In accordance with President Biden’s Competition Executive Order, the Centers for Medicare and Medicaid Services (CMS) has proposed actions to ensure Americans have access to healthcare price transparency, a step in the direction to solve the cost problem with healthcare in the United States.
A recently enacted hospital price transparency mandate now requires hospitals to make public their pricing for specific procedures by insurance companies. Hospitals are also required to post the self-pay prices that apply when insurance is not used.
This law allows patients to have costs available for common services and procedures like baby deliveries, appendectomies, etc. Lack of compliance results in a fine to the facility of approximately $109,000 per year. The Biden Administration has not imposed any fines as of yet, but hospitals have been warned. Although the new law is not currently enforced, some hospitals are beginning to post prices.
Same Hospital with Different Network Discounts
Based on the data submitted to date, there is tremendous evidence of the comprehensive price transparency among allowed amounts (or discounted rates) between hospitals for the same exact procedure. This disparity even occurs among hospitals within the same payer network.
Even if you are at the same hospital with the same insurance carrier, the price varies significantly. For example, a hospital in Wisconsin posted MRI allowed amounts for United Healthcare, and the PPO allowed amount is almost 400% higher than the HMO permitted amount also with UHC.
Variations in hospital billing are also found within the same insurance networks. The disparities are over 200% when looking at the fees among the same insurance company but different facilities.
Why All the Price Variance Among Hospitals for the Same Procedure?
Contracts between hospitals and insurance companies are negotiated at a total contract value, not per specific service. Therefore, hospitals are not negotiating, for example, an allowed charge of $1,800 for an MRI. Instead, they negotiate the total amount that the insurance carrier will pay for the entire year. Patient volume by type of service (i.e., cardiology, cancer, maternity, ER, orthopedics, etc.) is modeled to develop the annual fees by insurance companies.
Hospital revenue comprises 40% commercial insurance, 40% Medicare, 10% self-pay, and 10% Medicaid. BlueCross and United are the largest commercial players in the country.
As an example, Hospital A’s annual revenue is $5 million per year. This hospital will look for $2 million from the insurance companies as an annual payment. The hospitals will back into the specific allowed amounts by procedure to total the annual fee, with the sum of the carriers adding up to roughly 40% of their revenue. There is no consideration for consistency in fees by specific service. It’s all about getting to the total annual contract price.
Contributing significantly to the healthcare trend, the annual payment from the carriers to the hospitals includes an annual inflation increase, and contracts are usually negotiated every five years.
Consumers Demanded Lower Costs
Patients with copay plan designs have historically been protected from exorbitant hospital prices and disparity. However, about 35% of U.S. employer healthcare plan members are enrolled in High Deductible Health Plans today. Because patients now pay a much larger share of hospital costs, consumers have demanded a solution to the massive prices, often with no rhyme or reason for the charges.
Consumers have spoken to their local congressmen, hence the implementation of the hospital price transparency mandate. We can only hope that this new mandate will impact the hospital/payer contracting process, resulting in more equity and lower prices.
At Totem, we’re committed to distributing the status quo. This is especially true when new legislation impacts the healthcare and benefits industry. It’s crucial to understand new mandates, how they affect both you and your employees, and how to best communicate those changes and impacts. If you’re looking for a partner to navigate this space, contact us today.