order to remain competitive in the local marketplace.
There is one important caveat to this projection. Since most insured patients will not be paying list price for procedures, hospitals may respond differently depending on their particular mix of patients. It’s likely that hospitals with a relatively high proportion of uninsured patients will be more responsive than hospitals for which these same patients do not constitute a significant chunk of revenue.
We might well see a divide between hospitals in non-Medicaid expansion states as compared with Medicaid expansion states.
Question 5: Will the new rule enable consumers to negotiate better prices?
It is likely that price transparency will empower individual patients to negotiate better prices for themselves. Hospitals will strive to retain patients in the more competitive environment.
Question 6: How will the new rule impact insurer negotiations with providers?
We’re likely to see payers choosing to use publicly available data in negotiations with providers.
Another factor that may come into play is the growth of self-funded plans. Price transparency–and hence the new rule–is likely to facilitate further growth of self-funded plans, and may represent a boon for employers who utilize such plans.
The Trump administration and the future of RBP
Right now, the new rule is limited to medical procedures such as surgery and diagnostic tests. However, that may just be the beginning of RBP.
Previously, the Trump administration released a Blueprint to Lower Drug Prices. The plan included references to RBP in relation to prescription drugs. Indeed, 86% of Americans support requiring drug companies to release more information explaining how drug prices are set.
If the administration decides to implement RBP for the prescription drug market, this will potentially have even greater implications for insurers and employers. Still, what such a proposal would look like remains largely unknown.
In the meantime, it is critical for insurers and employers to stay updated on RBP and related policy changes. Although many questions remain about the impact of the new rule, we can be reasonably sure that change is coming.
RMTS, LLC is one of the largest privately owned MGUs in the country. Founded in 1986, RMTs provides Brokers, TPAs and its Insurance Carriers with over 30 years of stop loss medical insurance expertise. Staying in front of an ever evolving marketplace, RMTS is committed to reducing our clients’ costs and managing their risk.