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Hospital Price Transparency Rules Arm Employers Seeking Savings

Nov. 25, 2019, 10:14 AM

Employers may finally have the ammunition they need to design health benefits that reduce costs under a Trump administration plan to force hospitals and insurers to disclose more information about their prices.

The transparency regulations will help employers design health benefits that steer employees toward hospitals that provide the best value, groups that work on curbing employer health-care costs say.

Employers, who cover 155 million Americans, have had little success in reducing their health-care costs through insurers that negotiate discounted prices with providers in their networks, employer health-care groups say. The discounts only reduce prices marginally from very high list price charges, they say.

Publishing what is actually being paid to hospitals “should be very, very helpful,” just as being able to look up prices for other consumer items is, Robert Smith, executive director of the Colorado Business Group on Health, said in an interview.

Discounts Not ‘Meaningful’

Making negotiated rates transparent “will help point out that the discounts really aren’t all that meaningful,” Smith said. “We need to quit negotiating on these nebulous discounts from charges, and let’s force price competition.”

The Colorado Business Group on Health, which represents 17 employers, will lead the first statewide purchasing alliance to negotiate contracts with hospitals in which the negotiated contract rates will be available to nonmember employers in the state.

Hospital costs make up the largest share of health spending, and private insurers, most of which are employers, pay 44% of their health-care expenditures for hospitals, according to the Centers for Medicare & Medicaid Services. Employers have been stymied for years in their attempts to reduce their costs.

Taken together, the administration’s Nov. 15 proposed rule on health insurers and the final rule on hospitals, which takes effect in 2021, will give both employers and consumers more information they can use to shop for the best price of services as well as negotiate better rates, employer groups said.

The hospital industry is threatening to sue to stop the rule, saying it exceeds the administration’s authority. Both hospitals and health insurers argue that the rule will confuse consumers, who they say primarily need information about their out-of-pocket costs. The insurance proposed rule includes a requirement that insurers give consumers an estimate of their cost-sharing responsibilities for covered health-care services.

Insurers also cite a 2015 Federal Trade Commission letter on a Minnesota disclosure law that said disclosures of privately negotiated rates could “chill competition by facilitating or increasing the likelihood of unlawful collusion.”

Health insurance associations and the hospital associations would not comment beyond the statements they issued Nov. 15.

Little Incentive to Reduce Costs

Ge Bai, an associate professor of health policy and management at Johns Hopkins Carey Business School, argues that employers have more incentive to get costs down than insurers do.

Insurers simply “take a percentage of health-care spending,” she said in an interview. “The more total spending, the more revenue for insurance companies.”

Employers “have the skin in the game,” Bai said. “They have more motivation to negotiate a lower price than insurance companies,” and having access to negotiated rates will help them do that, she said.

The main benefit of transparent price information will be to help employers redesign benefit packages that reduce costs and improve quality, Brian Blase, former special assistant to President Donald Trump, said in an interview.

Blase, who operates a consulting firm in Reston, Va., recently published a paper arguing that transparency will help employers get better value in health spending and allow them to monitor insurer effectiveness.

As a result, employers will be more likely to turn to reference-based pricing plans, used successfully by the California Public Employees’ Retirement System to reduce costs, Blase said.

Under reference based pricing, a set amount is paid for some health-care services, such as joint replacements. The amount paid is based on costs at facilities that have high quality and the best price. If an employee goes to a more expensive facility, he or she must pay the difference.

For elective procedures, where local care isn’t necessary, more employers may pay for their employees to have procedures done at more efficient hospitals in other areas, similar to what Walmart does through its Centers of Excellence program, Blase said.

Walmart provides full coverage for cancer, kidney transplants, hip and knee replacements and spine surgery, along with travel costs, to facilities such as the renowned Cleveland Clinic that have proven records of high success and lower costs.

“Employers are going to demand these changes,” Blase said.

‘Positive’ But ‘Limited’

While the regulations are a “positive step,” they are a “limited step,” Robert Andrews, chief executive officer of the Health Transformation Alliance, said in an interview. The Health Transformation Alliance compiles claims data for its 53 member companies covering 4.5 million people, which is used to get costs down.

Focusing on negotiated prices could “emphasize price over value, and value is what ought to be the decision-maker, not just price,” Andrews said. “No one wants to send their wife or their daughter for the cheapest mammogram. You want the best care for someone.”

Not all employer business groups favor the rules. The largest such group, the National Business Group on Health, which represents 444 large employers covering more than 55 million people, is wary of the regulations.

Increasing consolidation within the hospital industry, as well as among physicians practices, is likely to impede the rules’ helpfulness to employers, Steve Wojcik, vice president of public policy, said in an interview.

About 80% of local health-care markets are highly concentrated on the provider side, Wojcik said.

Wojcik also cautioned that, instead of reducing prices, the rules could have the opposite impact. “Those providers who might be getting less than others in the market might push to raise their prices to meet the higher prices,” he said.

The hospital rule also doesn’t provide information on charges by doctors who aren’t directly employed by hospitals and who frequently are the source of so-called surprise bills, Wojcik said. Those doctors, including emergency room doctors and anesthesiologists, are often not in health plan networks and many have billed patients large amounts.

The proposed rule would require insurers to disclose the amount they normally pay for out-of-network providers. In the final hospital rule, hospitals must specify whether such so-called ancillary providers are covered in their charges.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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