The CMS might not have the legal authority it needs to force hospitals to reveal the prices they negotiate with insurers, a shortcoming that could eventually sink the Trump administration's price transparency push.
The administration delayed its price transparency proposal for hospitals after significant backlash and questions over whether the CMS can even implement the policy legally. While the CMS wanted to include the measure as part of its update to the Outpatient Prospective Payment System, the proposal didn't make it into last week's final rule.
In comments to the agency ahead of the final rule, hospitals claimed the disclosures would violate their First Amendment rights to free speech.
Congress gave the CMS the power to force hospitals to publish "a list of the hospital's standard charges for items and services provided by the hospital" under the Public Health Service Act. But Congress didn't say anything about negotiated rates, according to legal experts.
"I think one would be very challenged to find evidence in the legislative history or the debate around the ACA that Congress ever contemplated requiring the disclosure of privately negotiated rates," said Philo Hall, senior counsel in Epstein Becker & Green's healthcare and life sciences practice. "The burden would be on the administration to prove that this is what the law and the statute intended."
The CMS is trying to change the law by redefining the words Congress wrote rather than interpreting and enforcing the law as written, said the Federation of American Hospitals in its comments on the original proposal.
The price transparency mandate would go beyond current rules that require hospitals to publish retail prices for the medical services that they provide. The new proposal would require hospitals to disclose and update payer-negotiated rates—the costs that insurance companies negotiate with providers. They would also have to create "shoppable services" so that patients could shop around for medical care that they can schedule ahead of time.
The agency hoped that the rule would drive down healthcare costs and boost quality by creating more competition in the healthcare market.
But there is mixed evidence over whether price transparency initiatives lower healthcare spending significantly. Consumers tend to pick less expensive providers when they have access to information about healthcare prices and choose to use it. MRI costs dropped 5% for patients and 4% for insurers when New Hampshire consumers had access to information about prices, a University of Michigan study found last year.
The problem is that most consumers don't use the information because health insurance shields them from the costs of medical care, so they don't have much of an incentive to look into it. Healthcare spending increased slightly for employers that offered a price transparency tool because, in part, just 10% of employees used the tool over a year, according to a 2016 study in the Journal of the American Medical Association. That wasn't enough to constrain healthcare costs. A 2017 American Journal of Managed Care report found similar results.
Still, the Trump administration and its allies remain optimistic that price transparency will eventually lower healthcare prices.
"Price transparency will help employers in designing better health benefit structures for their employees and will help patients in shopping for care," said Brian Blase, a consultant and former special assistant to the president for the National Economic Council under Trump. "It will also put downward pressure on prices and increase competition between providers."
But providers think that price transparency for negotiated rates could enable commercial insurers to conspire with each other to fix prices. They also say the information doesn't benefit consumers since much of the information doesn't address their out-of-pocket costs.
"Instead of helping patients know their out-of-pocket costs, it would have introduced widespread confusion," said Ashley Thompson, senior vice president of public policy analysis and development for the American Hospital Association
The CMS might have also underestimated the difficulty of implementing price transparency for negotiated rates, which is far more complicated than posting retail prices. There is an endless number of payer-specific rates that vary based on payer, year, plan and enrollee. Creating an "apples to apples" comparison for negotiated pricing becomes even more challenging when hospitals have negotiated different payment bundles with each payer, according to Joel McElvain, a partner at King & Spalding.
"Logistically, it would be a substantial challenge for hospitals to comply with the law," he said.
Hospitals would need a lot of time to figure out how to comply with any proposed rule on negotiated rates, according to McElvain.
The Trump administration shouldn't assume that the government can "magically make something happen," Hall said. Data privacy concerns and technical issues could complicate the initiative. It would be tough for the federal government to verify negotiated prices, even if hospitals can figure out how to provide them, he said.
"There are practical limitations with the implementation of this rule," said Lyndean Lenhoff Brick, CEO of the consulting firm Advis. "They're not prepared to address it ... right now."
But hospitals might be overstating the implementation problem. They consider negotiated rates trade secrets. Hospitals would likely figure out how to comply with a new transparency rule considering that they already use and share negotiated rates in other parts of their businesses.
The CMS submitted a separate rule on price transparency for negotiated rates to the U.S. Office of Management and Budget for approval last week. An updated rule should be coming next year.
"I think the administration is very serious about price transparency as both a policy goal and a political goal," Hall said. "I think they remain committed to being as ... aggressive on price transparency as they can be in 2020."