Transparency Rule Should Be Improved To Better Benefit Consumers

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Posted by Alex Hendrie, Tom Hebert on Thursday, September 10th, 2020, 10:45 AM PERMALINK

The Trump Administration has pushed for healthcare transparency that benefits American patients and curbs the opacity of the health system.

To that end, the administration has proposed a rule on “Transparency in Coverage” that is designed to encourage healthcare insurers to be more transparent with patients regarding healthcare costs. 

While this push for healthcare transparency is laudable, components of this proposed rule could undermine efforts to lower healthcare costs for patients all across the country. Although transparency measures are often popular with the American people, it is important that they are not used to force businesses and individuals to give up sensitive information that does nothing to properly inform the public.

There are two central problems with this rule. First, the rule forces insurers to disclose negotiated rates to consumers, proprietary financial information that is integral to their business operations. This would do nothing to better inform consumers and could actually drive up costs by allowing third parties to leverage the proprietary information. Second, the rule mandates the creation of internet portals for consumer use, subjecting insurers to stringent government mandates and onerous regulations. A better approach would be to work with the private sector on increasing utilization of existing portals.

Overview of the Proposed Rule

In June 2019, President Trump issued Executive Order (EO) 13877 with the goal of empowering patients to choose the healthcare that is best for them. The EO directed several Departments to issue Advanced Notices of Proposed Rulemaking (ANPRM) to solicit comments from stakeholders on a proposal to require healthcare providers, health insurance issuers, and self-insured group health plans to provide patients with information about expected out-of-pocket costs before they receive care. 

In November, the Departments of Health and Human Services (HHS), Treasury, and Labor instead issued a Notice of Proposed Rulemaking (NPRM) on “Transparency in Coverage.” 

If implemented, the proposed rule would mandate commercial health plans to create an internet-based tool to supply patients with a cost estimate of their out-of-pocket expenses before they receive care from a provider. These internet portals would be subject to strict regulation by the Departments that issued the rule, and would likely impose hundreds of millions of dollars in regulatory costs on the healthcare system. 

The rule details seven elements that plans must disclose to healthcare consumers:

  1. Estimated cost-sharing liability: an estimate of the total out-of-pocket cost a patient is responsible for paying for a covered item or service under the terms of their healthcare plan or coverage.
     
  2. Accumulated amounts: the amount of financial responsibility the consumer has incurred up to the date of request for cost-sharing information.
     
  3. Negotiated rate: the contractually-agreed upon amount of money that providers accept as full payment for covered items or services.
     
  4. Out-of-network allowed amount: the maximum amount a provider would pay for an out-of-network item or service, including the consumer’s cost-sharing liability. 
     
  5. Items and services content list: for a service that is subject to a bundled payment arrangement, the issuer must display a list of covered items and services and the consumer’s cost-sharing liability for those services.
     
  6. Notice of prerequisite to coverage: if applicable, the issuer would indicate if a covered item or service is subject to a prerequisite for coverage, like concurrent review or prior authorization. 
     
  7. Disclosure notice: issuers must provide several disclosure notices, including ––
  • A statement indicating that consumers may be balance billed by out-of-network providers. 
  • A statement indicating that actual charges may be different than the cost-sharing estimate. 
  • A statement indicating other necessary disclaimers, like when the estimate expires or whether rebates or discounts impact prescription drug estimates.
     

While much of this information should be disclosed to consumers, a significant amount of it already is disclosed through existing tools developed by insurers. However, the disclosure of negotiated rates should not be disclosed as it forces businesses to release proprietary financial information that is of little use to patients but is akin to the intellectual property of insurers.

Disclosure of Negotiated Rates Is Meaningless to Consumers and Could Drive Up Costs for Patients and Families

Accessing negotiated rates is essentially meaningless for consumers because they do not reflect the out-of-pocket costs consumers pay. This requirement distracts from what is really important –– the direct cost to patients and overall quality of care. 

Deciphering negotiated rates would be difficult for even the most sophisticated healthcare consumer. Consumers would have to enter billing codes and other complex data into the government-mandated internet portals to access the negotiated rates that are useless to them in the first place. Patients and families have enough to deal with in trying times without having to decipher files that can only be read by machines. 

Instead of reducing costs, the proposed rule could have the opposite effect of driving healthcare costs up for consumers all across the country by forcing insurers to disclose negotiated rates for in-network services.

Negotiated rates are the proprietary financial information of the parties to the contract -- healthcare providers and insurers, so this proposed rule is akin to using government power to force companies to release their intellectual property to competitors. The biggest beneficiary of disclosing negotiated rates would be third parties and consultants, who could stand to receive a windfall using the proprietary financial information of healthcare plans to game the system and make profit.

This is not hypothetical -- in 2015, the Federal Trade Commission (FTC) looked at the impact that negotiated rate disclosure would have on patients and concluded that transparency can drive up prices. As the report notes:  

Too much transparency can harm competition in any industry, including health care. Typically, health care providers (hospitals, outpatient facilities, physician groups, or solo practitioners) compete against each other to be included on a health plan’s list of preferred providers. When networks are selective, providers are more likely to bid aggressively, offering lower prices to ensure their inclusion in the network. But when providers know who the other bidders are and what they have bid in the past, they may bid less aggressively, leading to higher overall prices.

Transparency in private markets isn’t just a problem that affects healthcare. In the 1990s, the Danish government forced manufacturers of ready-mix concrete to disclose their negotiated rates to consumers. The result? Concrete prices rose 15 to 20 percent. As companies realized what other bidders were charging for their product, they colluded to raise prices.

Ultimately, disclosure of negotiated rates undermines the ability of insurers and providers to deliver the best quality care to consumers at the lowest possible price. When negotiated rates are disclosed, the absence of selective networks discourages vigorous competition.

If the impetus for competition is gone, negotiated rate disclosure could even create a perverse incentive for collusion, which would drive up prices for patients. Any transparency proposal should not force disclosure of negotiated rates.

Internet-based tools fail to drive down costs 

The second issue with the proposed rule is that it forces insurers to create new internet portals subject to stringent government mandates and regulations. While consumers should be able to view data in a readily available way, insurers have already created similar internet portals, so this mandate is unnecessary and could force the creation of duplicative portals. 

In addition, this mandate could centralize control within the federal government and impose hundreds of millions of dollars in additional regulatory costs on the private sector.

If the administration wants to give consumers access to data, agencies could partner with the private sector to increase utilization of already created tools. However, private stakeholders should have the flexibility to design these tools free of government mandates.

Existing tools have done little to directly reduce healthcare costs for consumers, as noted by several studies. For instance, a 2016 JAMA study shows no correlation between online price transparency tools and reduced consumer healthcare spending. The study focused on two large U.S. employers representative of multiple market areas that offered employees an internet-based transparency tool. 

After adjusting for demographic effects and health characteristics, being offered the tool was associated with a $59 increase in mean out-of-pocket spending for patients. The study also found that employees were largely uninterested in using the tool, with only 10 percent using it at least once. 

A recent report from the Massachusetts Attorney General’s office backs up the JAMA study. The report advises policymakers to “temper expectations that consumer-driven health care price transparency tools will reduce overall health care cost growth.” The report also found that consumers use these tools relatively infrequently, and that consumers generally do not seek to hold plans to the estimates they receive. 

Clearly, the problem with online pricing tools is that they are not widely used, not whether they are widely available. Policymakers should focus on expanding utilization of price disclosure tools rather than creating new, duplicative government portals.

Conclusion

The Trump Administration’s focus on putting patients first is admirable. On the surface, encouraging more transparency in healthcare is a commonsense way to lower prices for patients. 

However, two concerning parts of the proposal could drive up healthcare costs for patients and impose massive burdens on insurers.  

Forcing insurers to disclose negotiated rates would make public proprietary information that is meaningless to patients, but very meaningful to consultants who could see significant financial benefit from being able to game the system.

In addition, stringent government requirements mandating creation of internet-based tools would place onerous burdens on insurers. Resources could be better spent ensuring that utilization of existing tools increase. 

While the intent of the proposed rule is laudable, changes should be made to the rule before proceeding with implementation. Moving forward, the administration should ensure transparency measures are targeted toward helping patients and reducing costs. 

Photo Credit: American Life League

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