What are the Transparency Rules?

First, it was the Hospital Price Transparency Rule in 2021, which had been announced by the Trump administration. Now insurers are facing the Health Plan Price Transparency Rule.

What exactly are these rules, and what even is the significance of price transparency in the healthcare system?

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Transparency in Economics

Price transparency is a topic that economists tend to like to talk about, especially in markets where everything is expensive and confusing.

Generally, price transparency is the ability of participants in a market to know the cost of a good or service being sold. For example, we can say that the price transparency for many consumer goods — from smartphones to snacks — is pretty good, given the fact you can look up the price online or see the price tag in a store.

But then price transparency in a lot of healthcare is a different story. For many procedures, diagnoses, and drugs, you don’t have any idea of what the price will be at different providers until you get the bill.

TLDR, price transparency is how well consumers can figure out what the cost will be without having to be told one-on-one with the person or business selling.

So why does this actually matter?

In the traditional sense of a “free market”, buyers can shop between sellers freely and choose the seller who offers the best deal. Typically, sellers come to the same price through the market so that no other seller has an advantage.

In fact, this model of the free market is also supposed to give sellers zero profit. If a firm makes a profit, that incentivizes new firms to enter the market, which increases supply and reduces the overall market price to a point that profit is 0.

Of course, this model of the free market doesn’t translate well to the real world, and it’s why we get many inefficiencies like massive markups, the domination of a few companies, and poor accessibility for some groups of buyers.

Importantly for our discussion right now, the lack of price transparency means buyers can’t easily compare prices and choose the seller with the lowest price.

The idea is that better price transparency would force sellers to compete with each other and lower costs throughout the market.

The Reality and Other Uses

Such transparent pricing may not work as perfectly in healthcare, however. A study in New Hampshire introduced a cost-comparison tool for patients seeking the use of magnetic resonance imaging (MRI), which can create a scan of the activity in internal organs like the brain.

Overall, the HealthCost website reduced the cost of medical imaging procedures by 5% for patients and 4% for insurers. A simple calculation implies that individuals saved around $7.9 million and insurers saved $36.0 million on x-ray, CT scan, and MRI scans over the five-year period.

The introduction of price transparency ended up reducing prices, albeit a little bit. But here's another note that the paper made.

Given that website traffic logs reveal that only a small fraction of individuals receiving medical imaging procedures in New Hampshire use the website, the supply-side effects may be quite large if all consumers were informed about prices.

The tool was used by a few patients. Clearly, not all medical procedures and treatments can be "shopped" for, where the patient has the time and availability of options to compare choices, but there are estimates that 30-40% of spending on medical services (according to the study) is shoppable.

Combined with higher publicity of such tools and expansion to more shoppable treatment types, these gradual reductions in prices could lead to billions in savings.

Better price transparency has other useful side effects.

Price transparency tools would give physicians better know-how to prescribe treatment options that a patient can actually afford. Patients who know of more affordable surgery, medication, or diagnostic options will use those services more, which has the potential to identify long-term health issues that can prevent hospitalizations and deaths.

From the perspective of healthcare insurers, price transparency would allow them to craft better health plans that provide patients with the same level of coverage for various health services whilst allowing opportunities to save on the cost of care, either through negotiating fairer rates from providers or finding affordable alternatives.

Hospital Price Transparency Rule

In 2019, the Centers for Medicare and Medicaid Services (CMS) announced the Hospital Price Transparency Rule. The rule required hospitals to publish data on the amount they charge Medicare and different health insurers for a variety of "shoppable" health procedures and treatments.

Specifically, hospitals needed to publish a "machine-readable" format available for use in a database or algorithmic application, and a consumer-facing price estimation tool.

If this data was not in place in 2021, CMS reserved the right to fine hospitals for failing to comply.

A lobbying group representing hospitals, the American Hospital Association (AHA) challenged the rule in court on grounds of constitutionality, but the federal courts held that CMS had the proper authority to issue the rule according to the Public Health Service Act (which a lot of Affordable Care Act/Obamacare provisions were added to) and Social Security Act (Medicare is in the same law as Social Security).

Compliance with the rule has been... lenient to say the least.

Few hospitals have fully complied with the rule, and even of those that have cooperated, the published data is difficult to access and search through. That, or the data was simply incomplete.

So far many warning letters have been delivered to hospitals, and the fines have been increased, but only two hospitals have yet to be fined.

Health Plan Price Transparency Rule

CMS issued a similar rule for health plans that required even more data to be published by July 2022. This rule requires even more cooperation from health insurers.

In addition to negotiated prices with hospitals, insurers need to disclose this data for way more types of care delivery from surgery and labs to imaging services and doctors. Such information must also be included for when "out-of-network" care is paid for.

Insurers have thus far complied at a higher rate, because the fine was also way higher. At $100 per health plan member per day, the potential cost of not complying adds up quickly.

NPR reports that although this data is abundant, it isn't particularly easy to look through and compare. These web pages are huge with thousands of entries, and it truly requires the work of data scientists to parse the implications of published prices.

Another rule slated to take effect in 2023 should ensure that this data is easily searchable and accessible to patients with health plans' existing apps and tools.

Taking on Financial Interests

Clearly, more work needs to be done.

Future iterations of the price transparency rules should introduce a greater availability of pricing data on medical services over the coming years. Ideally, more directed guidance will also fine-tune what is considered accessible to consumers to ensure better quality control on this release of data.

Seeing some real enforcement on the hospital side of the equation would also probably send a better message that the federal government is committed to this issue. While it could be CMS willfully looking the other way, it is also entirely possible that there are insufficient resources for enforcement.

One possible explanation for the difficulty in releasing such data could be the general nature of health data. A lot of health systems have data stored across various forms of software. Such software is notorious for poor interoperability, which is the ability of computer software to exchange and use data from each other.

The issue of interoperability has been a focus of healthcare IT for years, and it's the same reason that health records can't be easily transferred between care providers and why a lot of health information is still shared by fax machine.

On the other hand, poor compliance is likely also hospitals and similar health actors dragging their feet on something that could affect the way they conduct business. If health actors can't negotiate the same advantageous prices when their counterpart knows the market rate, they're not going to necessarily be friendly to such rules.

Even in the realm of interoperability, the reality is that many health insurers, health systems, and electronic health record (EHR) developers have not made truly transformative changes in the space. At best, it's a lack of commitment or resources. More pessimistically, if a patient can get the same level of care from a doctor on a different network at a different hospital on a different EHR because their patient history can be accessed immediately, many actors have a financial incentive avoid embracing of interoperability.