Medicare Payment and Reimbursement

A look at early hospital concerns over the proposed release of negotiated charges

July 31, 2019 8:43 pm
  • National hospital advocacy groups warned that negative consequences could result for hospitals, patients and health plans from the proposal to require release of negotiated charges.
  • For-profit hospital executives had a mixed reaction to the requirement.
  • An industry adviser expects rural and low-income hospitals to face the largest financial effects.

National hospital advocates, individual executives and an industry adviser identified early concerns with the proposed mandatory release of hospital-negotiated charges.

The Medicare Outpatient Prospective Payment System CY20 proposed rule would require all nonfederal hospitals to post online their gross charges and payer-specific negotiated charges.

The initial concerns raised by national hospital advocacy groups included the potential of the rule to:

  • Create a heavy administrative burden for hospitals
  • Undermine hospitals’ ability to negotiate equitable payment
  • Leave consumers with little actionable information with which to make informed care decisions
  • Limit choices available to patients in the private market
  • Fuel anticompetitive behavior among commercial health insurers

“While we support transparency, today’s proposal misses the mark, exceeds the Administration’s legal authority and should be abandoned,” Rick Pollack, president and CEO of the American Hospital Association, said in a written statement.

“This policy fails to address consumers’ information needs to truly understand price, including information on copays and deductibles,” said Blair Childs, senior vice president of public affairs for Premier. “Moreover, disclosing payer-negotiated rates harms health systems’ negotiating power, creating anticompetitive market distortions.”

For-profit hospital executives see pluses and minuses

Executives at two of the largest for-profit health systems this week told investors they had more nuanced views of the proposal.

Bill Rutherford, executive vice president and CFO of HCA Healthcare, said the 185-hospital chain expects the requirement to create “some opportunities, maybe some challenges there.”

Sam Hazen, CEO, of HCA Healthcare, said the chain has pushed for 10 years to narrow the spread among charges negotiated with various health plans. Additionally, he said, HCA hospitals’ charges are very competitive in their local markets, which has resulted in of 80% of 2020 contract negotiations being completed already.

“To Bill’s point, there could be a market here or there where we are under a competitor,” meaning at a disadvantage on pricing, Hazen said. “We believe that in a handful of cases, there could be a market here or there where maybe we are in a better position from a pricing standpoint, and we will just have to sort that out over time.”

Steve Filton, executive vice president and CFO of 26-hospital Universal Health Services, said it remains unclear whether requiring the release of rates paid between commercial health plans and private hospitals will prove legal.

In response to concerns that the initiative may undermine hospitals’ negotiating positions, Filton said if smaller insurers demand that their rates be cut to match those offered to larger health plans, “We are just not going to do it, and no one is going to be able to force us to do that, unless the government decides that they’re just going to set prices all around.

“So, I don’t think we view transparency as something that will change our everyday business practices by a great deal.”

Specific provisions could prove tricky

Lynda Mischel, a managing principal at Lumina Health Partners, which advises hospitals, described the proposed requirement to publicly disclose health plan-specific rates as “problematic,” due to contractual requirements that such negotiations remain private.

Small hospitals and rural facilities are likely to lack the resources or personnel to readily meet the disclosure requirements, Mischel said in an interview. Rates used in financial and billing systems are based on CPT codes and will need to be translated into plain English for patients.

“I don’t think it’s as easy as the federal government thinks it is,” Mischel said.

That was echoed in criticism of the proposal by Bruce Siegel, MD, MPH, president and CEO of America’s Essential Hospitals, which represents safety-net hospitals.

Another wrinkle is that well-funded hospitals may forgo compliance with the new requirement to avoid impacts on health plan negotiations and could consider the annual penalty of $109,500 just a cost of doing business, Mischel said. However, low-revenue hospitals will struggle to either meet the requirement or pay the  penalty.

CMS noted in the rule that it opted against exempting rural hospitals, but Mischel argued against that position since charge transparency provides little benefit in rural areas. Patients in those areas frequently have access to only one hospital, meaning price shopping is not possible.

CMS officials also raised the possibility that they may exempt hospitals from the charge disclosure requirement in cases when a hospital provides patients with price transparency tools for common procedures and services. But that option also likely would provide little benefit for low-income hospitals, which struggle to afford — and rarely offer — such price calculators, Mischel said. 

Additionally, the cost of compliance is likely to far exceed the $1,017.24 annual cost per hospital as estimated by CMS.

“What they’re asking for is far more complicated than $1,000 would allow,” Mischel said. 


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