On October 29, 2020, the Centers for Medicare & Medicaid Services (CMS) released the Transparency in Coverage final rule.1 This long-anticipated final rule stems from President Donald Trump’s June 2019 executive order on “Improving Price and Quality Transparency”2 and builds upon the hospital Outpatient Prospective Payment System (OPPS) price transparency requirements released in November 2019.3 These requirements came under fire in a lawsuit filed by the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), Children’s Hospital Association (CHA), and Federation of American Hospitals (FAH), against the Department of Health and Human Services (HHS); the requirements were upheld by the courts in June 2020 and the lawsuit is being appealed by the plaintiffs.4 Perhaps emboldened by this win, HHS and CMS have now passed a new final rule focusing on transparency for private health insurers, which includes ways for beneficiaries to estimate their out-of-pocket expenses and “shop” for services.5
This newly-announced final rule makes several changes and steps toward price transparency. Beginning January 1, 2021, group and individual health plans and insurers must disclose cost-sharing information for covered items and services from providers as requested by beneficiaries.6 This information is to be available online and in paper form and should allow beneficiaries to estimate their own out-of-pocket expenses.7 The final rule requires the disclosure of negotiated rates, historically allowed amounts for out-of-network providers, and drug prices.8 The goal of this final rule is to create better-informed consumers who could then shop for services more efficiently and is meant to slow the rise of healthcare spending.9
CMS’s reasoning in requiring transparency stems from the Rational Actor Theory, which posits that rational consumers will choose, among a number of options, that option which maximizes their utility, based upon “extensive information, a coherent preference ordering, and a commitment to the principles of self-interest...”10 For most consumer products and services in the U.S., the buyer (consumer) of those products and services is aware of the actual price, which allows them to competently assess their options and make an educated decision. However, the U.S. healthcare system does not operate under these principles because prices for healthcare services and cost-sharing information are not typically known to the consumer (i.e., the patient). The consequences of this information asymmetry are numerous. First, patients often pay more out of pocket when they are not provided with price information sufficient to comparison shop.11 In fact, many studies have cited secrecy around pricing as a primary reason for increasing healthcare costs.12 Second, information asymmetry leads patients to accept medical care that is often unnecessary and to not seek the care that is necessary; this cycle of uninformed patients demanding unnecessary treatments due to a lack of information consequently leads to market failure.13 Ways to correct this market failure could include increasing healthcare choice and competition as well as remedying the opaque nature of pricing in healthcare, which could subsequently enhance competition as consumers are able to make more educated pricing decisions.
Research has found that informing patients as to the price structure of their healthcare services could allow more patients to knowledgeably shop for their medical expenditures, which may subsequently drive down prices, foster high-value care, lower costs, and increase competition in the healthcare marketplace.14 The hypothesis that price transparency may lead to positive market outcomes is substantiated by a study of New Hampshire’s price transparency efforts, which found not only that patients who utilized the state’s website comparison tool to compare medical imaging procedure prices paid less out of pocket, but also that the price transparency led to lower prices for all patients (even those who did not utilize the website).15 This New Hampshire case study is corroborated by economic analysis which indicates that if healthcare consumers have pricing information, providers face pressure to lower prices or provide better quality healthcare.16
It is important to note that not all studies show a consensus about the benefits of price transparency,17 and many also point to low price tool utilization rates as an issue facing this movement toward transparency.18 This shows the importance of education regarding these tools as well as the need to ensure that they are user-friendly and freely available. A 2009 study in California further found that the price transparency rules in that state were not sufficient for comparison shopping if one did not have insurance, indicating a need for additional price transparency legislation to enable consumers to be fully informed of their options.19 Accordingly, some have claimed that the CMS price transparency final rule will not actually benefit consumers. Matt Eyles, President and CEO of America’s Health Insurance Plans (AHIP), cited the high number of commercial health insurers who already offer price transparency tools to the more than one-third of Americans that they serve.20 He also says that disclosing rates that are privately negotiated by insurers will reduce incentives to offer low rates, creating a quasi-price-floor for prices that providers will accept.21 Eyles cites Federal Trade Commission (FTC) guidance that “too much transparency can harm competition in any market, including in health care markets.”22 The FTC has similarly warned legislators that, while increased access to information can spur competition and counter information asymmetries, as discussed above, disclosing information such as “prices, costs, output, and contract terms” may result in coordination or collusion among competitors.23 This information could also reduce providers’ incentives to negotiate discounts and lead to less aggressive bidding for contracts.24
Whether this final rule makes healthcare pricing more accessible, fosters competition, and lowers prices (as CMS and others claim), or reduces incentives for competitive negotiations from providers (as critics claim), has yet to be seen. The final rule goes into effect on January 1, 2021, but many of its provisions, such as a detailed pricing using historical payment information and an initial list of 500 “shoppable” services will not be required to be made available until later years (in 2022 and 2023).25 As more states and insurers implement their own price transparency rules and legislation, this coverage transparency rule will serve as a federal benchmark that builds off of CMS’s existing OPPS price transparency final rule. Implementing additional measures on a federal level may also allow for more research to be conducted on the true effects of price transparency in different areas. The positive or negative effects on healthcare costs and competition as a consequence of this final rule will inform future policy as many push for greater transparency and look for solutions to intervene on continually rising healthcare costs.
“Transparency in Coverage” Centers for Medicaid & Medicare Services, October 30, 2020, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/CMS-Transparency-in-Coverage-9915F.pdf (Accessed 11/3/20).
“Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First” The White House, June 24, 2019, https://www.whitehouse.gov/presidential-actions/executive-order-improving-price-quality-transparency-american-healthcare-put-patients-first/ (Accessed 11/3/20).
“Medicare Program: Changes to Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; etc.” Federal Register Vol. 84, No. 218 (November 12, 2019), p. 61142-61146
American Hospital Association, et al. v. Alex M. Azar II, Secretary of Health & Human Services, (D.D.C. December 4, 2019), available at: https://www.aha.org/system/files/media/file/2019/12/hospital-groups-lawsuit-over-illegal-rule-mandating-public-disclosure-individually-negotiated-rates-12-4-19.pdf%20.pdf (Accessed 11/3/20), p. 1-9; Court Upholds CMS' Hospital Price Transparency Final Rule” By John Commins, HealthLeaders Media, June 24, 2020, https://www.healthleadersmedia.com/strategy/court-upholds-cms-hospital-price-transparency-final-rule (Accessed 11/3/20).
Centers for Medicaid & Medicare Services, October 30, 2020, p. 2
“21st century political science: A reference handbook” By John T. Ishiyama & Marijke Breuning, Thousand Oaks, CA: SAGE Publications, Inc., 2011, p. 7.
Finding that when patients are provided the right comparison tools and information on how to use them to offset mistakes they will make superior healthcare spending choices. “Price Transparency: Not a Panacea for High Health Care Costs” By Kevin G. Volpp, Journal of the American Medical Association, Vol. 315, Issue 17 (May 2016), p. 1842-1847.
“The Disruptive Innovation of Price Transparency in Health Care” By Uwe Reinhardt, Journal of the American Medical Association, Vol. 310, No. 18 (November 13, 2013), p. 1927
As applied to the used car market, the authors define market failure as occurring when “bad cars drive out the good because they sell at the same price as good cars...the bad cars sell at the same price as good cars since it is impossible for a buyer to tell the difference...only the seller knows.” “When Healthcare is a “Lemon”: Asymmetric Information and Market Failure” By David W. Johnson, March 3, 2015, 4sightHealth, https://www.4sighthealth.com/when-healthcare-is-a-lemon-asymmetric-information-and-market-failure/ (Accessed 11/3/20) (finding that George Akerlof’s “lemon” theory applies to healthcare markets due to a lack of information on the part of patients and health insurance companies (i.e., adverse selection)). For more information on the “lemon” theory, refer to: “The Market for “Lemons”: Quality Uncertainty and the Market Mechanism” By George Akerlof, The Quarterly Journal of Economics, Vol. 84, No. 3 (August 1970), available at: https://www.jstor.org/stable/1879431?seq=1 (Accessed 11/3/20).
Centers for Medicare & Medicaid Services, November 15, 2019; “Price Transparency For MRIs Increased Use Of Less Costly Providers And Triggered Provider Competition” By Sze-jung Wu, Gosia Sylwestrzak, Christiane Shah, and Andrea DeVries, Health Affairs, Vol. 22, No. 8 (2014), p. 1394-1395; “Association Between Availability of Health Service Prices and Payments for These Services” By Christopher Whaley, Jennifer Schneider Chafen, Sophie Pinkard, Gabriella Kellerman, Dena Bravata, Robert Kocher, and Neeraj Sood, Journal of the American Medical Association, Vol. 312, No. 16 (October 2014), p. 1670.
“An Empirical Model of Price Transparency and Markups in Health Care” Zach Y. Brown, August 2019, http://www-personal.umich.edu/~zachb/zbrown_empirical_model_price_transparency.pdf (Accessed 11/3/20), p. 2-4.
“Shopping For Price in Healthcare” By Paul B. Ginsburg, Health Affairs, Vol. 26, No. 2 (February 6, 2007), https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.26.2.w208 (Accessed 11/3/20), p. w209.
“Association Between Availability of a Price Transparency Tool and Outpatient Spending” By Sunita Desai, Laura A. Hatfield, Andrew L. Hicks, Michael E. Chernew, and Ateev Mehrotra, Journal of the American Medical Association, Vol. 315, No. 17 (May 3, 2016), p. 1874.
Journal of the American Medical Association, Vol. 315, No. 17 (May 3, 2016), p. 1874; “Examining A Health Care Price Transparency Tool: Who Uses It, And How They Shop For Care” By Anna D. Sinaiko and Meredith B. Rosenthal, Health Affairs, Vol. 35, No. 4 (2016), p. 665, 668; “Americans Support Price Shopping For Health Care, But Few Actually Seek Out Price Information” By Ateev Mehrotra, Katie M. Dean, Anna D. Sinaiko, and Neeraj Sood, Health Affairs, Vol. 36, No. 8 (August 2017), p. 1394-1397.
“Does Price Transparency Legislation Allow the Uninsured to Shop for Care?” By Kate Stockwell Farrell, Leonard J. Finocchio, Amal N. Trivedi, and Ateev Mehrotra, Journal of General Internal Medicine, Vol. 25, No. 2 (November 21, 2009), p. 110.
“Public Disclosure of Privately Negotiated Rates Will Lead to Less Affordable Health Care for Americans” America’s Health Insurance Plans, October 29, 2020, https://www.ahip.org/public-disclosure-of-privately-negotiated-rates-will-lead-to-less-affordable-health-care-for-americans/ (Accessed 11/3/20).
“Price transparency or TMI?” By Tara Isa Koslov and Elizabeth Jex, Federal Trade Commission, July 2, 2015, https://www.ftc.gov/news-events/blogs/competition-matters/2015/07/price-transparency-or-tmi (Accessed 11/3/20).
“Re: Amendments to the Minnesota Government Data Practices Act Regarding Health Care Contract Data” By Marina Lao, Deborah L. Feinstein, and Francine Lafontaine, Letter to Joe Hoppe and Melissa Hortman of the Minnesota House of Representatives, June 29, 2015, https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-regarding-amendments-minnesota-government-data-practices-act-regarding-health-care/150702minnhealthcare.pdf (Accessed 11/3/20) p. 4-6.
“Transparency in Coverage Final Rule Fact Sheet (CMS-9915-F)” Centers for Medicare and Medicaid Services, October 29, 2020, https://www.cms.gov/newsroom/fact-sheets/transparency-coverage-final-rule-fact-sheet-cms-9915-f (Accessed 11/3/20).