Only 22% of hospitals were found to be compliant with a new price transparency rule that went into effect on January 1st of this year.

As anyone who has ever tried to price-comparison shop for medical care can attest, medical billing information can be extremely difficult to access and otherwise frustratingly opaque. It is not uncommon for a consumer to be entirely rebuffed by hospital staff when attempting to obtain advanced pricing quotes for contemplated procedures, and when such information can be obtained, it is usually only after considerable time and persistent effort.

In order to make this arena more equitable for consumers and in the hope of curbing the rising cost of healthcare, Centers for Medicaid and Medicare Services (CMS) issued the new rule in November of 2019 expanding on the categories of price information that hospitals were already required to publicly disclose under the ACA.

“Price transparency puts patients in control and supports competition on the basis of cost and quality, which can rein in the high cost of care," Seema Verma, CMS Administrator, said in a statement about the new regulation last October. "CMS’ action represents perhaps the most consequential healthcare reform in the last several decades.”

Health Affairs, a peer reviewed journal with a focus on policy and analysis, conducted a review of the publicly available pricing information from a sample of 100 hospitals in order to analyze their level of compliance with the new regulatory requirements. The authors of the study found that, while interpreting the results most generously in favor of the hospitals, only 22 of them were in full compliance, while 65 were determined to be unambiguously noncompliant.

“We are troubled by the finding that 65 of the nation’s 100 largest hospitals are clearly noncompliant with this regulation. These hospitals are industry leaders and may be setting the industrywide standard for (non)compliance; moreover, our assessment strategy was purposefully conservative, and our estimate of 65 percent noncompliance is almost certainly an underestimate,” the authors of the Health Affairs study concluded.

In a departure from CMS’s prior guidance, which only required the gross rates reflected in the hospital’s chargemaster to be made publicly available, the new rule requires hospitals to additionally publish cash discount rates, negotiated rates specific to each third-party payer, e.g., insurers, and the minimum and maximum rates for each item or service that a hospital has negotiated with third-party payers more generally.

For decades hospitals have been increasingly incentivized to inflate the total gross prices reflected in their chargemaster lists as a means to negotiate higher payments from their in-network insurance providers. These gross rates rarely reflect the actual, end-of-day cost for consumers who, even in the case of the uninsured, will often benefit from “cash discounts” in lieu of being billed for the full gross chargemaster rate.

The new rule received significant pushback from the American Hospital Association (AHA) which, among a consortium of various other hospital associations and medical providers, lost on appeal of a district court decision against their legal challenges to the rule. The challenges raised by the plaintiffs varied in merit, but one prominent issue raised by the AHA is their concern that due to the complexity of medical billing information, further transparency as prescribed by the rule would “confuse and frustrate” consumers, and potentially cause more delay and avoidance of necessary care, which may result in poorer health outcomes and lead to higher healthcare costs over time rather than reducing them.

However, this assertion is belied by the prevailing view of economists that price transparency and otherwise empowering consumers to take cost more into consideration while shopping for services, leads to increased price competition for services and depresses or controls healthcare costs over time.

For instance, areas of medical care in which consumers have historically not qualified for health insurance, thereby leaving consumers more directly responsible for their medical bills, such as medically unnecessary elective procedures, have observed much more modest price inflation relative to the overall healthcare market.

Although, among such heavily regulated industries, there is always substantial uncertainty regarding potential unintended consequences of any new regulation. Affected companies often find compensatory ways to neutralize or even capitalize on a new rule in a way that is contrary to its intended purpose. Until further compliance can be achieved, how more price transparency may ultimately effect or reshape the healthcare landscape remains open to conjecture.