CMS’s Price Transparency Rule: Potential Market Implications and How to Prepare

Kathryn Austin, Director, Center for Consumerism, AVIA

What is the Price Transparency Rule?

While “transparent” healthcare has been an increasingly hot discussion topic in the context of consumerism, the Centers for Medicare & Medicaid Services (CMS) has made it official: CMS’s imminent Hospital Price Transparency rule goes into effect on Jan. 1, 2021, and requires hospitals to make their standard charges publicly available. 

In order to comply with the rule, health systems will need to produce a list of all five types of standard charges for items and services on a machine readable file. Additionally, they will be required to create a consumer-friendly website for 300 shoppable services’ negotiated and self-pay rates. Compliance will be enforced through a civil monetary penalty of $300 per day per hospital, a corrective action plan, and monitoring and audits.

The American Hospital Association (AHA), the Federation of American Hospitals, the Association of American Medical Colleges, the Children’s Hospital Association, and several hospitals have filed a lawsuit challenging the Department of Health and Human Services’ claim that it has statutory authority to mandate public disclosure of privately negotiated rates. The AHA also argues the public disclosure of individual rates between hospitals and insurers violates the first amendment and will confuse patients. The court upheld the policy June 23, and the AHA appealed the decision soon after. Oral arguments occurred in mid-October, with judges focused on the consumer benefits of this type of transparency.

What we’ve heard from health systems

Over the last year, AVIA has spent time with our Members understanding their strategies and technologies for responding to and preparing for the price transparency rule, and what their long-term considerations for the rule are. In our recent webinar on the topic, we polled more than 270 health system leaders. Regarding the machine readable file requirement, over 75% of attendees already meet the requirement or have a plan in motion.  33% of organizations said they are planning to use in-house existing core tools (e.g. EHRs), 26% of participants are planning to use an in-house self-built tool, and 7% are planning to use an off-the-shelf third-party solution. 

35% of participants are leveraging the support of outside services or integration partners.

Regarding the shoppable service requirement, 68% said they were somewhat prepared with a plan in motion, and 7% said they are already meeting requirements. Over half of participants said they are planning on using in-house tools, with 31% leveraging an existing core tool (e.g. EHR) and 23% using a self-built tool. 9% said they are using an off-the-shelf third-party solution. 37% of organizations said they are using a service or integration partner. Common considerations for health systems include reconciling data across sources, particularly their contract management systems. AVIA has seen a considerable increase in adoption of core systems, suggesting this will be a core capability maintained within EHRs long-term.

The top three concern areas for health systems related to the Hospital Price Transparency rule from health systems polled were: amount of time remaining to comply (54%), expense and level of effort required to comply (50%), and ability to update and display accurate rates (46%).

Longer-term considerations for price transparency & consumerism

Beyond the immediate requirements, AVIA encourages organizations to think strategically about pricing strategy, digital technology, and workflow and maintenance. Beyond this particular rule, we expect health systems will need to deploy more pricing and transparency strategies to appeal to consumers and respond to third-party influences. Price Transparency will impact the following areas:

Consumer behavior 

While much of health systems’ price transparency strategies have traditionally been informed by shopping behavior from other industries, availability of pricing information may shift healthcare consumerism behaviors in new ways. We don’t entirely know how consumers will perceive value as relates to more widely available cost information. Consumers could begin to shop entirely based on price, meaning health systems will have to compete on price in their markets to maintain loyalty. For some patients and services, price may drive choice to lower cost services. Alternatively, if patients conflate higher cost with higher quality, they may select premier services in spite of and even in part because of cost.

Pricing strategy & negotiations

Because of the democratization of information in markets and new regulations for health plans, we expect a paradigm shift to occur in negotiations across players, including patients, employers, and payers. Because both providers and payers could use publicly available prices to shift reimbursement negotiations, providers may gain or lose negotiating power in the short-term depending on how they compare to competitors. We expect health systems will also receive pressure from local and even national employers regarding price. Finally, we believe health systems should be prepared for direct inquiry from patients regarding comparison shopping in their specific markets, as well as more nationally. We are seeing health systems evaluate and deploy price matching policies alongside their price estimation tools.

 Integration of digital experience

Transparency and consumerism are not limited to price transparency alone. Our work shows patients are hungry for transparency in availability and wait times, ratings/reviews, and quality, and we see this capability closely intertwined with broader digital front door efforts. Close partnerships between revenue cycle, IT, and marketing in these capabilities ensure price transparency can be closely connected to other key consumerism capabilities, including provider directory, search, and consumer scheduling, as well as the broader interactions (e.g. mobile, web, chat) that an organization is offering.

Where to act on price transparency — now and later

Before the end of this year

Ensure your machine-ready file and estimator are ready to go, and select the 230 shoppable services that are going to be most meaningful to your community. 

Longer term

Begin asking yourself strategic questions to inform a longer-term strategy:

  • What does the digital experience of the future need to look like, and how does price transparency fit & connect into your digital front door?
  • How do you operationalize price transparency in the organization: where do you need to be able to adjust prices dynamically in the future? What services do you expect will remain at parity, and where might you need to adjust prices to be competitive in the future?
  • How do you monitor market shifts and adjust your interactions with other ecosystem players accordingly?

Need support on price transparency or broader consumerism strategies? Talk to an expert at AVIA today

Madison Daum, Marketing Intern, contributed to this post.