L&T Blog

What Price Transparency Means for Healthcare Providers, Insurers & Brokers

September 15, 2021

By Mike Cody, Principal, Senior Vice President

The issue of price transparency in healthcare has been bandied about for a long time as a possible solution to address skyrocketing costs and improve competition in the marketplace, with little progress being made.

That soon may change, however, as the federal government pushes a new rule requiring greater price transparency. In 2019, President Trump issued an executive order requiring hospitals and drug companies to disclose rates that they privately negotiate with insurers. More recently, two new rules have been passed to support this initiative.  The Transparency in Coverage Rule, 2021 was finalized by HHS on November 12, 2020 and The Consolidated Appropriations Act, 2021 was signed into law on December 27, 2021 with most provisions effective on January 1, 2022.  These laws address transparency in coverage through machine readable files, the No Surprises Act and a requirement that consumers have access to price transparency tools.  

In response, some business groups sued while others argue transparency would serve only to bring many low-cost providers’ prices up to market levels while only lowering pricing for a few outlier, high-cost providers for certain treatments. They claim providers and drug companies would tacitly collude to raise prices since transparency would allow them to see their competitor prices.

Whether price competition serves to raise or lower prices is yet to be seen. We won’t know for certain what impacts the rule may have on pricing until early next year. In response to industry protest about the lack of time and details to abide by the new rule, the Biden Administration recently delayed the effective date for price transparency requirements until Jan. 1, 2022.

How Health Providers Are Paid

At issue is the wide price discrepancy for healthcare services, which depend on several factors including provider, location and who is paying. For example, prices for a cesarean section at various locations at Sutter Health’s California Pacific Medical Center ranged from $6,241 to $60,584, according to The Wall Street Journal.

Healthcare providers are paid under numerous arrangements ranging from contracts with health insurers to Medicare and cash pay customers. With health insurers, providers negotiate a fee structure with the insurer that only those two parties know. It is considered confidential information and viewed as a competitive advantage by insurers to claim the best contracted rates with providers. This, in turn, helps the insurer limit claims losses, improve their bottom line and theoretically pass cost savings onto customers and employees.

Consumer-Driven Healthcare Efforts Fail to Contain Costs

Over 15 years ago, the consumer-driven healthcare movement led to the creation of Health Savings Accounts (HSA). The idea was supposed to empower and encourage employees to have skin in the game so they would not be insulated from the true cost of healthcare and ultimately make fiscally responsible decisions regarding their care. Despite that promise, HSAs and other consumer-driven initiatives have not led to any meaningful cost containment for healthcare services.

With the cost of healthcare increasing at more than the rate of general inflation for the last three decades, the current system is truly unsustainable. Up to this point, the government has not had a meaningfully active role in the commercial space, which is made up of employers that insure over 180 million people through group insurance contracts. Competition nibbles around the fringes, but insurers, brokers and healthcare providers all have vested interest to support the existing structure of reimbursement.

For many years, there have been employee benefit plans that set their pricing based on a multiple of Medicare reimbursements without any proprietary PPO contracts with providers. These Reference Based Programs (RBP) have been met with mixed reviews. Although cost savings can be realized by paying any given provider a flat rate, without a contract in place the concern has always been that the provider can balance bill a patient when the provider feels the reimbursement is inadequate. This arrangement can be especially problematic with emergency treatments where service fees cannot be agreed upon before the patient needs care.

To address this issue of unexpected billing by providers, the federal government passed the No Surprises Act to protect consumers through dispute resolution guidelines so that they are not hurt by unwelcome bills when providers are “out of network” and prices are not published.

Additionally, the Consolidate Appropriations Act includes several initiatives supporting transparency, including a gag rule that removes restrictions on sharing of data and broker and service provider compensation disclosure.

For businesses, one thing is for sure: The price may be high of keeping healthcare costs in check.

If you want to learn more about how Lovitt & Touché can help your business with transparency and disclosure issues, contact Mike Cody at mcody@lovitt-touche.com.