Fines kicking in after slow start to hospital transparency rule

Fewer than 6% of hospitals obeyed the price transparency rule during the early months of implementation, a new study shows.

Of the 5,239 hospitals studied, 13.9% had a machine-readable file but not a consumer-friendly display, 29.4% had a consumer-friendly display but no machine-readable file and only 5.7% had both, according to research published Tuesday in the Journal of the American Medical Association.

Hospitals in unconcentrated healthcare markets were more likely to comply with the rule compared with their counterparts in highly consolidated markets, the findings from July through September of last year show.

“Advocates of transparency have a fight on their hands, and those who want to keep their prices secret are highly motivated to do so,” Katherine Hempstead, a senior policy adviser at the nonprofit research group Robert Wood Johnson Foundation, said in an email, noting there are low consequences for hospitals that ignore the regulations or only partially comply.

“It is too bad that so far the public is not benefiting as intended from these hospital transparency regulations, but I do think those entities who may think they are winning this battle will ultimately lose the war,” she said. “Time is not on their side.”

Hospitals were required as of Jan. 1, 2021 to post machine-readable, consumer-friendly files of the rates they negotiate with payers, gross charges and discounted cash prices for 300 “shoppable services.” The Centers for Medicare and Medicaid Services threatened a maximum yearly fine of more than $2 million for larger hospitals that don’t comply and almost $110,000 for noncompliant hospitals with fewer than 30 beds.

But many large health systems would rather pay the fine rather than gather and publish the data, healthcare lawyers said.

“Larger systems have said the fines for noncompliance are pretty low and the possible impact on competitive harm could be much more significant,” said Fred Geilfuss, a partner and healthcare lawyer at Foley & Lardner. “The sensitivity to what managed care contracts say and what hospitals would potentially have to give up in negotiations is an issue that is completely unknown.”

Regulators pledged to increase the penalties and have sent hospitals warning letters and corrective action mandates, but the fines just started.

CMS imposed its first fines Wednesday, the agency said in an email. It penalized two hospitals, after neither submitted a corrective action plan.

CMS fined Northside Hospital in Atlanta, Georgia, $883,180, and Northside Hospital Cherokee in Canton, Georgia, $214,320. They reported $2.52 billion and $579 million, respectively, in net patient revenue in 2021, according to Medicare cost report data. The hospitals did not immediately respond to a request to comment.

As of early June, CMS had issued 352 warning notices to hospitals and 157 corrective action plan requests, the agency said in an email. More than 170 hospitals have received case closure notices, meaning issues have been resolved.

Meanwhile, some states have implemented laws. Colorado, for instance, has banned hospitals from using debt collection agencies if they don’t follow the price transparency law. Texas implemented a law last year that layers state-administered fines on top of the federal penalties.

“You could increase the penalties, and they don’t have to just be financial, they could be tied to accreditation or bonus payments,” said Michael Lutz, a senior consultant at Avalere Health. “But I am not a fan of that approach because I think we should be building relationships rather than penalizing stakeholders. I am skeptical a lot of behavior is going to change until consumers have access to appropriate and detailed-enough tools and use them.”

Over the last several months, an increasing number of hospitals have posted more of their data online, even if it doesn’t satisfy the law, said Kelly Arduino, healthcare leader at the accounting and consulting firm Wipfli.

“States are being more threatening around penalties, and I think that is what is going to move the needle,” she said.

Many hospitals still hope the law will go away, said Eric Hargan, former deputy secretary of Health and Human Services and company advisor for Amino Health, which offers price transparency software.

“But, with the majority of hospitals not complying, the penalties and fines may continue to be increased by the department until hospitals can’t afford to simply not comply anymore,” he said in an email.

The researchers compared the size, revenue, market concentration, ownership and service lines across hospitals to better determine which hospitals are complying and which are not. Hospitals with relatively lower revenue per patient-day, in markets with a lower hospital concentration, and those in urban areas, were more likely to be transparent, they found.

“It would make sense that urban hospitals are more likely to comply because they likely have more IT capacity,” said Morgan Henderson, principal data scientist at the Hilltop Institute at the University of Maryland. “Perhaps a hospital with a lot of market share doesn’t feel the need to comply because there are fewer competitors.”

Regulators and health policy experts believe that once third parties aggregate pricing data across all U.S. hospitals, consumers will force high-priced providers to adjust. But there is some skepticism in the current iteration of the law that the data will be valuable to consumers.

“This (law) is not currently a particularly good way of accomplishing that (consumerism) aim,” Henderson said. “Consumer cost-sharing varies based on what plan they have, and this price transparency data doesn’t touch on that at all.”

Hospital executives are concerned about the administrative work required to set up the database, their rivals undercutting them on publicly disclosed prices and the legal ramifications if a patient bill doesn’t match the data. Low compliance levels have illustrated that some hospitals don’t have a grasp of their rates and reimbursement structure, industry observers said.

“Part of the hope is that the employers and payers designing coverage networks get more insight into why their spending is high,” said Lovisa Gustafsson, vice president of the Commonwealth Fund’s controlling healthcare costs program. “Employers and payers could push for more narrow networks that prioritize high-value, lower-cost providers.”

The price transparency law for insurers, which takes effect next month, could lay more of the groundwork of how to best disseminate and analyze the data, experts said.

“CMS offered much more guidance about the exact structure of the data files for the insurer price transparency law, which could offer a good model going forward,” Henderson said.