A few years ago, you probably heard about Trump’s executive order on healthcare. On June 24, 2019, President Trump issued a highly anticipated and much talked about executive order on health pricing transparency. The overall goal of the price transparency executive order is to help consumers make better decisions about their healthcare by ensuring that they’re more informed about prices and quality.
The largest thrust of the price transparency executive order is to make transparent the secret prices that hospitals and insurance companies negotiate behind closed doors. Currently, there are 3 general buckets of pricing:
- The Chargemaster Rate: a.k.a. The sticker rate. The rate that is published for services provided and the rate charged to those who are uninsured. This is almost always the highest rate for any given service (and averages over 3x the negotiated rate and over 4x the government rate). Hospitals set these rates at their discretion, but are also required to post them on their website (though it can be a nightmare to try to find it).
- The CMS (Center for Medicare and Medicaid Services) Rate: rates that the US government has determined for medicare and medicaid reimbursement. While hospitals aren’t required to accept Medicare or Medicaid patients, the vast majority of them do – and accept these rates as payment. These rates vary by region but are fully published on the CMS website.
- Insurance Negotiated Rates: the reimbursement rate that a health insurance company negotiates with a hospital. These are generally 2-5x the medicare rates and because they’re all negotiated behind closed doors vary widely by hospital and insurance company.
- As you can see, insurance negotiated rates are the only bucket for which there isn’t price transparency – which this order attempts to rectify.
Note: price transparency and the ability to actually use those prices are two very different things. Even though you have access to Chargemaster and Medicare rates – it’s extraordinarily difficult to make use of that information currently. That’s because both of these are enormous spreadsheets with hundreds of thousands of lines of complicated billing codes that you would need a degree in medical coding to really comprehend.
What the Price Transparency Executive Order Does and Timeline for Enactment
Trump’s Presidential order on healthcare attempts to create pricing transparency for the currently opaque bucket of healthcare pricing. It does so by creating a general mandate that insurance companies and hospitals disclose rates for “shoppable services” “in an easy to understand, consumer friendly, and machine-readable format” (Section 3 of the order here). Shoppable services are common services offered by multiple healthcare providers in a given market which patients can research and compare before making a decision.
The mandate for “easy to understand, consumer friendly, and machine-readable format” is an attempt to avoid the current situation with Chargemaster rates where providers comply with the letter of the law by posting their rates, but do so in an obtuse fashion that makes it very difficult for consumers to find and for anyone to get much use out of.
Astute (and highly informed – since this is nuanced and complicated) readers will have picked up on the fact that not all healthcare rates qualify as “shoppable” and thus fall under the provisions of this price transparency executive order. Services like Emergency Care and treatment for complex and esoteric conditions (where few providers can actually provide adequate treatment) are not shoppable – which means that there is the potential for their negotiating pricing to be excluded from the final requirements.
This would essentially split the currently opaque bucket into 2 separate buckets (creating 4 total buckets) – “Shoppable” insurance negotiated rates that are publicly disclosed and “Non-Shoppable” insurance negotiated rates that remain opaque.
It’s hard to get an estimate on what percent of healthcare spend will actually end up as “shoppable” (and thus in the publicly disclosed bucket) after the new pricing transparency laws go into effect. A Health Care Cost Institute publication estimated that only 43% of healthcare spend is shoppable, though one of the criteria for shoppability is that “sufficient data about the price and quality of service must be available” – a hole that the price transparency executive order aims to correct. While it’s difficult to estimate how much this will grow, it’s likely there’s ample opportunity as some data analysis of the healthcare cost institute 2017 spending report suggests that only 7-10% of all healthcare spend is on ER services – which would imply that up to 90% of healthcare spend is shoppable.
Whether the number is closer to 40% or 90%, this still has the potential to drastically improve current pricing transparency (or lack thereof).
It’s also important to note that this healthcare price transparency executive order doesn’t actually create the regulations themselves, rather it imposes a timeline upon the Secretary of Health and Human Services to create regulation proposals.
This means that over the next 2-6 months the Department of HHS will issue proposals for regulation, which will have their own timeline for implementation. Given the standard rate at which the government moves (glacially), it could take years before we see many of the intended actions in the bill come into effect and be enforced.
Other Effects of the Healthcare Price Transparency Executive Order
While the majority of the order is focused on hospital price transparency. There are actually multiple thrusts. This includes items intended to improve patient understanding of out of pocket costs, creating metrics surrounding healthcare provider quality, encouraging Americans to use Health Savings Accounts, and better analysis of surprise medical bills.
Rather than dig into each of these individually, we’ll limit the scope of this blog post to pricing transparency – though the intent and direction of all of these other items is positive for the healthcare consumer.
How This Will Affect Healthcare Pricing
While many people believe that this order will improve patients’ ability to make healthcare decisions and lead to lower prices across the board, this order isn’t without critics.
Support For Healthcare Price Transparency
Many healthcare industry advocates have praised the price transparency executive order as a strong step in the right direction (a compilation of statements can be found here).
They generally argue that price transparency is necessary for free market forces to take effect and lower prices across the board. Furthermore, this healthcare price transparency will better allow patients to shop for healthcare by comparing price and quality and ultimately make a value judgement – why pay for a $3,000 X-ray when they can go down the street and pay $250 for the same thing?
Additionally – making prices known will allow insurance companies to see when their competitors have received a better deal from hospitals – and fight to receive that same deal. This will create downward pressure on pricing across the board – ultimately saving consumers money as their healthcare premiums decrease.
Opposition to Healthcare Pricing Transparency
Trade groups for hospitals and the insurance industry tend to be the most vocal opponents of the order – arguing that the transparency will backfire and result in raising (rather than lowering) prices across the board. The American Hospital Association issued a statement arguing that price transparency could “undermine the competitive forces of private market dynamics and result in increased prices. Additionally, Matt Eyles, CEO of America’s Health Insurance Plans issued a separate statement arguing that this will “reduce competition and push prices higher”.
The general argument is that releasing these rates will allow hospitals to see the rates that other hospitals have been able to negotiate – and push for other, higher, rates where they perceive theirs as below market. Essentially this would create a constantly rising rate floor that would push rates up for everyone. The FTC has argued that this is exactly what will happen should the Presidential Order get carried out in full.
Another way to put this is that there’s a significant amount of evidence that healthcare consumers don’t actually make use of additional pricing information (partly because its presented in a very confusing way in what is already an incredibly complex industry), but competing healthcare providers trying to maximize their profits will use this information to their fullest advantage.
Furthermore – the trend in healthcare is for hospitals to create local market monopolies – that is buy up all the doctors and hospitals in the area under one company. This allows hospitals to then raise rates and negotiate harder with insurance companies. When one local market monopoly sees better rates that another local market monopoly was able to procure – they will demand those same rates. And consumers already overwhelmed with the Byzantinian nature of the healthcare system, will struggle to make use of the information to demand lower rates.
Resolve’s Opinion About Healthcare Pricing Transparency
While healthcare pricing transparency as a whole is a good thing – we have significant worries about how this will affect pricing given the current state of the healthcare system.
As mentioned above, hospitals with local area monopolies will be able to use this information to push their prices up. With no alternative in the area, insurance companies will be forced to comply or risk that hospital going out-of-network and losing all of their customers in that area (As a patient – would you ever choose an insurance company where every hospital and doctor in your area was out of network?).
While insurance companies will also use this information to fight back – they will be doing so in a competitive market. If Anthem healthcare fights pricing too hard, the hospital will just drop them and work with United.
There are two ways to counteract this:
- a) have the government step in and break up these local area monopolies, or
- b) create a way to inject patients more firmly into the equation in order to create downward pressure on pricing. Both of these are far easier said than done.
Government actions can happen and monopolies have been broken up before – but it’s never wise to depend on government action in order for something to occur – as the winds of politics can just as easily blow in the opposite direction.
On the consumer side, to date – efforts to drive cost-consciousness of patients have struggled. Afterall, when you or a loved one is going through chemo and all of the emotional drain that it entails, costs aren’t always the first thing on your mind.
That being said – there have been some recent success cases driving shoppability – most notable with the state of Kentucky. If innovators can continue to create ways to present information to patients in a way that is actionable – and provide the right incentives to drive action – we’ll be able to see lower provider costs.
Furthermore – this type of healthcare pricing transparency will only improve our individual efforts to secure fair healthcare prices for all of our patients. We currently use a mixture of charge/cost ratios and medicare reimbursable prices from the government, as well as scrubbed claims data publicly available to identify, negotiate, and secure fair rates for our patients. Having access to insurance reimbursement rates across the board will only help in our efforts as it provides additional data points for us to use during medical bill negotiations.
Have questions about this or how it affects you and your medical bills? Contact us at Resolve to speak to one of our experts.
Braden founded Resolve after experiencing first hand how unfair the system is for patients. Prior to Resolve, he built and ran Operations for a renewable energy company and then built and ran Product, Growth, and Operations for a VC-funded edtech company. He received his MBA from Dartmouth’s Tuck School of Business and BA in Philosophy from the College of William and Mary. When not trying to lower healthcare costs he can be found outdoors mountain biking, skiing, or hiking with his dog.