Background

In 2021, CMS began enforcing a federal price transparency rule that requires hospitals to virtually post "a machine-readable file … that includes all standard charges (including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges) for all hospital items and services."

Under the rule, hospitals are also required to publicly post "discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges for at least 300 'shoppable' services."

Since then, CMS has added requirements to the price transparency regulations. Beginning Jan. 1, 2024, hospitals were required to link price transparency data at the bottom of their homepages.

Hospitals will also have to standardize pricing files and add new fields, such as service descriptions, to their pricing data by July. And by 2025, they are required to include several new metrics, including the average amount they receive from payers for certain services.

According to a CMS spokesperson, these changes will make the agency's enforcement actions more transparent and efficient, increase hospital compliance, and boost patients' access to prices. The agency has also released an updated online validator tool that hospitals can use to test their machine-readable files against the new format and data requirements that will go into effect between July 1, 2024, and Jan. 1, 2025.

Hospitals increase compliance with price transparency rules

In 2022, CMS increased the maximum yearly fine for not complying with price transparency requirements from $110,000 to over $2 million a year. The agency also reduced the amount of time hospitals had to correct their pricing data issues and accelerated the overall enforcement process.

According to healthcare attorneys, the higher fines, along with increased enforcement, have pushed many hospitals to comply with price transparency requirements. Currently, around 75% of hospitals have posted their negotiated prices from commercial insurers — a three-fold increase from 2021.

"When CMS upped the penalties significantly, it seems a lot of chatter of hospitals opting out went away," said Katrina Pagonis, a healthcare attorney who specializes in regulatory issues at the law firm Hooper, Lundy & Bookman.

So far, CMS has sent more than 1,000 warning notices to hospitals, but only 14 have received fines ranging from $56,940 to $979,000. According to a CMS spokesperson, hospitals have avoided more than 99% of potential fines by completing corrective action plans.

"Some hospitals have taken comfort in the fact that only 14 hospitals have been hit with civil monetary penalties, and understanding they only come after multiple bites of the apple," said Michelle Garvey Brennfleck, a healthcare attorney at the law firm Buchanan Ingersoll & Rooney. "Hospitals have appreciated the information CMS has put out in webinars and their tech support. There's certainly a desire from hospital boards to stay out of the news."

How will price transparency requirements impact healthcare costs?

Currently, opinions are split on whether price transparency will meaningfully reduce spending in the healthcare industry.

Hospitals say that price transparency offers a one-dimensional focus on prices without considering patients' proximity to hospitals, cost-sharing amounts, or quality scores. Instead of lowering prices, hospitals claim that transparency requirements could lead to higher costs if some hospitals adjust their prices to meet the market average.

However, researchers, lawmakers, employers, and data analysts say that price transparency data is the foundation of a long-term process that will help patients find the most affordable and effective providers.

Cheryl DeMars, president and CEO of The Alliance, an employer coalition in Wisconsin, noted that even if all hospitals publicly post their prices, price transparency is just the first of many steps to reduce healthcare spending.

"Transparency is a necessary but insufficient step on its own," DeMars said. "We have a laundry list of policy priorities, including getting rid of anticompetitive contract terms."

Federal lawmakers are currently working on legislation to increase oversight and compliance with price transparency rules. In December, the House passed the Lower Costs, More Transparency Act, which aims to codify and improve existing price transparency rules by increasing the maximum fine for noncompliant hospitals to $10 million a year. The Senate introduced a similar bill in January called the Health Care Price Transparency Act 2.0.

Many states are also working on their own price transparency regulations. According to the National Academy for State Health Policy, at least 26 states have either passed or are considering passing price transparency laws.

Although price transparency has not yet made much of an impact on hospital spending, this will change, according to Morgan Henderson, principal data scientist at The Hilltop Institute at the University of Maryland, Baltimore County. Over time, price transparency should lead to less price variation, and prices will be more reflective of a treatment's cost, he said.

"I am optimistic we will get there," Henderson said. (Kacik, Modern Healthcare, 4/4; AHA News, 3/28)

The federal government finalized several key regulations that encourage greater data-sharing across the healthcare industry.  Advisory Board convened a panel of industry experts to discuss these price transparency rules, and the strategic implications each will have for health plans. Read on to get the key cross-industry takeaways.