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Price Transparency Rules Pose Extra Burden for Rural Hospitals (1)

Sept. 15, 2021, 9:35 AMUpdated: Sept. 15, 2021, 8:29 PM

The Medicare and Medicaid agency’s requirement that hospitals list prices for common services is straining rural hospitals that were already at risk of shutting down due to the financial pressures of the Covid-19 pandemic.

Many hospitals have already hesitated to comply with a Trump-era rule (RIN 0938–AU22) that required hospitals to reveal their pricing for outpatient services, citing the burden and expense of gathering and publishing the data.

The fine for violators—$300 per day for hospitals as of Jan. 1, regardless of size—is “a very small price to pay” for a major health system but enough to be “devastating” to a rural facility, said Brock Slabach, chief operations officer for the National Rural Health Association.

Now, the Biden administration is expected to propose raising that penalty for hospitals with more than 30 beds to $10 a bed per day—up to a maximum $5,500 a day—as part of a separate rule on outpatient hospital payments (RIN 0938-AU43). If finalized, that rule would take effect in 2022.

The total yearly penalty for noncompliance would range from $109,500 for small hospitals with fewer than 30 beds to $2,007,500 for larger hospitals, a Centers for Medicare & Medicaid Services spokesperson said.

“We are simply showing hospitals through stiffer penalties: concealing the costs of services and procedures will not be tolerated by this Administration,” Health and Human Services Secretary Xavier Becerra said in a press release when the proposed rule dropped.

The cost of compliance remains steep, advocates and health consultants said. Many rural hospitals “don’t have the staff to be able to devote to this effort without harming other parts of their operation,” Slabach said.

More than 40% of rural hospitals in the U.S.—almost 900—were at immediate or high risk of closing as of July 2021, according to a report from the Center for Healthcare Quality and Payment Reform.

“We’re running out of intensive care unit beds,” Slabach said. “We don’t have enough people to take care of patients,” and the administrative effort it takes to comply could “deplete our resources” when they’re most needed.

Difficult Undertaking

The government has been pushing hospitals to be more upfront about their pricing for more than a decade in an effort to reduce the cost of health care.

The 2010 Affordable Care Act requires hospitals to publicly list their “standard charges for items and services,” but there was “no specified penalty for noncompliance” until the Trump-era rule, said Emily Cook, a partner at McDermott Will & Emery LLP who previously worked for the Federal Office of Rural Health Policy.

The Trump-era rule asks hospitals to create a machine-readable file detailing their items and services, as well as a more consumer-friendly list of “shoppable services,” according to the CMS.

The goal, for the CMS, is implementing the ACA to ensure “consumers have the information they need to make fully informed decisions regarding their health care,” a CMS spokesperson said. The CMS also said price transparency will lead hospitals to drive their prices down by increasing competition.

But complying with the rule is a challenge for any hospital, Cook said. The information hospitals have to provide is “voluminous, difficult to compile, and very expensive to put together,” she said.

Hospitals need to review data manually, rather than scraping it from various sources, because there are many opportunities for mistakes that could lead to inaccurate pricing, said Kelly Arduino, industry leader of the health-care practice at consulting firm Wipfli LLP. Arduino saw one hospital’s website claiming that a kidney biopsy, “a simple outpatient procedure,” would cost $100,000. The national average is about $2,500, according to a website that lists average prices for various procedures.

Many hospitals work with outside vendors to compile the information, which leads to “additional costs and additional burdens” for rural hospitals, Cook said. Although larger hospitals have more data to manage, the percentage of their staff and resources going to compliance efforts is far smaller than the percentage at rural hospitals, Cook said.

The requirement “takes the attention away from cash flow,” Slabach said. “For those hospitals at risk of closing, if they don’t have cash to operate and to pay their bills on an ongoing basis, then the only option they have is to close,” he said. “That has happened all too often.”

Sally Buck, CEO of the National Rural Health Resource Center, said that while she hasn’t heard of any rural hospitals shutting down because of the rule, it’s certainly caused “financial hardship.”

Some advocacy groups have called hospitals’ hesitance into question. “It does not cost hospitals anything meaningful to post this information before care so that patients are empowered to make informed decisions and avoid surprise billing and price gouging that have so often led to financial devastation,” said Cynthia Fisher, chairman of Patient Rights Advocate. The group recently published a report that found most hospitals, of 500 sampled, have not been compliant with the Trump-era rule.

“Prices are known in every other economic sector. There’s no reason they can’t be known for healthcare too,” Fisher said.

Unintended Consequences

“The intent of the hospital pricing transparency is recognized as important,” Buck said, adding that consumers should “be aware of costs” before they choose a hospital.

But the average consumer doesn’t shop for health care the way they might shop for a car. “When you’re in an emergency and you need care, you’re not going to pull up the internet and begin shopping to see who treats heart attacks for the cheapest,” Slabach said.

While the pricing information hospitals must provide should be consumer friendly, the average consumer is likely to glean a little information and a lot of confusion, Arduino said. Experts who read the websites every day said they can be hard to understand—so probably wouldn’t make much sense to average consumers. Many consumers don’t even know that the information is, or should be, available to them.

Price transparency could end up being an advantage for rural hospitals, Fisher said. “Their prices are generally lower than big city competitors, and they can attract consumers willing to travel to enjoy significant savings on their care, expanding healthcare access,” Fisher said.

But it could also lead to what economists call a moral hazard: “If your insurance is paying for all of this stuff, why do you care what it costs?” said Robert Graboyes, senior research fellow and health-care scholar at George Mason University’s Mercatus Center.

The rules, too, may not end up leading to lower prices for consumers. In a market like health care, with “a small number of competitors and high barriers to entry, if the competitors know each other’s prices, they can do a sort of silent dance to push their prices upward,” Graboyes said.

The CMS proposal to increase fines for larger noncompliant hospitals, meanwhile, demonstrates that “price transparency isn’t going to go away,” Arduino said. The agency is accepting comments on the proposal until Sept. 17, which it will consider before the rule is finalized.

Rural hospitals are taking the CMS requirements seriously, Arduino said. She said she hasn’t had clients tell her “this is something we absolutely don’t want to do.”

But the “extremely unfortunate” timing of the rule means pricing transparency is a competing priority with issues rural hospitals are facing like “staffing, and safety, and security, and vaccine mandates,” Arduino said.

The rule is “a complication that rural hospitals didn’t need in the middle of a global pandemic,” Slabach said.

(Updates with comments from leader of patient advocacy group in 19th, 20th, and 24th paragraphs.)

To contact the reporter on this story: Allie Reed in Washington at areed@bloombergindustry.com

To contact the editors responsible for this story: Brent Bierman at bbierman@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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