We are delighted to announce that HealthScape Advisors has joined Chartis, one of the nation's leading healthcare advisory firms.  Read the press release.

In June 2019, the Trump administration issued an Executive Order (EO) that directed the U.S. Department of Health and Human Services (HHS) to propose regulations that enhance the ability for patients to shop for healthcare services. As directed by the EO, the Centers for Medicare and Medicaid Services (CMS) issued two rules that have taken significant steps to increase price transparency and heighten competition amongst providers and health plans:

  1. Hospital Price Transparency Final Rule (“Price Rule”)Effective January 1, 2021, the rule requires hospitals to disclose negotiated rates for a  minimum of 300 shoppable services (i.e., services that patients can comparison shop before receiving treatment). 70 of these shoppable services are mandated by CMS. All hospitals will be required to publish their discounted charges, standard charges, and plan-negotiated rates on their respective websites.
  2. Transparency in Coverage Final Rule (“Coverage Rule”) Effective January 1, 2022, the coverage rule requires employer health plans and insurance companies to post in-network and out-of-network rates they negotiate with providers, including those for prescription drug coverage. It also requires plans to develop online price transparency tools to give patients cost-sharing information prior to service. An initial list of 500 shoppable services must be available through internet-based self-service tools for plan years that begin on or after January 1, 2023. The remainder of all items and services will be required for these self-service tools for plan years that begin on or after January 1, 2024. In efforts to encourage insurers to motivate consumers towards lower-cost, higher-value providers, the rule allows plans to take credit for shared-savings passed on to members in their MLR ratios starting in 2020.

Despite continued lobbying efforts by the American Hospital Association (AHA) and hospital groups, the EO appears to be moving forward as the Trump administration has not delayed the January 2021 Price Rule implementation. Similarly, while health plan groups such as America’s Health Insurance Plans (AHIP) and the Blue Cross Blue Shield Association (BCBSA) have expressed their intentions to appeal the Coverage Rule, we believe these rules are likely to be implemented and as a result, should be considered in strategic planning.

Although the direct impact of price transparency is still relatively unknown, we believe the EO will cause a considerable shift in the negotiating advantages that any health plan or hospital system has held in contract negotiations over competitors for many years. We advise our clients to closely assess their key relationships and strategize potential risks and opportunities (e.g., where will pressure and increased scrutiny originate? can I quantify the revenue / medical costs that may be at risk as a result of updated negotiations? are my rates defensible?). The historical relationships between plans and providers are bound to be altered.

Price Rule: What it Means For You

We believe the key impacts of the Price Rule on health plans could be the following:

  1. Normalization of Negotiation Leverage Given the visibility into competitors’ contractually negotiated prices, plans and providers should ensure they are prepared for the near-term and long-term downstream implications of price transparency. On certain commodity services where there is a limited perceived quality gap, more price information could mean greater competition. In response to the Price Rule, we advise that plans perform proactive analytics to identify key data points that will be imperative to substantiate their negotiated rates and quality of care metrics during potentially difficult conversations with providers. We suggest compiling current and future rate information for key hospital partners by facility for the 70 standard CPT codes. After normalizing the rates (e.g., % of Medicare FFS) for comparison purposes across services, it will be critical to develop a repeatable framework that can easily incorporate the additional 230 “shoppable” services and broken down by segment (e.g., members, claims) and service splits (e.g., inpatient, outpatient). Lastly, this analytically driven approach will enable the ability to accurately quantify the impact of the cost differential between providers and prepare plans for the inevitable call from providers for rate negotiations.
  2. Shift to Value – The release of privately negotiated rates will immediately cause prices to be challenged by disadvantaged providers and health plans. The disclosure of plan-provider negotiated rates could potentially undermine competitive negotiations and create a price ceiling, not a price floor. The increased transparency could also neither raise, nor lower prices overall, but instead level out costs. If the FFS rates reach a point of normalization, then a sustainable economic model will require plans and providers to differentiate on value rather than FFS. Hence, providers may be more willing to enter value-based arrangements as their comfort and confidence in plans increases as they better understand inherent prices and can spend more time focused on the quality of care and be prepared to assume downside risk. CMS believes that hospitals assuming downside financial risk under value-based care models is the key to lowering healthcare costs and improving quality. Thus, plans should continue pushing for a shift to value-based arrangements and bundled contracts to navigate direct reimbursement comparison.
  3. Attention on Quality Major hospital systems will have the resources to compare rates offered to competitors and attempt to ‘cherry-pick’ the best prices with plans. Because the rulings do not indicate the required release of quality metrics, it will be imperative for health plans to substantiate their negotiated rates with a clear evaluation of the relative quality of provider partners. We advise leveraging internal data sources based on risk-sharing or value-based care programs already in place, or using external data summarizing publicly available hospital scoring metrics. Given that this comparison will begin in January, health plans need to begin analysis immediately.
Coverage Rule: What it Means For You

In addition to preparing for the Price Rule, we also advise that our clients proactively prepare themselves to be well-equipped for the Coverage Rule. Studies have shown that in spite of their best efforts, current price transparency tools are not highly utilized by members, even by those with high deductibles. It remains to be seen whether the new CMS ruling will significantly alter uptake, but unless vendors and plans alter their engagement models, we don’t expect a seismic shift. However, like the Price Rule, the Coverage Rule will make more information readily available in the market for providers and competitor health plans to understand contracted FFS rates. Ultimately, it will allow for another data point to accelerate the shift to fee-for-value.

From our perspective, the three primary impacts of the Coverage Rule include the following:

  1. Race to Conform Plans have essentially three options to support the operational requirements of the rule: 1) build capabilities internally; 2) leverage existing vendors and transparency tools; or 3) bring in an entirely new vended solution. We advise plans to begin the evaluation of their existing development pipeline and/or price transparency vendors (current or prospective) to determine whether they have the capabilities and capacity to create an effective partnership. We expect plans seeking outsourced solutions to accelerate efforts to engage with vendors to begin rule implementation planning. Acting sooner rather than later will ensure that internal resources or external vendors are not capped for supporting efforts. Furthermore, like the Price Rule, plans will have the ability to perform advanced analytics on publicly available databases of negotiated in-network and out-of-network rates, allowing for increased transparency into their competitive position relative to other health plans. Plans that have strong internal actuarial and analytic capabilities will have a competitive advantage relative to their peers when it comes time to ingest, analyze and report findings. As part of either seeking a vended or internally built solution, plans should consider the extra layer of complexity that arises when making prices transparent for members who are seeking in-network care, but utilizing providers outside of their home states (e.g., use of the BlueCard program).
  2. Expensive Implementation Burden Plans without an existing price transparency tool for their members will require a great deal of heavy lifting to build the capability. In fact, Bates White found that the implementation costs of complying with the Coverage Rule will be 26 times higher than the administration estimates ($14M compared to $500K). Also, health plans will need to build the operational processes and analytics given the new option of sharing savings with consumers.
  3. Increased Buying Power Consumers will be able to compare out-of-pocket costs more easily across health plans and choose plans/products accordingly. It will be important for plans to cater their price transparency tools based on member-specific plan benefits (e.g., cost sharing and deductibles). The ability for a plan to develop a unique tool that provides a meaningful benefit to its members with accurate estimates and potential quality metrics in reports could be a differentiator in the market, particularly if there is a strong link to a plan’s value based network and providers. As stated previously, however, this will largely depend on consumer adoption and ease-of-use.

The tangible impact of the CMS’ rulings on plans, providers and consumer behavior remains relatively vague. The EO continues to draw sharp criticism for reasons such as the potential for price shifting and increased member confusion through the complexity of price shopping.

However, even with the industry criticism that we highlighted in our 2019 Executive Brief, we continue to believe that the EO creates the opportunity for plans and providers to accelerate the shift away from fee-for-service pricing.  The latest regulations will enable industry players to see clear discrepancies in prices paid for the same procedure across hospitals and geographies with no visible difference in quality. The organizations that are best prepared with defensible explanations for any variances in prices will be best positioned for the upcoming landscape, while others could be under vast pressure to alter historically negotiated rates. Health plans and providers should be ready to adapt to the new environment and be prepared to capitalize on new and unique opportunities to focus on value-based care payment models.


Also published on LinkedIn, here.