How Will Price and Quality Transparency Impact Stakeholders and the Healthcare Landscape?

Much discussion has occurred over the years about the need for price and quality transparency in healthcare. That discussion is now becoming reality with the passage of the Healthcare Price Transparency Rule and the related Transparency in Coverage Final Rule.

Rather than focus on the technical aspects of this legislation, this blog will primarily focus on the following:

• The importance of having quality and safety scores incorporated alongside of pricing in any rating system of providers
• The impact of transparency on the healthcare stakeholders
• How price and quality transparency will further evolve to impact the healthcare landscape

Before we explore the current and future impact of transparency in healthcare, we need to do a little refresher on why we need healthcare transparency.

Why Do We Need Enhanced Price Transparency in Healthcare?

A lack of transparency in healthcare negatively impacts both employers and consumers.

As noted in the Catalyst for Payment Reform Blog, “Studies of health care costs reaffirm the following adage time and again: it’s prices, not utilization driving about 2/3 of health care cost inflation.”

Also, as stated in an article in Modern Healthcare, “In healthcare, 'everyone’s flying blind,' said Francois de Brantes, vice president and director of the Center for Payment Innovation at the not-for-profit Altarum Institute. Without transparency, consumers cannot shop for healthcare and physicians cannot make cost-conscious decisions. 'If you do not know the price of the service that you are buying before you buy it and you do not have the ability to compare that to others and determine the value of that purchase, then how is that a functional market? It is completely dysfunctional,' he said.”

Finally, as noted in one of my prior blogs on healthcare transparency, “From a public policy perspective, price transparency is a key stepping-stone for achieving our societal goal of better healthcare value. You cannot have competitive healthcare markets without user-friendly price transparency. Price transparency is also a core criterion for competition that would enhance value (cost efficiencies, increased quality, and better service) in healthcare. Examples of user-friendly price transparency linked to shopping has positively impacted value in every other sector outside of healthcare.”

But What Is the Healthcare Price Transparency Rule & the Transparency in Coverage Final Rule?

On January 1, 2021, the Healthcare Price Transparency Rule became law under the statutory authority of the Patient Protection and Affordable Care Act (ACA).

As noted in Forbes, “The federal government has enacted a series of regulations to make price data available broadly to companies that may be interested in building comparison services as well as directly to consumers. The first step in the long journey of transforming the healthcare system to give consumers more power began in January 2021. The Centers for Medicare and Medicaid Services (CMS) implemented new hospital transparency rules that require hospitals to make available clear, accessible pricing information online about the items and services they provide through a comprehensive machine-readable file and provide a consumer-friendly format of 300 shoppable services.”

As part of the same initiative, the Center for Medicare and Medicaid Services (CMS) issued the Transparency in Coverage Final Rule that set forth requirements for group health plans and health insurance issuers in the individual and group markets. The rules require the following:

• July 1, 2022, machine readable file with pricing (Note: This information is in a form that would not directly help consumers or employers)
• Jan 1, 2023, 500 shoppable services need to be posted (requirement for Health Insurance companies for their fully insured business and self-insured employers or their Third-party Administrators/rental network). Both the provider charge/cost and the member liability must be displayed effective January 1, 2023.
• Jan 1, 2024, all services need to be posted

The Transparency in Coverage Final Rule, issued by the Centers for Medicare and Medicaid Services (CMS), requires health insurers (for insured business) and self-insured employers or their third-party administrators/rental networks to disclose pricing for covered services and items. Insurers and self-insured employers/third-party administrators/rental networks must include the rates they have negotiated with participating providers for all covered services and items, as well as the allowed and billed amounts for out-of-network providers. Allowed amounts are the maximum rates insurers will pay for a given service and billed amounts are what providers have charged.

Is It Important to Link Quality/Safety Ratings With Provider Pricing Information?

It is important to provide a linkage between disclosed provider pricing and quality/safety scores by reputable third parties. Unlike the sectors outside of healthcare, many consumers perceive that if provider services are lower priced, it must mean that quality is also lower and conversely if prices are higher, then quality must all be higher.

Most studies have shown that there is no correlation between higher prices and quality in healthcare. High prices are a function of leverage in negotiations in healthcare between the provider (e.g. hospital) and the payer (e.g. commercial carrier).

We are all aware of the multiple organizations that attempt to grade and report on quality such as the U.S. News and World Report, but all of them have flaws. For example, the U.S. News and World Report quality ratings for hospitals does not include safety ratings (such as hospital-caused infections) as are provided by the Center for Medicare and Medicaid (CMS).

Factoring in CMS’s safety ratings are especially critical since they focus on preventable hospital-caused harms (HACRP).

As noted by Leah Binder, President & CEO of The Leapfrog Group in a Forbes article: “Most employers have no idea whether they get value for the money they spend on health benefits. Employers rarely see data on the performance of health care providers, such as rates of infections or outcomes.”

An ideal ranking system accurately informs patients about quality and safety which will in turn incent providers to improve both.

Challenges and Opportunities for the Healthcare Stakeholders Because of Enhanced Transparency

Large hospital systems

Challenges

• Many of the larger commercial insurance companies have been publishing provider pricing for selective services on their websites for years. In most cases, because of their higher fixed costs and increased leverage in payer negotiations in the marketplace, hospital pricing is usually significantly higher than their non-hospital competitors.
• Health systems are likely to cite outcomes quality data or clinical severity of caseloads to justify higher prices. But this argument will only go so far with employers and consumers if the hospital pricing is significantly higher than their competitors especially in the commodity-driven-outpatient and care-in-the-home-setting arenas.
• Because of their much lower pricing Ambulatory Surgery Centers (ASCs) represent a competitive threat to large hospital systems in the outpatient arena. In most cases, ASCs are a safe and cost-effective setting for providing healthcare services. It is important that pricing and quality scores related to services being provided in this setting are made public to consumers and employers. This transparency will result in a much more competitive marketplace. Given its value equation, CMS and private payers should have a bias toward allowing services to be provided in the ASC setting unless there is hard, objective evidence of safety concerns.

Opportunities

• Having access to pricing data from payers will provide hospitals the opportunity to analyze data from competitors to determine their position in the marketplace relates to pricing for services. In an era of increased transparency by employers and consumers, strategically minded hospital systems should look at this data to identify value propositions so to increase market share especially with regards to direct contracting with employers and direct-to-consumer advertising.
• While large teaching hospitals may be at a competitive disadvantage over disruptive competitors (local, regional, and national) in the fast-growing outpatient and care-in-the-home setting arenas, there may also be an opportunity to collaborate with third parties to find ways to provide more competitive pricing (make vs. buy).
• Large teaching hospitals do have a potential competitive advantage in a risk/value-based world, especially related to a capitated environment. The combination of large teaching hospitals’ resources, intellectual capital, and technology allows them to be in position to be proactive in keeping people healthy, which would make them a winner in this environment. This is why I have previously stated in blogs that the big systems need to embrace risk as well as collaborative relationships with payers in other ways (premium sharing, etc.).
• Health systems can also explore preferred relationships with certain payers which could result in a more limited provider network that does not include competitors.

Health insurance companies

Challenges

• Health insurance companies with favorable contracts with providers could face increased demands for higher reimbursement in future negotiations.
• Incumbent health insurance carriers who lack the needed flexibility to meet the needs of their employer customer will face increased competition from disruptive innovative competitors in all forms in the self-insured marketplace. As a result of enhanced transparency, disruptive competitors can design value-based networks and then set up incentives for patients to seek out the more cost-effective sites.
• Disruptive competitors, because of enhanced price and quality transparency, may effectively utilize reference pricing to better serve their employer customers at the expense of the less flexible incumbent insurance company.

Opportunities

• The largest providers in the marketplace historically have the greatest leverage to negotiate the highest reimbursement from payers. As a result of increased transparency, employers and consumers will now know which providers have the highest reimbursement. Payers will now be in a better position to negotiate more favorable reimbursement terms with these high-cost providers.
• Health insurance companies with the right strategic mindset can evolve their historic cookie cutter model of serving employers to one effectively utilizing enhanced transparency and other employer friendly tools to better serve their customers.

Physician group practices

• As a result of enhanced price and quality transparency, physicians can see the cost of the services, especially referred services, that are provided to their patients. Physicians can then play an increased advocacy role for their patients to ensure that any referral factors in both price and quality. If the physician practice is in a capitative relationship with a payer, knowing the actual price and quality of referred services becomes even more important as it impacts the profitability of such a contractual relationship.
• Historically, hospital-based physicians and the services they provide are reimbursed at a much higher rate than independent providers. As a result of transparency, independent physician practices will then be much more financially attractive to self-insured employers as well as consumers.
• Direct Primary Care physicians and physician practices can utilize this enhanced transparency as a tool to refer patients to value-based providers. This value-based referral focus will enhance the value of Direct Primary Care physicians.
• Hospital price transparency may also invite new market entries by providers with efficient cost structures, such as ambulatory surgical centers, and other types of outpatient providers as well as care in the home setting market entrants. New entrants can promote both price and quality advantages to employers, consumers, and payers in a competition with incumbent local providers.

Self-insured employers

• Self-insured plans are technically liable for the compliance of their plan but can contract with their Third-Party Administrator (TPA) or rental network to offer the transparency pricing tool.
• Knowing providers' pricing information, self-insured employers can develop value-based benefit designs and create incentives to steer patients away from high-price providers and navigate them to lower-price, high-quality alternatives.
• A key driver of escalating employer healthcare costs are high-end procedures. Centers of Excellence (COE) are an effective way to both address the excessive costs of these procedures but, more importantly, provide a quality outcome. Enhanced price and quality transparency will position self-insured employers to better identify the appropriate COE for their employees.
• Enhanced transparency will provide valuable information to self-insured employers who are interested in direct contracting with providers (cutting out the middleman) in their community for all services or specific services relating to their employee population.
• Prior to any employee engagement initiative based on enhanced transparency, employers need to establish an ongoing communication process with their employees to allow them to better understand the importance of addressing escalating healthcare costs (impact on profitability, wages, future employment, etc.). Employees need to understand that they have a personal stake along with their employer in finding ways to address this mutual problem.
• Employers then need to find ways to educate employees on the power they have as active purchasers of healthcare services to positively impact healthcare costs. This is where data and enhanced transparency becomes important, and those employers who are self-insured are in a better position to access that data. Data can be utilized in diverse ways, but the easiest would be to focus on common services utilized by their employees and the difference in pricing between providers in their community.

Consumers/employees

• Historically, consumers/employees, when available, have not utilized transparency tools and information relating to provider pricing. This is because most traditional benefit designs limit consumers financial liability to fix co-payments for physician services, limited co-insurance for hospital services as well as annual deductible limits. This issue becomes even more challenging to employers if their employees utilize physicians that are part of high-cost health system that usually refer patients within their own system.
• Some employers are using financial incentives to drive utilization to preferred providers. Hard cash is the best incentive, especially when employees are reaching the deductible limit.
• Consumers with high-deductible health plans (HDHPs), which have a significant upfront deductible that applies to all services, are very price-sensitive and may be avid users of new transparency tools.
• Employers need to have open, honest, and ongoing communication with employees related to the mutual benefit for both parties in proactively utilizing value-based providers (see discussion under self-insured employers).

Consultants (brokers, vendors, etc.)

• Enhanced transparency will provide increased business opportunities for consultants, brokers and vendors who service the self-insured employer market. While this is a business opportunity for these stakeholders it is critical for their long-term success to establish a relationship with the employer that is based on trust and value.
• Third parties can utilize machine-readable files to help employers to better understand their costs.
• Technology companies will differentiate themselves by how they provide user-friendly actionable price, quality, and safety information to employers and consumers.
• An enhanced utilization of patient navigators by employers and payers will help facilitate the transition to value-based providers of care.

Medical Device/Pharma

• A result of enhanced price and quality transparency will be a ripple effect along the healthcare supply chain. Healthcare sectors such as medical device, pharma-biotech, etc. will have increased focus on value-based prices, quality, and safety.
• Medical Device/Pharma organizations can potential capitalize on this transparent world by establishing strategic relationships with providers and payers.

Future World With Enhance Transparency

As noted in an article in Forbes.com, “To put this in context, imagine the year 2000 when the internet was starting to hit an early stride. Companies like DealTime, PriceGrabber and NexTag developed some of the top-visited comparison-shopping websites by enabling consumers to get price comparisons across a number of different e-commerce sites. This was convenient, free and easy for consumers. Today, Expedia, eBay, Amazon, and Walmart all provide ways to see prices from multiple sellers, including reviews on the quality of the product and seller. This transparent market approach is what leads to better efficiency and value of any ecosystem.”

I am not naïve to think that enhanced price and quality transparency will have an immediate impact on our high-cost healthcare landscape. This will be a long journey, but as noted previously in this blog, without price and quality transparency we cannot have competitive markets in healthcare. Competition in markets outside of healthcare has been a catalyst for increased value for employers and consumers, and eventually this will also happen in the healthcare sector.

Conclusion:

Incumbent healthcare stakeholders will attempt to protect their market share and insulate themselves from disruptive competitors. Government must stay committed to transparency and must continue to follow through on their enforcement initiatives relating to the transparency laws. States are now also getting into the fray. For example, Colorado now prohibits hospitals from collecting patients’ medical debts if their websites do not post healthcare prices, as required by federal law.

Instead of resisting, incumbent providers and payers should embrace this new world of price and quality transparency. Incumbent providers and payers have the resources, name recognition, and intellectual power to capitalize on transparency to provide better value in the marketplace.

Tom Campanella is the Healthcare Executive in Residence at Baldwin Wallace University. Backed by more than 35 years of experience in the industry—particularly the health insurance, physician and hospital sectors—he’s focused on strategic advising and community outreach. Follow Tom’s articles on LinkedIn for his latest weekly coverage of the healthcare industry.

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Baldwin Wallace University Can Assist Employers and Their Employees in the Following Areas:

• Organizational in-house leadership programs
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