On June 23, 2020, a federal D.C. District Court judge upheld the Trump Administration’s 2020 Price Transparency Rule. The final rule requires hospitals to disclose their charges and payer-specific negotiated rates for all services they provide.
Following are the highlights that Guidehouse’s Managed Care and Pricing Strategy team believe to be critical to hospital finance executives as this rule and court challenges evolve.
1. Is this law settled? Will there be an appeal?
2. What does compliance with the federal price transparency rule look like?
Unlike the 1/1/2019 price transparency rule, hospitals are required to show their prices in two ways under the new rule:
1. A comprehensive machine-readable file. This is a single machine-readable file that contains five types of standard charges for all the items and services provided by the hospital.
2. Consumer-friendly file of shoppable services: hospitals would be required to make public a consumer-friendly set of at least 300 shoppable services, which would include 70 CMS-specified shoppable services and 230 hospital-selected shoppable services that are provided by the hospital. Hospitals may opt to use their existing patient estimator tool to fulfill this requirement.
For both of these files, the following types of prices or rates will be communicated:
1. Gross Charge - “the charge . . .that is reflected on a hospital’s chargemaster, absent any discounts.”
2. Discounted Cash Price (Uninsured Rate) – “charge that applies to an individual who pays cash (or cash equivalent) for a hospital item or service.”
3. Payer-specific Negotiated Charges (Payer A – Payer C) – “the charge[s] that a hospital has negotiated with a third-party payer for an item or service.” Payers will have to be specifically identified by name.
4. De-identified Minimum Contracted Rate
5. De-identified Maximum Contracted Rate
a. (Min and Max Rates) – “which are the highest and lowest charges that a hospital has negotiated with all third-party payers for an item or service but are not linked to the particular third-party payer.”
Example of the "standard charges."
3. What is excluded from the current rule?
4. What are the consequences for non-compliance?
5. How do COVID-19-related utilization changes impact price transparency?
6. How might this affect my hospital, pricing strategy, and overall market dynamics?
7. What should hospital executives do next to prepare?
With many unanswered questions from CMS, hospital/health system executives should proactively prepare for continued consumerism in the healthcare space. Following are our prioritized actions.
1. Identify services impacted by the mandate – Evaluate current services offered that are part of the 300 common shoppable services codes and evaluate what settings these services are currently provided.
2. Strategize around your market and potential magnitude of impacts – Determine current pricing levels relative to market and site of service, evaluate how much of the current revenue portfolio is comprised of these services, and magnitude or risk from both volume shifts and changes in pricing (both chargemaster and negotiated rates).
3. Evaluate your own pricing and rate strategies by site of service – Strategize logical pricing and rate relationships by site of service and location across a system; ensure that prices/rates are defensible, while maintaining positive margins and market positions.
4. Assess your payer relationships and strategize potential risks and opportunities – Where will payers put the most pressure on you to decrease? Will you have an opportunity to leverage this data to enhance any contracts? When are your upcoming contracts coming due? Are any payers at risk of termination prematurely?
5. Determine current capabilities – From becoming compliant with the rule to answering daily patient calls around price comparisons—this rule may enhance the need for analytical and consumer-facing services that could be underdeveloped at your organization. What gaps do you have, and how will you fill them?
6. Proactively create consumer-focused sustainable margin – Evaluate margins across services/service lines and sites of care and ensure margins can be sustainable as price/rate pressure increases for commodity, highly shoppable services. Consider a rebalancing strategy in upcoming payer negotiations and price adjustments.
7. Become the market leader – Drive toward full transparency on consumer commodity services, beyond CMS requirement. Establish real-time patient liability estimator portal/technology and/or targeted direct to consumer pricing strategies (demand/bundle-based pricing).