On November 1, 2023, CMS released its final rule for the 2024 Outpatient Prospective Payment System, which contained new pricing transparency requirements for hospitals. With these new rules CMS is signaling that it is serious about price transparency by increasing disclosure requirements, standardizing data formats to facilitate aggregation by third parties, and stepping up its oversight and enforcement efforts. While the industry had been slow to embrace the pricing transparency requirements since they went into effect in 2021, it is now clear that a strategy of avoidance will not remain viable for long.
Background
The requirement for hospital pricing transparency originated with an executive order signed by then-President Donald Trump in June 2019 and citing the Affordable Care Act as the source of its legislative authority. The first set of proposed rules from CMS was published in November of that year, with final rules taking effect January 1, 2021. These rules called for hospitals to make available on their websites two sets of pricing data. The first set was for 300 “shoppable services” designed to allow consumers to directly compare hospitals’ costs of services against one another. The second set pertained to machine-readable files (MRFs) containing comprehensive prices for all items and services provided by a hospital. These files are intended to facilitate downloading, aggregation, and dissemination by third parties.
The industry as a whole was slow to embrace the new requirement, and many took minimal or no steps to comply in 2020 for a variety of reasons:
- Hospitals had serious reservations about making their negotiated rates public.
- Many considered the requirement to be of questionable legality, and the American Hospital Association led an unsuccessful lawsuit to have it repealed.
- The COVID pandemic became the overwhelming priority for the industry throughout almost all of 2020.
- There was considerable uncertainty regarding who would be elected president in 2020 and whether Joe Biden, should he win, would make pricing transparency a priority.
- The penalties for noncompliance were relatively light at $300 per day ($109,500 per year).
Despite the industry’s hesitations, the Biden administration has demonstrated its resolve in ensuring that price transparency becomes a reality, first by significantly stepping up the penalties for noncompliance in 2022 and now by adding new requirements for the comprehensive files that appear to be designed to facilitate the aggregation and dissemination of this data.
Summary of New Rules
The CY 2024 rule contains quite a few new reporting requirements, several of which take effect on January 1.
- The first is that hospitals must make a good faith effort to meet CMS’s reporting requirements. It is unclear what this accomplishes, since actual compliance, and not just a good faith effort, is what regulators typically look for.
- CMS is also requiring hospitals to post certain information on their websites that will help users navigate to the pricing transparency information and provide the hospital’s point of contact information.
The more substantive requirements go into effect on July 1, 2024, and address the comprehensive MRF. They include the following:
Additional hospital information
MRFs will have to include information about the hospital being reported, such as its name and license number. At first this requirement may seem unnecessary because the user would presumably already know this information, having found it on the hospital’s website. However, including this information in the file itself will assist with data aggregation across large numbers of hospitals, which appears to be the intent.
Information on payment methodologies
Until now, CMS had only required hospitals to report their negotiated rates, expressed as dollar amounts, for items and services; CMS was not concerned with the methodology for determining those amounts. Beginning in July, hospitals will need to express this information as a percentage of charges or other algorithm as applicable, along with the historical amount paid for those services. In effect, this allows third parties to reconstruct a payer’s payment methodology.
Attestation
In addition to the price-related information, a hospital’s designated representative will need to provide an attestation that all the information contained in the MRF is complete and accurate to the best of their knowledge. CMS believes this will better enable it to enforce accountability and resolve any outstanding questions regarding the data being submitted.
Increased enforcement
Beginning in 2024, CMS will reserve the right to conduct comprehensive compliance review of a hospital’s standard charge information and to publish the results of that review, along with any compliance actions taken against the hospital and any notifications sent to health system leadership. This is in addition to the audits that CMS currently performs, which have increased significantly in number since the program was first implemented.
Cross-referencing to insurance price transparency data
Lastly, while not a part of the new rule per se, it is worth noting that the insurance transparency data provides CMS with an additional data source against which to validate the data published by the hospital. CMS could use this data to validate that a hospital’s data includes all plans for which it has negotiated rates, encompasses all items and services, and that the rates reported are accurate.
Implications for Hospitals
The most pressing and glaring implication for hospitals is that this requirement will involve a sizable effort to comply with—and noncompliance is no longer an option. Not only has CMS stepped up its efforts to identify violators, it has raised the stakes for being found out, which will include public disclosure of the individuals responsible. Clearly, this is not the way that most healthcare executives want to make the news.
A second implication is that the rates published by hospitals, coupled with the pricing information that health plans must now make available, will have a major impact on the way providers negotiate their contracts with payers. Overall, this is likely to produce further downward pressure on rates as consumers exercise their ability to identify and select lower-cost providers. Similarly, payers will have greater ability to see what their competitors are paying, and those who pay relatively high rates will push hard to reduce their rates to those of their competitors.
To manage these effects, providers will need to become much more sophisticated and strategic about how they price their services. It may no longer make sense to seek across-the-board rate increases; instead, hospitals will need to determine which services are commodities to be priced competitively and which ones are differentiated, allowing the hospital to command a premium price. And for the latter category, hospitals will need to be prepared to substantiate their position with hard data regarding quality and safety, outcomes, and the patient experience.
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Edited by: Matt Maslin
