Hospitals may be forced to disclose discount rates negotiated with insurers

Hospitals would have to disclose the discounted prices they negotiate with insurance companies under a Trump administration rule that could upend the $1 trillion hospital industry by revealing rates long guarded as trade secrets.

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Hospitals that fail to share the discounted prices in an online form could be fined up to $300 a day, according to a rule proposed in the Federal Register. The price-disclosure requirements would cover all the more than 6,000 hospitals that accept Medicare.

Comments on the proposal would be due in September and, if completed, the rule would take effect in January.

Hospitals would have to disclose the rates for services and treatment that they have negotiated with individual insurance companies such as Aetna Inc., Cigna Corp. and Anthem Inc. under the proposal released Monday. The Trump administration is also working on initiatives that could compel insurers to disclose their rates, part of a push to publicize costs that is likely to spur lawsuits and sharp resistance from the industry.

The initiative represents the Trump administration’s growing effort to shift away from rolling back the Affordable Care Act rollback and put its own stamp on health care instead. Central to that strategy is the notion that more price transparency will inject greater competition into the market and lower costs.

“It’s very significant. It’s a turning point in health care and a turning point to the free market in health care,” Seema Verma, administrator of the Centers for Medicare and Medicaid Services, said in an interview. “It hasn’t been a competitive free-market system.”

The initiative contrasts sharply with proposals by some leading Democratic presidential contenders who say Medicare for All will drive down costs by lowering administrative overhead, curbing spending and leveraging the federal government’s negotiating clout to drive down prices.

Industry groups have argued that mandatory price disclosure could push up costs if hospitals see competitors are getting higher payments and demand the same. They say the federal government is overstepping its statutory authority and interfering in private contracts between insurers and hospitals. The contracts are generally bound by confidentiality agreements.

Tom Nickels, executive vice president of the American Hospital Association, has said consumers care more about their expected out-of-pocket costs.

“Disclosing negotiated rates between insurers and hospitals could undermine the choices available in the private market,” he told the Journal in March, when the White House was considering initiatives on price disclosure. “While we support transparency, this approach misses the mark.”

The proposed rule is estimated to cost hospitals around $6 million. It would affect hospitals as well as their subsidiaries, including outpatient health clinics.

Hospitals must already post their list prices for services. The administration’s proposal would expand that requirement to include gross charges before discounts as well as the insurer-specific negotiated charges for all items and services. The charges would have to be linked to the name of the insurer.

The data would have to be displayed in a machine-readable format so it could be processed by a computer, and listed by common billing or accounting codes to create a framework for comparing standard charges among hospitals.

The proposal would also require hospitals to disclose insurer-specific negotiated charges for about 300 services consumers are likely to shop for before obtaining care, such as X-rays, outpatient visits, lab tests or childbirth. That price data would have to be made public in a prominent location online or in written form on request.

The rule, if finalized, would reveal how widely costs vary in the U.S. for care. A magnetic-resonance image of the lower back costs $141 at an imaging center in Jefferson, La., but runs $47,646 at a hospital in Torrance, Calif., according to data from Clear Health Costs, a New York company that publishes information about health-care costs.

Prices vary so greatly in part because of the prearranged discounts with insurers. Patients may pay the actual list charge if they are uninsured or have high-deductible health plans, which are becoming more common as employers move to such plans. About 40% of large employers offer only high-deductible plans, according to a 2018 survey by the National Business Group on Health.

“I would hope this drive on transparency would unify the left and right,” Health and Human Services Secretary Alex Azar said in an interview. “The opponents here are the proponents of the status quo who will attack us.”

Technology companies will use the information to make it available for consumers and patients, he said. “Just imagine having that information out there, how powerful it will be,” he said. Employers could also consider negotiated-cost information when selecting health plans.

The White House is also looking into ways to connect information on the negotiated rates with data on hospital quality, allowing consumers to compare prices as well as possible treatment outcomes.

The proposal follows President Trump’s executive order in June that called for the release of more health-cost information for consumers and employers, actions the White House has said could empower patients to price-shop for care.

Industry groups have already mobilized to fight any such requirement, which would likely change the dynamics of the health market. They have said consumers typically aren’t well-inclined to shop for health-care services, even when they face significant costs under high-deductible health plans.

Data on the effect of increasing price transparency in health care shows mixed results. In some cases, consumers equate higher cost with higher quality and can be attracted to higher-priced treatments and services. Other studies show that only a fraction of people who have price data actually use the information to shop around for care. Many are already shielded from the full costs because insurance covers the bulk of their treatments.

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But proponents say obscured prices means there is no truly functional, economically competitive health-care market. Transparency, they say, will introduce competition that can drive down costs, and linking it to quality data may improve accountability.

The proposal wouldn’t affect hospitals run by Veterans Affairs, Indian Health Services and Defense Department military treatment centers.