Transparency in Pricing, Ruling Healthcare

Hi, everyone. Welcome to this episode of 16 Minutes. I'm Sonal, your host, and we're covering the latest Transparency in Coverage Rules in Healthcare Pricing, which affects everyone. They've been in the works for a while, but the final ones were released a few weeks ago by the Department of Health and Human Services, CMS, the Centers for Medicare and Medicaid Services. So we not only break down what they are, but what both consumers and various industry players need to know, including timing and practical considerations. As Health Secretary Alex Azar observed, patients' healthcare conversations cannot take place, quote, "in a shadowy system where prices are hidden." If you'd like to hear more about this system more broadly, be sure to check out our show, Bioeats World, where we featured a conversation on that with Surgeon Marty McAree, author of the book, The Price We Pay. But in this episode, we dig into the specifics of these rules, as well as, as always, the gap between what's hype, what's real, with our A6NC bio experts Justin Larkin and General Partner Julie Yu. Julie has also covered on other past episodes' historic rules. They're all described as historic, by the way, and you can find these in the show notes or at asixnz.com/16minutes. To quickly summarize these rules at a high level, they will require most employer group health plans and health insurance issuers to disclose price and cost-sharing information to participants, beneficiaries, and enrollees up front. The goal is to give patients accurate estimates of the costs that they are paying for, including making previously unavailable price information accessible to them and other stakeholders in a standardized way, allowing for easy comparisons and potential competition down the line. So my first question for you guys, always the first question, is why does this matter? What's a big picture here? Yeah, so ballooning costs in healthcare is basically the headline of what the industry has been focused on for decades. And, you know, the thing that has been controversial is who is ultimately responsible for those high costs. And one of the things that's powerful about this rule is that it is expressly pointing the finger at the hospitals and the insurance companies who have been negotiating these contracts behind closed doors. I think from a consumer lens, when we think about consuming services in the rest of our lives, our ability to shop, our ability to have choice are all things that we sort of take for granted. And this rule does set us on the path towards where we can shop for the best options and be guaranteed that we won't be hit by surprise bills. On the other hand, it can be viewed as a huge threat. Reimbursement is the tale that wags a dog in healthcare. The vast majority of revenue that flows through our healthcare system is in the form of reimbursed revenue. And to get into the game of healthcare, a lot of it is all about what kinds of contracts can you negotiate with insurance companies. Hospitals clearly consider those contracts their crown jewels. And this rule represents a really interesting paradox in healthcare, which is the notion of a top-down mandate that compels business entities to disclose the terms of what they would consider highly preparatory contracts is actually antithetical in many ways to the way that efficient markets should work. And so I think that healthy attention is going to be the source of much of the agitation that plays out with regards to this rule. Yeah. In no other aspect of our financial lives, we ever imagined going and engaging in a service where we didn't know the price and their unique aspects of healthcare that are just different and require a higher level of transparency, things like the magnitude of cost, the complexity of the cost sharing, there are deductibles or co-payments or co-insurances. There's in-network, out-of-network. All of these things create this immensely challenging environment for folks to make rational informed decisions. And then you add on top of that the variability of the cost where I could go out and search for a completely commoditized healthcare service and there could be a three, five, 10X swing and the price of that blocks away from each other purely on the basis of some of the obscurity that's existed in the healthcare system. This topic hits extremely close to home for us. We have a son that required a major surgery, major ICU stay early on in his life. And after hearing a number of families be nearly bankrupted from similar experiences, we try to get a sense of how much it would cost. So we called our insurer, they couldn't give us a ballpark figure. So they referred us to the hospital to get their financial services team to give us a perspective. They couldn't give us a figure. They referred us back to the insurer. At the end, all we knew is that we were expecting somewhere north of a million dollars, but we had no idea if we would owe $500, $5,000, $150,000 at the end of it. And I just remember walking away from this experience, just thinking, even as a physician, even as someone who spends all day every day working in healthcare, even after spending hours and hours on the phone with providers in our health plan, I couldn't get to an answer. Luckily, we ended up on the better end of that spectrum, but there's something fun in a million wrong here. Wow, there really is. And thank you for sharing that story, Justin, which is unfortunately way, way too commonplace for many, many people. And not all of them even have the resources or ability to kind of understand what's going on necessarily. They're from a different country. Don't understand the language. There's all kinds of factors that play. Julie, you've actually described some of these dynamics, the "dark art of payer contracts." The question I have for you is why was it so hard for Justin to find that information out? Why is this such a shadowy system where prices are hidden? So a couple of things. One is that for a complex surgical encounter, like the one that Justin described, there are legitimately a set of services that you may not anticipate you need when a patient comes in, but it's even hard for hospitals to understand their cost structure to begin with. The notion of even like cost-based accounting in any provider organization is pretty rare that you hear that these organizations have a handle on exactly what it does cost on a unit basis for a single service or a single procedure to be delivered. And there just really hasn't been incentive to do that. The other aspect of these contracts is that a lot of it is really predicated on market power. And you oftentimes hear hospitals compared to cartels. You hear all about consolidation that's happened across the market, which is actually ironically accelerated with the advent of value-based care being viewed as a threat to the traditional fee-for-service revenue streams. A lot of the response to that has been we got to aggregate more volume such that we can more aggressively negotiate with insurance companies for higher prices. That's actually one of the major dynamics. The most dominant hospitals in a given market do have a tremendous amount of leverage. And the combination of that with a lack of clear understanding of their cost structure is a lot of what's pushed those prices up. Absolutely. The complexity of the cost structure of hospitals is a key piece of this. But one of the other components, and this is where the earlier ruling on price transparency that was hospital-centric somewhat came short, is that knowing the price that a given hospital is going to charge to your insurance is only a piece of the puzzle. The other piece of price transparency for consumers is what is your personal responsibility against that price. And we've talked to a number of different health system partners who have wanted to be able to provide upfront cost estimates for their patients. But there's this complexity of where they have to interact with the payer to then understand, okay, what's this patient specific deductible? What's their specific co-pay? How much have they already paid on their deductible? At the end of the day, it's the health plan and the insure that owns really the financial relationship with the patient. There is obviously bills that will come from the health systems themselves, but it's the health plan that determines how much they're going to pay the health system. And so I think what's elegant about this new final rule is that it really shifts the focus to the payer, where they do have the transparency understanding of the price that they've negotiated and where that individual is at in their journey. So they can say, this is the price and you've already paid $400 in your deductible, so your responsibility is $600. Yeah. I think it's notable to consider this rule in conjunction with the hospital rule, pet gaps. One example was actually that the hospital rule specifically did not include non-employed physicians in its mandate. And it's often the case that health systems, their medical staff is actually sometimes largely comprised of just contractors or affiliate providers who are not actually on the employed payroll of the hospital. And that's where you see these examples of if I go in for a procedure, even if that facility and the main surgeon on my case is in network with my insurance, there might be an anesthesiologist or some other ancillary provider who's not. And that's really where those surprise bills comes in. And so when you combine that with the insurance-oriented rule, that's where you get that air cover and that coverage of all of these sort of corner cases that weren't explicitly addressed by the hospital side of the equation. What is the difference in price and cost? In my head, they're kind of intertwined and quite confusing, in fact. It would help a lot to have you really break down the difference between price and cost when it comes to the healthcare system. Yeah. No, I mean, I feel the same way. The way that people use those terms is interchangeable, where they're certainly not. And there are probably two legitimate interpretations of price versus cost. So one is the cost to the hospital. So if I'm a provider providing the service, like how much outlay do I need to make to actually even deliver the service? That is a traditional definition of cost and cost structure in the business sense. Whereas price in that case would be the price that I, the provider, charge to whomever will pay. That could be a combination of the insurance and the individual consumer. So that would be more of a traditional definition of price versus cost. Now, the way that cost is used in certain clauses of this particular rule is actually the cost to the consumer. And so that is the out-of-pocket cost, how much I as a consumer ultimately need to pay in addition to any coverage that I get through my insurance company. And I think that's where a lot of the confusion comes is that you're sort of using that term interchangeably in two different scenarios. Price is a very, very important component of what needs to have transparency. But cost is equally important. And a lot of the reason I would argue that costs have ballooned out of control is negotiations between providers and insurance companies have largely been price-driven. Marty talked about this on our podcast together. Hospitals inherently assume that whatever price they put in front of an insurance company will immediately get discounted and that they'll only essentially earn a small percentage of that. And so they explicitly mark up the price that they put in front of the payer. And that just starts as vicious cycle of back and forth that ultimately leads to higher and higher prices over time. And by the way, I think the line he used in that podcast is sort of mark up, discount, mark up, discount, mark up, discount, mark up, discount. That's the sound effect that goes with that vicious cycle you just described. So now let's tease apart, as is the premise of the show, what's hype, what's real? So first of all, I have to call BS, which is you both said this, the rule said this, the coverage says this. Does this really truly mean no surprise healthcare bills? It seems healthcare is way too complex to actually guarantee that requirement. Can you guys help me tease apart what's hype, what's real there? Yeah, it's a great question. And I think that's one of the dangers of any kind of price transparency rule is you can get this false sense that, oh, I know all of my costs and then still get surprised at the end of the day. Going back to Julie's point earlier, that was one of the biggest challenges with the hospital-focused iteration of this. But what I will say is that a payer-centric iteration of this gets a lot closer to solving that issue and that not only does it capture some of those issues within network provider out of network provider and what your coverage would be in each of those environments, but even it gets down to being able to predict price against prescription medications and even things like durable medical equipment. So a lot of these things that in the past could have driven a lot of unexpected costs are now captured within the rule. The last piece is of the requirement for the health plans to create a place where consumers could interact with that information. So it's not just a PDF or a flat file sitting and some archive somewhere. Basically what you're talking about is that out of network allowed machine-readable file and the machine-readable file must include specific things, including billing code, amounts, bill charges, et cetera. There's also prescription drug machine-readable file. They even outline the specific things that each of those files have to include. Really glad you brought that up. The question becomes, in the implementation of this, are folks able to gather that data and present it in a way that patients can internalize it and make decisions against it? Because it's not just about having the data, but really putting it into practice. And I would add there's a very important distinction between shoppable and non-shoppable services, which is distinct from the concept of transparency. Because if you end up in the emergency room and you had no control over what services were provided or needed, then any price will likely be a surprise. It's also worth noting that there are a separate set of legislations around surprise billing specifically. There were 16 overall provisions that the CMS put into place around price transparency in general, one of which related to surprise billing. And then you have these two with regards to price transparencies. The last thing I'll say, though, important to note about the timing of the individual clauses of this rule is that the requirements span from 2022 through 2024. The one that's actually patient-facing, so the tool that Justin described, that would allow me as a consumer to go to a website and actually look up not only the price, but also what my out-of-pocket responsibility is. That's actually not required to be in place until 2024. One of the risks here is how much will that clause get diluted between now and then, though the all sorts of other agendas that come into play. So I think that's probably the most relevant part for individual consumers, but that's the last piece to fall into place. So given that timing, that, of course, begs the most important next question, which is, how does this play out in practice, like actual implementation? Because again, this is something that's announced. It's a press release. It's got news coverage. What is practically necessary to actually get us there? I think there are a couple of different angles that it's important to consider here. One is the patient perspective, and the other is the health plan perspective. On the patient side, it's something we've seen with other price transparencies efforts. The price is certainly an important piece, but you've got to understand that people often equate price with value and price with quality. So there's this whole parallel conversation about it's not just enough to have the price alone, but really we need to pull in the data sets and the pieces of information to guide folks on not only what is the best price, but where you can get a good price for high quality health care service. And so it's one key portion of the decision here. The other side, which is arguably even more complex as the health plan side, and Julia alluded to this early on, where there will undoubtedly be resistance. And we have seen that with the hospital version of this, where various bodies took the rule to court. And you add on top of that the oversight regulatory complexity here where there are various bodies that oversee different types of health plans. So if I'm on a fully insured plan through my employer and our smaller employer, that might be under the oversight of state insurance regulators, where if I'm on a self insured plan through a larger employer, that might be under the Department of Labor. And if I'm on a federal employee plan, that might be the office personal management. So at the end of the day, we're hopeful that this can have teeth and take hold, but it's not going to be a light switch. This is going to be a longer process. Yeah, it was a pretty big whiplash reaction from the hospital trade groups around the prior hospital policies. It's interesting to read the response from AHIP, which is the major trade group for the insurance industries, America's health insurance plans. You know, they made a number of rebuttals against this rule. The central argument from them is that price transparency would actually result in higher premiums and prices for consumers. They also claim that the majority of health plans are already offering price transparency tools, and therefore it's unnecessary to apply additional burden. And so to actually check on that second claim, I actually went to my insurance website. There is a cost transparency tool to their credit. However, when you search for actual procedures, every single result basically gave me a message that said, cost is not available, please call the number back of your card. So there is still a delta between the implementation of a tool versus the actual content that's delivered through that tool. The other kind of hilarious response that I remember from the hospital version of this was from the AHA when they complained that complying with this would require spreadsheets with hundreds of thousands of columns, and such files could crash most standard computer systems. And again, so much of the efforts that CMS into their credit have made is like, how do we just modernize the entire infrastructure of this industry? And if this is the way by which we compel these parties to upgrade their version of Microsoft Excel, then so be it. So it's really interesting, Julie, because you're basically describing this arc of technology evolution where hospitals, we joke about them being on very old operating systems, but most consumers are way past those systems. Forget even the evolution from old PCs, they're in the mobile world where they are used to things that are very consumable, very accessible, great UIs. So my question for you, how much do you really think that consumers actually want to consume their healthcare information in this way once it's made machine readable, especially because most people barely even understand their credit score. So I'm curious for your thoughts on what's necessary or what needs to happen. Yeah, I mean, it's a great question because there are so many players in this equation, right? And consumers are certainly a critical and central and important one, but perhaps the bigger profound impact that this type of rule has is actually around the behaviors of how hospitals and insurance companies treat each other as trade partners. That actually might be the place where we see the biggest impact. Will this actually change the way by which insurance companies and providers negotiate price, which should, in theory, filter down to the ultimate premiums that we pay and how the actual insurance products that we consume are designed? Maybe that's where the bigger lever of influence is. And then maybe another way to sort of look at this rule and something that came to mind as I was looking at it is when you think about hospitals as kind of the entrenched incumbents versus the underdogs in the market, like the independent practice groups, the ambulatory surgical centers, etc. For the last several years, they have been polishing price. They've already been doing a lot of this. And so as business floods away from these opaque hospitals into these more transparent, lower acuity settings where their cost structure inherently is lower, that actually to me is perhaps like a more powerful way to address this problem. It is to actually like literally compete in the market by arming the more nimble players with a mandate that they can actually implement. It might even mean more new hospitals, interestingly. Yeah. And they'll be fundamentally different in structure than the hospitals of today. But the other pieces too is this is what opens up the door to a lot of opportunity for builders out there. There is invitation in this rule for third parties to come in and help to build those products that folks would need to really make this actionable. What are the plan designs that could be built on top of more transparency that would then incent people to make decisions that are right for them? And importantly also, what is the research and policy that could happen on top of all of this? And so I agree that the rule in isolation on its own doesn't solve all the problem here, but it does invite the opportunity for the macro players to have to adjust and also for there to be an ecosystem that's built up around it. It's interesting to draw the analogies between this and other industries, price transparency and even like dynamic pricing has been a thing for decades, whether it's e-commerce, whether it's the travel industry that used to build software for the e-commerce industry in the early part of my career. And there's entire companies who are dedicated to providing robust pricing engines. You can build custom catalogs where you have all sorts of different permutations per SKU as to how you price things. Obviously the most complex form of this is in the airline industry where you have actual dynamic pricing that change in real time based on actual capacity and whatnot. Amazon has hundreds of millions of SKUs. When you compare that to what the provider and insurance companies will have to deal with, there are less than 20,000 CPT codes. So CPT codes are the codes that dictate what services you can go for. If you just limit that, for instance, to the shoppable services, you're talking about hundreds of codes and there are roughly 6,000 hospitals in this country. And so even if you were to have a single price per hospital for every possible service that's provided, you're talking about like maybe 10 million lines of data. And it's embarrassing that we would, as an industry, make an excuse that we couldn't handle that. So I do think that there's a lot to be said about the opportunity for tech companies to enable these hospital systems to actually implement that in a very cost-effective way because another argument from the industry was claiming it's going to be millions of dollars to stand up a system that can produce this kind of data file. That's absolutely not the case, just given the cost-effective SAS type tooling that we now have available to us in other industries. So one last question about what's real here is the whole point of all these dynamics is to align incentives. And the whole reason we have this "shadowy system" as we've talked about is that there is no transparency. And one of the reasons transparency matters is that it leads to better incentive alignment. So what are some of the challenges when it comes to aligning the incentives in this system to make this work? Yeah, that's a great question. And I'd say the more complex side of the incentive puzzle is really on the health plan side. The financial structure of a health plan is guided by this concept called the medical loss ratio, where in its simplest form, they are regulated on the basis of they have to spend a certain percentage of your premium dollar on your care. It basically caps and creates a ceiling around what their profits and administrative costs can be. And so even in an environment where you create more transparency, they might not feel the incentive to guide you toward lower-cost options, because at the end of the day, they have to return any of that access back to the consumer. It doesn't really drop to their bottom line, but this ruling itself addresses some of that, where it enables payers to take credit for some of those more informed, cost-driven decision-making on the patient side and get credit against their MLR for that, against their medical loss ratio. And so time will tell if it's enough to really align, but at least take strides in that direction. I agree with everything Justin said with regards to how insurance companies may respond. I think ultimately for us as consumers, the other holy grail outcome here is if hospitals actually start to compete on actual value and actual service. Part of why they don't do that today is because we don't even know the price. So there's no basis on which we can even make an argument that you're not getting what you paid for. Sure, the price matters, but if I'm paying a cheaper price for a crappier outcome, then it's all moot. Okay, so bottom line it for me. What should our take away be on this transparency and coverage final rule? In the long arduous march towards lowering the cost of our healthcare delivery system while also increasing the improving value. This is one of many important steps to get us towards that promised land where we actually do have something as close as possible to efficient market dynamics between especially the insurance companies and hospitals. It's also yet another reason why it's such a momentous era for digital health companies in that they have always wanted to compete on quality, on customer service, on value relative to price. And it's been the absence of a rational market that has really prevented that. So this movement should hopefully be one important aspect of leveling the playing field for all new entrants. Well, thank you so much you guys for joining this episode of 16 minutes. Thanks guys. Thank you.