The Hospital Price Transparency Rule Explained

At Healthcare Data Analytics, we’re committed to making sure the CMS’s hospital price transparency rule leads to actual price transparency in the US healthcare system. 

But in conversations with healthcare providers and others, we’ve discovered that even industry insiders aren’t clear on what the rule requires and how it differs from earlier iterations.

In this post, we’ll explain the hospital price transparency rule’s requirements, how those are different from what was in place prior to this year, and how the rule might impact the US healthcare industry.

Understanding the Hospital Price Transparency Rule

The hospital price transparency rule was initially introduced in 2012, as part of the Affordable Care Act (aka ACA or Obamacare). In that version, the law required hospitals to make public a list of “standard charges” of items and services they provided, but didn’t offer much further guidance.

In 2014, CMS “reminded” hospitals of the requirement, noting that they should…

  • Make their chargemaster data public; OR
  • Make price information in a different format public; OR
  • Establish a policy for how people could view those chargemaster prices, if they asked to see them.

In other words, the requirements remained vague and open to interpretation.

In 2019, with further guidance issued at the end of 2020, CMS published a final rule that clarified the initial ACA guidance and outlined much stricter transparency requirements for hospitals. Specifically, the final hospital price transparency rule requires that hospitals publish… 

  • Pricing information in both a machine-readable and a consumer-friendly format; AND

Five specific types of pricing information: chargemaster or gross charge data, actual negotiated rates with every payer the hospital has such rates with, de-identified lowest negotiated prices, de-identified highest negotiated prices, and cash discount price charged to those without insurance or who aren’t using insurance.

(See one example of how varied these rates can be.)

So what do these clarifications mean for hospitals and the healthcare industry? Let’s take a look.

How the New Rule Is Different

The guidance provided in the 2012 ACA was just that – guidance. It wasn’t very specific.

Of particular note is that phrase “standard charges”: after the finalization of the rule, hospitals protested in court that “standard charges” was a phrase that meant only chargemaster data and that CMS didn’t have the authority to broaden or change the definition to include the five specific types of standard charges listed above.

Importantly, the court disagreed. (You can read the full decision here).

Part of its reasoning was that 90 percent of Americans rely on third-party payers (including private insurers, Medicare, and Medicaid), and that prices for Medicare and Medicaid are already public. And while chargemaster rates are generally considered the “starting point” for negotiations between hospitals and insurers, those prices are usually much higher than what insurers actually pay.

After that ruling, industry groups initially planned to appeal, but as of now, it seems they’re more focused on sharing compliance resources and lobbying for weak enforcement.

So while the five types of pricing information the final hospital price transparency rule requires hospitals to publish will give consumers a much better idea of what they’re likely to pay for a service, those prices come with an asterisk.

Why? For two main reasons:

  1. When an insured patient receives a service, the amount they have already paid toward their deductible will impact how much they actually owe for a claim.
  2. By their nature, even “shoppable” services sometimes require unplanned additional services or procedures. For example, a patient may have an adverse reaction to medication used during the procedure, which would prompt the medical team to do additional work, which would translate to additional charges.

Despite all this, the new rule has the potential to usher in an entirely new era of price transparency in US healthcare. Let’s examine that a bit.

Potential Impacts on the US Healthcare Industry

The CMS’s stated goal in introducing this final rule is to give the public “the information necessary to make more informed decisions about their care.” 

Further, the CMS states that it believes “the impact of these final policies will help to increase market competition, and ultimately drive down the cost of healthcare services, making them more affordable for all patients.”

Also in the final rule, the CMS makes clear that, while it is not requiring hospitals to create any kind of price-comparison tool for patients, it is “encouraging innovation” by requiring hospitals to publish data in a machine-readable format so that third parties might more easily use that data to fuel such a tool.

The rule may have other potential impacts, as well:

  1. Prices could get incorporated into electronic health records (EHRs) so doctors could consider a facility’s pricing when making referrals.
  2. Employers could incentivize using more affordable providers as part of their health coverage.
  3. Hospitals could adjust pricing to be competitive with their peers (i.e., prices could go down across the board) or to charge as much as their more-expensive peers (i.e., prices could go up across the board). In a best-case scenario, this would spur innovations that drive efficiency and lower prices, thus improving the functionality of the entire healthcare system.
  4. Insurance companies could view prices that their competitors have negotiated with hospitals and use this information to drive down costs for both corporate customers and consumers.

A Significant First Step toward Transparency

The big takeaway here is that the final hospital price transparency rule marks a major shift in the US healthcare landscape. But as of now, we are only barely starting to feel its impact.

Today, around 30 percent of hospitals have not yet published either machine-readable or consumer-friendly pricing data. It’s unclear how aggressive CMS will be with enforcement. What’s more, the data that’s available can often be in a challenging format for most affected parties. 

At Healthcare Data Analytics, we’re aiming to push the US healthcare system toward greater price transparency by translating the raw data hospitals publish into a format that’s more usable by the invested parties: hospitals, employers, financial institutions, and others. We’re also optimistic that access to a cleaned, standardized version of pricing data will encourage developers to build the kind of consumer-facing price comparison tools the CMS mentions in its final rule.

If you’re interested in verifying whether your organization’s data is accurate, or if you would like us to share some insights relating to your data, your payers, or your market, let us know. We’re sharing these insights AND making access to a hospital’s owned data available for free. We can also provide details on how to view your competitors’ data.