HHS Final Rule Won’t Provide the Cost Transparency Patients Need—But Your Hospital Can, and Should

The Department of Health and Human Services released its final rule on price transparency for hospitals before Thanksgiving, much faster than most observers expected after the proposed rule was left out of the CMS Outpatient Prospective Payment System final rule released Nov. 1. But, it was back with minor changes and a delay in implementation to 2021 (from the proposed rule’s 2020 deadline) by Nov. 15. Hospitals predictably reacted with outrage and a lawsuit in federal court.

Tom Nickels, an executive vice president with the American Hospital Association told the New York Times, “this is a very radical proposal,” and indeed it is. Hospitals have every reason to want to protect the product of their private negotiations with health insurers, and it appears they will fight this rule with every tool in their arsenal.

The irony is that the kind of price transparency the rule would produce, if implemented in 2021 as scheduled, is not the kind of price transparency that will be meaningful to either patients or hospitals.

There are clear benefits for both stakeholders in providing meaningful price transparency, and by meaningful, I mean providing patients with transparency at the out-of-pocket level. Yet, the rule doesn’t explicitly require this. But hospitals can be proactive and provide meaningful transparency right now, and—regardless of how the final rule plays out—there’s a strong business case that they should.

What is Meaningful Price Transparency?

Let’s start with what meaningful transparency is not because it gets at the heart of the problem with the final rule. What patients really need is not price transparency but cost transparency. Cost transparency offers patients the personalized, out-of-pocket amount they must pay for health care services.

What insurance companies pay hospitals is generally irrelevant to patients, and so are the “charges” the rule will require hospitals to post. Therefore, the rule will do little to improve the patient financial experience. In fact, it will likely add another layer of confusion to patients who often equate the level of anxiety they feel for understanding the cost of their care to the anxiety associated with receiving medical care itself.

What patients need is an accurate estimate of the amount they will owe personally, not the “charge” for that service or procedure. It’s not a perfect apples-to-apples comparison, but would knowing what Ford pays for the steel, glass, electronics and labor necessary to manufacture their vehicles be relevant to the buyer of a vehicle? No. What the buyer cares about is the price they will pay so they can make an informed decision.

Meaningful transparency for patients means hospitals should provide accurate out-of-pocket costs to patients who are shopping for non-emergency services based on their personal insurance coverage and factoring in any charity or financial assistance for which they are eligible. Non-emergency services make up the vast majority of health care expenditures (more than 90% according to most estimates) so providing that kind of transparency to patients will account for the vast majority of their out-of-pocket expenditures as well.

In order to deliver meaningful transparency to patients, hospitals ultimately need to help patients answer the question, “How much will I owe?”

Providing that information can be mind-bogglingly complex, in theory. Hospitals must factor in deductibles and co-insurance, accounting for any payments the insurer has made so far in the plan year—that can change in real-time—and varying deductible levels for different services. They must also include likely additional charges, such as facility fees, supplies and payments to additional care team members who may have separate fees associated with a procedure (e.g. anesthesiologists). When hospitals have all the above information, they can finally “do the math” to inform the patient of his or her out-of-pocket cost for a service.

AI Can Help

The good news is that in practice, providing out-of-pocket cost estimates is not an impossible dream, and it provides many benefits to the hospital beyond improving patient experience. AccuReg, along with a few other companies, has been hard at work for years on how to use data, technology and now AI to help make access to this information as easy as shopping online for an airline ticket. Leading hospitals and health systems recognize price transparency is not only the right thing to do, but also can be a strong competitive advantage.

Hospitals win with this kind of transparency in other ways, too. They benefit financially because accurate and reliable estimates of patient costs enable them to collect more prior to service, which lowers the potential for bad debt and lowers their costs to collect. Collecting at the front end of the revenue cycle is also the place where hospitals retain the maximum portion of each dollar they receive. Collecting after the fact means a bill must be generated, the time value of money is compromised the longer it takes to collect, and additional labor and collections efforts further erode the value of payment. In the worst cases, nonpayment can be the result of failing to collect at the front end.

And that is the point. Empowering consumers to make better decisions about their health care services is essential, it’s the right thing to do for patients, and it is already possible. But it is also in the best financial interest of the hospital. In whatever way they decide to confront this issue, all hospitals should be proactive in moving toward giving patients the price transparency they demand. The time is now.

To learn more about how your hospital can provide patients with the cost transparency they need, watch our 30-minute on-demand webinar, Price Transparency Beyond the Final Regulation.