Healthcare Upside/Down: No More Carrots

By Nick van Terheyden aka Dr Nick, Principal, ECG Management Consulting
Twitter: @drnic1
Host of Healthcare Upside Down – #HCupsidedown

When the Hospital Price Transparency rule went into effect on January 1, 2021, it seemed like the culmination of a bitter battle. On one side were CMS, transparency advocates, and proponents of health reform; on the other, hospitals, health systems, and industry trade groups such as the AHA. The rule was designed to let patients know the cost of an item or service before receiving it, requiring hospitals to “provide clear, accessible pricing information online” in a “comprehensive, machine-readable file” with “shoppable services in a consumer-friendly format.”

Although opponents of the rule fought until the final days of 2020 to prevent its implementation, it went into effect anyway.

But victory hasn’t exactly been sweet for supporters of the rule. One year after it went into effect, hospital pricing transparency remains elusive. Most hospitals have either ignored the mandate or complied as minimally as possible, burying pricing information on their websites or posting it without the requisite detail. Because fines for noncompliance are low, many hospitals are content to take a small financial hit if it means they can keep their pricing information away from consumers’ eyes.

“I think we had two hospitals [out of 10 large health systems] that were compliant on day one,” says Christin (Chris) Deacon, who today is the senior vice president for 4C Health Solutions but at the time was deputy attorney general in New Jersey, where she ran one of the largest health plans in the country. “We have the transparency tools and regulations. We just have to use them. More sticks, less carrots.”

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On this episode Chris talks about her experience with noncompliant hospitals in New Jersey, the need to reward value, and the role employers and labor unions can play in effecting change. Here are three takeaways from our conversation.

Noncompliance in New Jersey…and everywhere else.

On the day the pricing transparency rule went into effect in 2021, Chris was ready to begin analyzing the files that hospitals were supposed to upload. A few days later, it became apparent that the data would not be forthcoming. In New Jersey, few hospitals were complying with the rule—a pattern repeated across the country.

“I attempted through our contract to mandate that the carrier require that the hospitals post transparency [information],” she explains. “But there were some political forces at play that picked up the phone and said, ‘Christin, what are you doing? We don’t really want to rattle anybody here. It’s a very complex regulation.’ And I’m thinking to myself, they know what prices they’re charging, because they’re charging our plan, so how difficult must it be to put it on a file to read?” she says.

Part of the problem is that penalties for noncompliance are so low that hospitals have little incentive to bow to the rule. The fine for noncompliant hospitals in 2021 was $300 a day; starting in 2022, that will balloon to $5,500 a day for larger hospitals—a cool $2 million for a full year of noncompliance.

But will it make a difference?

“New York Presbyterian in 2019 was sitting on an $8 billion reserve,” Chris points out. “$2 million is less than a rounding error. And if it preserves their business model, I don’t see that type of enforcement having much value.”

Carrots, sticks, and value-based care.

Chris sees pricing transparency as a starting point for managing costs in healthcare. The better we understand the true cost of care, the closer we can get to creating value. “How do you find value if you don’t know what your baseline cost is?” she asks. And with healthcare spending in the US accounting for about 18% of GDP in 2020, clarity on pricing is essential. “If we are ever going to change that [GDP] number, somebody will be taking home a smaller paycheck,” Chris says.

Of course, nobody likes the idea of making less money. But as Chris says, “we have to recognize that there will be losers in this game, whether that’s the pharmacy benefit managers, the third-party administrators, or some of the hospital systems that largely profit from a nonprofit status. Something has to give.”

Chris does see a path toward value in healthcare, and stricter enforcement of regulations intended to promote value will help. “We have to make doing the right thing a lot more attractive to our provider community,” she says. “We’re giving out a lot of participation prizes when it comes to moving to value-based payments. But we’re not really hammering home the fact that there has to be a downside. We can’t keep handing out more carrots—we have to have some bigger sticks.”

Employers and labor unions driving change.

While better enforcement can be effective, Chris points out that legislators aren’t the only ones with sticks to wield. “The solution in healthcare is not going to come from Washington,” she says. “I think the solution in healthcare, at least the catalyst for change and moving us along that value chain, is the large employer market.”

Nearly every large employer in the US offers health benefits, and premiums are constantly escalating. “Employers are footing the bill and passing it on to employees in terms of premium forgone wages,” Chris says.

Employers, labor unions, and employees should insist their money be spent wisely. But how tightly are employers managing their healthcare expenditures? “By and large, employers are responsible for managing this vast amount of money, and they’ve basically outsourced that responsibility to their third-party administrator or to their pharmacy benefit manager,” Chris explains, trusting those entities to do what’s in the employer’s best interest.

“I think it’s time to put ourselves back in the driver’s seat, take some ownership and responsibility of the management of that health spend.”

About the Show
The US spends more on healthcare per capita than any other country on the planet. So why don’t we have superior outcomes? Why haven’t the principles of capitalism prevailed? And why do American consumers have so much trouble accessing and paying for healthcare? Dive into these and other issues on Healthcare Upside/Down with ECG principal Dr. Nick van Terheyden and guest panelists as they discuss the upsides and downsides of healthcare in the US, and how to make the system work for everyone.

This article was originally published on the ECG Management Consulting blog and is republished here with permission.