U.S. House Energy and Commerce Committee reaffirms bipartisan support for price transparency

Political polarization in the nation’s capital has made it rare in recent years for Democrats and Republicans to find agreement in health care policy. A prominent exception is price transparency. Both parties are fully committed to it, as seen in a recent bipartisan letter from the leaders of the House Energy and Commerce Committee urging President Biden’s new Secretary of Health and Human Services, Xavier Becerra, to stick with regulatory requirements finalized during the Trump era. Sustaining this united front may be crucial in the coming months to prevent backtracking by industry and to further improve the usefulness of what is disclosed.

The opaqueness of medical pricing has frustrated payers, consumers, and policymakers for decades. Hospitals and physician practices have never made it easy to know what they will charge in advance of providing services because they never had to; most bills are paid by insurers, not patients, and the prices insurers agree to are negotiated in confidential contracts. Consumers are only charged residual amounts that often are a small fraction of the overall cost.

 

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The pricing landscape began to change with a provision in the Affordable Care Act (ACA) requiring hospitals to post their list prices (or “chargemasters”) online. Hospitals fought implementation of the rule, and only reluctantly complied when it became clear they had no choice. For the most part, hospital systems uploaded onto their public websites pricing data that was difficult for non-experts to interpret. Chargemaster rates are often well above the prices paid by insurers.

The Trump administration built upon the ACA’s requirement by finalizing additional rules forcing more useful disclosures from both hospitals and insurers. The new hospital requirements went into effect in January after surviving several legal challenges. New rules for insurers will be implemented in 2022 and expanded in 2023.

Effective this year, hospitals must now disclose the actual prices paid for their services in addition to their chargemaster rates. Hospitals are required to upload in readily accessible formats charge data from their negotiated contracts with commercial insurers, organized by billing code. Further, they must identify the highest and lowest rates charged for those services (without disclosing the payers), along with the cash prices charged to patients paying out-of-pocket.

Next year, insurers will be required to post the rates they negotiate with hospitals, physicians, and other providers in their networks. In 2023, they will be required to deploy tools that make it possible for their enrollees to compare their out-of-pocket costs when using services from competing providers.

The industry fought these requirements by arguing the information will be useless, and may backfire. Hospitals say they may be forced to eliminate discounts for preferred insurers if others demand the same treatment. In other words, they claim transparency will push costs up, not down, because facilities cannot afford to give all payers their best prices.

Both parties in Congress seem willing to run this risk because they see more upside from shining a light on the irrationality of current practices.

A recent report from the Health Care Cost Institute is an early example of what is likely to be an avalanche of new research made possible by the new rules. The study shows that one major hospital system charges approximately $560 to the Medicare program for MRI brain scans — and roughly $5,000 to $6,000 to commercial payers. One of its facilities charges $36,300 for C-section deliveries; another, just 65 miles away, charges $21,000.

The hospital industries’ displeasure with the disclosure requirements, and its foot-dragging, may be signals that Congress, and the Biden administration, are right not to let them off the hook. The Energy and Commerce letter was sent in response to news reports that many hospitals have yet to comply with the new regulations, despite having more than a year to get ready. The committee leaders urged the administration to strictly enforce compliance.

Putting into the public domain more pricing information is likely to prove embarrassing to some facilities that have used opacity to take advantage of unsuspecting payers. And some of the pricing will be exposed as so disconnected from market realities that it cannot be defended. While it is possible that taking away preferential discounts will offset the downward pressure on exorbitant charges, both parties believe the potential benefits from disrupting the costly status quo are far greater.

The Biden administration has an opportunity to build upon what it inherited. The new rules will push into the public domain vast amounts of pricing data, but it will lack important context. The next step should be required disclosure of pricing for standardized bundles of services covering full episodes of care, so that payers and patients can readily compare “all in” prices charged by competing practitioners and facilities. Such a requirement would force the industry to compete in a way that does not exist today.

Democrats and Republicans do not agree on much these days, but they have coalesced in support of required pricing disclosure. Bipartisan cooperation will be important for ensuring this initiative has sufficient time and political support to fulfill its potential.

James C. Capretta is a columnist for State of Reform and is a resident fellow at the American Enterprise Institute.