On January 1, 2021, the federal government's Hospital Price Transparency Regulation went into effect. As a result, some US hospitals have published their negotiated prices with health insurance carriers. Previously, these negotiated prices were secret and considered proprietary. The now-transparent prices vary wildly across insurance carriers for the same service at the same hospital. Conversely, the prices also vary across hospitals for the same service with the same insurance carrier. The negotiated prices appear random and chaotic, but they are not. Instead, these prices reveal a practice of “horse-trading” to reach a total payment level that is the primary concern of both hospitals and health insurance companies.
The Hospital Price Transparency Regulation requires hospitals to publish their standard charges publicly on a website[1]. There are two subsets of charges that must be published. First, all hospital charges must be posted in a machine-readable format and include 1) gross charges (i.e., billed charges), 2) discounted cash prices, 3) payor-specific negotiated charges (i.e., the allowed amount) and 4) de-identified minimum and maximum negotiated charges. Second, a hospital must post 300 “shoppable” services in a consumer-friendly format that a person would be able to schedule in advance. For these 300 services, the hospital must also post 1) discounted cash prices, 2) payor-specific negotiated charges and 3) de-identified minimum and maximum negotiated charges.
The penalty for non-compliance with the Hospital Price Transparency Regulation is small, but there are plans to increase it substantially. Currently, the federal government fines hospitals $300 for each day that they are not compliant with the regulation — a total of $109,500 in a year.[2] That is a relatively small fine compared to the hundreds-of-millions or billions of dollars in annual revenue that are typical for a hospital system. While many hospitals are partially compliant, patientsrightsadvocate.org estimates that only 5% of hospitals are fully compliant. As a result, the Federal Government is proposing an increase in the fine based on the size of the hospital, with a maximum fine of $5,500 per day — a total of over $2 million in a year.
The prices posted by hospitals show wide variability. An August 22, 2021 article in the New York Times highlights the three distinct ways prices vary.[3] First, prices vary at the same hospital, for the same service, but for different insurance carriers providing the payment. For example, a colonoscopy at the University of Mississippi Medical Center with Cigna costs $1,463 and with Aetna costs $2,144. Second, prices vary at the same hospital, for the same service, for the same insurance carrier, but for different plan types within that insurance carrier. For example, an MRI at St. Luke's Hospital in Milwaukee with a United Healthcare PPO costs $4,029 and with a United Healthcare HMO costs $1,092. Third, prices vary with the same insurance carrier for the same service at different hospitals. For example, a rabies prevention treatment at Intermountain Healthcare in Utah Costs $5,000 and at the University of Florida Medical Center Costs $10,000, both with the same insurance company providing the payment. Let’s now turn to why these price variations exist.
When hospitals and insurance carriers negotiate their contracts, the hospital gives the insurance carrier a discount off full billed charges in exchange for the insurance carrier steering patients to the hospital for being in-network. Ultimately, both parties care most about the total amount of money paid over the course of a year. The individual negotiations over the final allowed amounts for specific hospital services are simply the means of reaching yearly reimbursement total. Accordingly, each hospital and insurance carrier can reach that reimbursement total with very different service-specific negotiations.
Given the increasing out-of-pocket costs that patients have for medical care, it is not acceptable for hospitals to keep pricing information secret. Hospital price transparency is an important first step in giving patients up-front information about the cost of healthcare.
1 https://www.cms.gov/hospital-price-transparency/hospitals#key-provisions
3 https://www.nytimes.com/interactive/2021/08/22/upshot/hospital-prices.html