Trend Toward Transparency in Pricing Continues
Over the last several years, there has been an increased focus on pricing transparency in the American health care system. More and more employers and consumers of health care services have expressed an interest in understanding how the cost of their health care is determined by health insurance companies and health care providers like hospitals and physicians. The health insurance and provider reimbursement system is very complicated and the average consumer of health care does not understand how it works and how the consumer cost of health care is determined. This lack of understanding has caused state legislatures and Congress to make changes to the current system so that health care consumers can better understand the cost of their health care. After much discussion and debate, some major changes have recently been made to create more transparency in the health care system.
The No Surprises Act
Directly addressing this issue, on December 22, 2020, Congress enacted the No Surprises Act (the Act), new federal legislation that is designed to protect millions of consumers from unexpected or surprise medical bills. The Act was included in omnibus legislation containing Covid-19 relief measures and fiscal year 2021 government funding.
The issue of “surprise billing” occurs when patients get large medical bills that they did not expect or anticipate with little to no communication from the provider in question. Medical emergencies render many patients unable to choose the most cost-effective locations and procedures, often resulting in unanticipated, costly medical bills, through no fault of the patient.
Under the Act, consumers will be protected from surprise billing resulting mainly from two circumstances: first, when emergency services are rendered by out-of-network providers or by out-of-network facilities; and second, when out-of-network providers render nonemergency services at in-network facilities. Providers are out-of-network when they do not have a provider contract with the applicable health insurance companies. In-network providers usually agree to a discounted rate with the insurance company and the costs to consumers are typically lower and more predictable. When a provider is out-of-network, they have to negotiate with the health insurance company or the provider will bill the patient directly. Historically, out-of-network providers have attempted to collect higher prices than they would have received if they were in-network.
Beginning January 1, 2022, when faced with either of the two circumstances referenced above, patients will only be responsible for paying in-network cost-sharing prices. According to an article in the New York Times, the average surprise bill for a visit to the emergency room is slightly above $600, however, some patients have received bills over $100,000 from out-of-network providers. Those surprise bills will be illegal under the new legislation.
The issue of how to resolve out-of-network medical bill disputes between insurance companies and providers under the Act was highly debated, but ultimately, Congress has decided to implement the use of an independent dispute resolution process (IDR). Under the IDR process, there will be a 30-day period for the insurance company and health care provider to try to negotiate an agreed upon payment amount for the out-of-network service which would represent the in-network rate. If no agreement can be reached, both parties will submit their final offer to the IDR arbitration process where an unbiased, unaffiliated IDR entity or person will make a binding decision as to what price is most reasonable. The IDR decision is final and binding, encouraging plans and providers to reach a compromise before pursuing arbitration.
The Act may have a significant impact on providers who have historically chosen to be out-of-network, but it should minimize the number of surprise bills received by patients in the future.
Executive Rules Requiring Price Transparency
The Act is a continuation of a recent trend toward transparency by the Federal government. In November 2019, the Centers for Medicare and Medicaid Services (CMS) established the price transparency Final Rule, (the Final Rule), implementing §2718(e) of the Public Health Care Act. Effective January 2021, all hospitals are required to publish their “standard charges” for 300 “shoppable services” online in a consumer-friendly, convenient display. Under this Final Rule, consumers should be able to look up a medical procedure on any hospital website and easily see what the price will be. Among others, “shoppable services” include clinic charges and all services that can be scheduled by a patient in advance, such as lab, medical, and surgical procedures.
This Final Rule creates a major challenge for hospitals as it requires hospitals to share their negotiated prices with health insurance companies, which has historically been highly confidential information. In addition, this Final Rule was implemented during a global pandemic when hospitals have been focusing most of their attention and resources on caring for their patients and work force while serving the community during a public health crisis.
Many hospitals have not been able to fully comply with the Final Rule requirements because of the complications and difficulties caused by the Covid-19 pandemic. According to a study by the University of Minnesota School of Public Health faculty, only 23.7% of hospitals reported pricing in a consumer-shoppable format.
In December 2020, CMS stated it would be actively enforcing consequences for noncompliance. The federal rule states actions for non-compliance will be taken in the following order: first, they will provide written notice warning to the hospital, allowing 90 days to rectify the violation; next, they will request a Corrective Action Plan if the non-compliance constitutes a “material violation;” finally, if the hospital fails to comply with the Corrective Action Plan, there will be a civil monetary penalty of up to $300 per day (around $100,000 annually without any cap), and the penalty will be publicized on the CMS website. Some patient consumer groups are already pushing CMS to increase the penalty partly because they argue it is too low.
It remains to be seen whether the information required to be provided will actually be something that the average health care consumer can make practical use of, but it is expected that third party companies will access this data and aggregate it to create a more user-friendly commercial model for employers and consumers that will allow employers and consumers to compare rates between providers.
Based on a recent article, over 90% of Americans are currently unaware of the Final Rule and their ability to compare prices and ensure they are receiving the most cost-effective service. As hospital compliance increases, it is likely that more Americans will become familiar with the legislation and their right to shop for lower priced, quality care.
In December 2020, the federal government issued another executive rule that dealt with transparency requirements for health insurance companies. The requirements for insurance companies differ slightly and are a part of the “Transparency in Coverage” Final Rule (“Final Insurance Rule”), which is based on legal authority under the Affordable Care Act (ACA). Issued on October 29, 2020 by the Department of Health and Human Services, the Department of the Treasury, and the Department of Labor, the goal of this legislation is similar in aiming to stop surprise billing by providing pricing information to consumers before receiving the health care service. Consumers will also be able to compare prices of health care providers, increasing price-centric decision-making by health care consumers and encouraging competition amongst providers.
The main aspects of the Final Insurance Rule for insurance companies include cost-sharing information, pricing information, and allowing insurers to claim credits toward Medical Loss Ratio (MLR) calculations. The MLR measures the percentage of premium money that an insurance company spends on medical claims and consumer improvements, rather than administrative costs. Under the Affordable Care Act, insurance companies are required to spend between 80-85% of premium dollars on medical care. Effective in July 2021, the Final Insurance Rule will allow consumers to claim credits toward MLR calculations for “shared savings” when an enrollee chooses a lower-cost, higher-value health care provider.
The Final Insurance Rule also requires health plans and insurance companies to provide cost-sharing through an online tool, on insurance company websites, and in paper form, if asked. Regarding pricing information, insurance companies must disclose specific prices for prescription drugs, accurate rates paid to in-network health care providers, as well as billed charges and allowed amounts for out-of-network health care providers for a certain period.
State Law Transparency Initiatives
As of February 2021, 35 states have individually enacted legislation at least partially prohibiting surprise billing, while only six states have enacted legislation requiring pricing transparency in health care. Many states have proposed legislation to prohibit surprise billing practices and require pricing transparency, but these bills have not been passed by the legislatures and signed into law. For states that have not passed any legislation related to transparency, these issues are likely to come up again in future legislative sessions.
Rise of Health Care Consumerism
The recent focus of Legislative and Executive branches on pricing transparency is happening at the same time that we are experiencing a shift toward health care consumerism. Technology has allowed the average person to have immediate access to detailed information about the cost of goods and services. Consumers have gotten used to comparing prices for various goods on their phones and other devices and the desire to do this with health care costs has grown over the last several years.
The patient experience, a key aspect of health care consumerism, has evolved as consumers seek their health care experiences to parallel the convenience and comfort found in many commercial industries, like the hospitality and airline industry. In an effort to meet consumer expectations, many providers have implemented new technologies, such as cellphone applications, patient navigation tools, electronic bill statements and payment plans, online appointment scheduling and reminders, and updated call center systems. Providers that have a clear focus on price transparency, convenience, and patient experience are most likely to meet modern health care consumer demands and stay ahead of the competition.
Surveys have shown that over 80% of health care consumers attempt to look up the price of a service before accessing it, confirming cost to be a major factor in deciding where to receive medical attention. In February 2020, two out of every three Americans (65%) said unexpected medical bills were at the top of their list for budgetary concerns, more than any other household expense. There will likely be the development of a new subindustry of service providers who provide data to the public that compare provider pricing by procedure. Some forward-thinking providers have embraced this trend of price transparency and are using their transparent pricing as a marketing initiative to garner market share. We expect this trend to continue and for patient preference for this data to be an increasing market factor in the future.
The trend toward transparency in pricing of health care has rapidly accelerated in the last two years. It may be a challenge for providers to manage this relatively rapid change, but the trend shows no signs of reversing itself. The key questions to be answered are whether this shift toward transparency will actually reduce the overall cost of health care in the United States and whether it will effectively provide health care consumers with greater clarity and understanding of the health care system and determination of costs.
 No Surprises Act, H.R. 2328, 116th Cong. § 402 (2020).
 Haley Nicholson, Congress Passes Surprise Medical Billing Legislation, Nat. Conference of State Legislatures (Feb. 3, 2021) https://www.ncsl.org/research/health/congress-passes-surprise-medical-billing-legislation-magazine2021.aspx
 Jack Hoadley, Kevin Lucia, & Beth Fuchs, Surprise Billing Protections: Help Finally Arrives for Millions of Americans, The Commonwealth Fund (Dec. 17, 2020) https://www.commonwealthfund.org/blog/2020/surprise-billing-protections-cusp-becoming-law
 Sarah Kliff & Margot Sanger-Katz, Surprise Medical Bills Cost Americans Millions. Congress Finally Banned Most of Them, N.Y. Times (Dec. 20, 2020) (Updated Dec. 22, 2020). https://www.nytimes.com/2020/12/20/upshot/surprise-medical-bills-congress-ban.html.
 Shannon Lipham, It’s Time for Hospitals to Prepare for Price Transparency, jdsupra (Aug. 18, 2020) https://www.jdsupra.com/legalnews/it-s-time-for-hospitals-to-prepare-for-61509/.
 Mari Devereaux, System-affiliated, not-for-profit hospitals more likely to share price data, Modern Health Care (June 23, 2021) https://www.modernhealthcare.com/finance/system-affiliated-not-profit-hospitals-more-likely-share-price-data.
 Matti Gellman, Most Americans Unaware of CMS Price Transparency, Modern Healthcare (June 28, 2021) https://www.modernhealthcare.com/hospitals/most-americans-unaware-cms-pricetransparency-rule.
 29 C.F.R. § 2590.715–2715A3 (2020).
 Matthew B. Roberts, Transparency in Pricing Trend Continues with New Federal Rule that Applies to Health Plans, jdsupra (Nov. 16, 2020) https://www.jdsupra.com/legalnews/transparency-in-pricing-trend-continues-25800/.
 Maanasa Kona, State Balance-Billing Protections, Commonwealth Fund (Feb. 5, 2021) https://www.commonwealthfund.org/publications/maps-and-interactives/2021/feb/state-balance-billing-protections.
 Sara Heath, Breaking Down the Basics of Healthcare Consumerism, Patient Engagement Hit, (Nov. 24, 2020) https://patientengagementhit.com/news/breaking-down-the-basics-of-healthcare-consumerism.
 Sara Heath, Over Half of Patients Worried About Out-Of-Pocket Healthcare Costs, Patient Engagement Hit, (Oct. 29, 2020) https://patientengagementhit.com/news/over-half-of-patients-worried-about-out-of-pocket-healthcare-costs.
 Rakesh Singh & Craig Palosky, A Polling Surprise? Americans Rank Unexpected Medical Bills at the Top of Family Budget Worries, KFF (Feb. 28, 2020). https://www.kff.org/health-costs/press-release/a-polling-surprise-americans-rank-unexpected-medical-bills-at-top-of-family-budget-worries/.
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