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Cracking the Code of Healthcare Costs. Transparency at Last?

A Closer Look at Transparency in Coverage and What it Means for Employers.

Beginning July 1st, 2022, most group health plans and issuers of health insurance were legally obligated to begin posting their negotiated prices for covered items and services through the Transparency in Coverage rule. These prices must be listed on a public website in what is known as “Machine Readable Files” or MRF. While this law is viewed as a way for consumers to take control of their healthcare spending, a deeper dive into the actual legislation and execution reveals that access to this data for the average consumer is still not where we want it to be.

Understanding the Transparency in Coverage Rule

Traditionally, members of a health plan don’t know how much a procedure or hospital visit will cost until AFTER the visit – or when the patient receives their Explanation of Benefits (EOB) from their carrier. This law, among others, seeks to provide a way for consumers to access this information up front, so they can make educated decisions regarding where they seek medical care. The end goal is that providing pricing transparency will drive down costs by bringing greater competition to the private healthcare sector.

The Transparency in Coverage Rule is not the first law since the pandemic that passed to address the lack of transparency within our healthcare system. In 2021, the Hospital Price Transparency rule came into effect on January 1st, which required each hospital in the United States to provide pricing information online about the items and services they provide. By the end of 2021, only 14% of hospitals met the Price Transparency Rule compliance requirements: common criticism of this law targeted the low financial penalty – a paltry $300 per day, or $110,000 per year. This was corrected in 2022, with the fee increasing to $5,500 or $2 million per year. As of June 2022, two hospitals have received civil monetary penalties from the CMS, though several major hospital systems remain out of compliance.

The Unspoken Problem with the Data

Are we seeing the same issues of non-compliance from the group health plan providers that we saw from the hospitals? Technically – no. Healthcare insurers have posted their negotiated rates, but unfortunately, the data remains inaccessible to the average consumer. The published files are enormous, filled with hundreds of thousands of lines of data, and not organized in a way that the average person could navigate the information. Consumers must wait until third-party firms can analyze the data and produce comparison tools to help them shop for services.

What doesn’t get addressed in any of these recent laws is the impact of PPO network contracts on healthcare costs. The negotiated rates developed between the networks and providers are discounts the carriers receive off a published rate from the provider (“Chargemaster rate”). However, these chargemaster rates vary widely even within similar geographical areas and are often up to 4-5x the amount Medicare pays for the exact same services.

Studies have proven that high healthcare cost does not equal better healthcare outcomes. In fact, it’s often found that the opposite is true, meaning consumers are paying more for lower-quality care.

The contracts between the carriers and the providers often have clauses such as forcing the carriers to contract with ALL physicians within a healthcare system (even those with low-quality outcomes) or preventing carriers from auditing hospital bills before paying them.

So, do healthcare consumers finally have the information they need to “shop out” medical services? Between hospital non-compliance, the inability to access the data posted, the continued verticalization of large healthcare systems and local physician groups, and the structure of PPO fee for service contracts, I would say that true healthcare transparency is still a long way away.

Employer’s Next Steps

What can employers do in the meantime to gain transparency into their plan spending and reduce healthcare costs?

Luckily for employers, some programs and plans exist to target the true drivers of spend without reducing benefits to your members. Usually, the first step to gaining transparency is moving into alternative funding, like national captive programs. Within these solutions, employers can pick which administrators, pharmacy benefit programs, point solutions or even which networks they want to utilize. They can even choose to remove all networks and pay facilities as a percentage of Medicare – a strategy that can often lead to a savings of 20% off or more of the medical spend.

Working with forward-thinking firms to design your health and welfare programs can lead to a reduction in wasteful medical and pharmacy spending while improving healthcare outcomes. With a suite of innovative and proprietary alternative funding solutions, we put the necessary data and tools into our clients’ hands so they can take back control of their health plan and truly make it a benefit – not a burden.

Looking for more compliance guidance for your organization? Learn more from this blog highlighting the FAQs on Transparency in Coverage Reporting Requirements.