by Seth Avery
President and CEO
September 10, 2019
CMS should know that payment terms matter as much as prices.
With the publication of the proposed update to Medicare hospital outpatient prospective payment system (OPPS), CMS is asking for some bold changes in what hospitals provide to patients in the way of financial information. One of the key requirements is to provide both charge and payer rate information for 70 identified services, or bundles of services. These 70 services are detailed in the rule. In addition to the seventy, hospitals are required to select another 230 prices and payments to report upon. It is worth noting that “surprise bills”, bills that result from out of network providers, were not addressed in the rule. In the analysis below I use the term “patient”, whereas CMS uses the term “consumer”. I am still committed to referring to patients as patients rather than “consumers” or “customers”. Please indulge me. It is also important to note that while prices are important, the payment terms have a significant influence on the ultimate value of the service. Payment terms are not part of this rule and it would be impractical to include such price analysis as it would be overly complex.
There are parts of the proposed rule that are a bit confusing. The most confusing is the requirement to produce a standard rate for diagnosis related groups (DRG). Typically, hospitals do not charge by the DRG and thus do not have a single charge. There is no charge for a DRG because a DRG is not a charging principle but rather a payment mechanism. The same principle applies to ambulatory payment categories (APC). However, there is no requirement in the proposed rule to produce prices by APC.
“Standard Charge” is also a bit confusing in the proposed rule. Standard Charge is defined as “The “standard charge” for an item or service (including service packages) varies depending on the circumstances particular to the consumer.” Having been in the business for over thirty years, I would define the Standard Charge as the CDM price or charge. While there may be a negotiated rate for a service, the circumstances may alter the payment and the financial impact on the patient. The proposed rule has two definitions of the “Standard Charge”:
- Standard Charge = CDM charge = Gross Charges
- “Payer-Specific Negotiated Charge” as a type of Standard Charge
The second is the negotiated rate with third party payers. Although the proposed rule uses the term “charge”, we assume that they are referring to the payment rate. It looks like the staff at CMS have twisted the term Standard Charge to include payer specific rates. When I look at the definition of “standard” I see words like “established, settled, fixed, prevailing”. Anyone with industry experience would know that these rates are dependent on the circumstances of the services provided to each patient. Healthcare fees are not as simple and straightforward as a McDonald’s menu. The negotiated rate is not the amount that the patient necessarily will pay for the service. It is one of the building blocks in the development of the allowable, the total due from either the patient or the payer for the services. Even knowing the payment rate, “Payer-Specific Negotiated Charge”, does not inform the patient of their responsibility. As payer X may have a higher negotiated rate with the hospital but ultimately may be one of the lesser paid insurers. As an example:
Based on this analysis of “Payer-Specific Negotiated Charge” it appears that payer A is the most expensive and payer C is the best value. However, what you cannot build into the table is the multi-procedure discount that payer A provides.
Based on this common discounting, payer A is the lowest priced payer for this combination of services. One could argue that CMS intended the hospital to provide such analysis of this bundle of services, but unfortunately the number of such combinations would run into the hundreds of thousands. It would also require a foreknowledge of all of the coding complexities, including coding edits, to arrive at the correct allowable.
The proposed rule defines “third party payer” as an entity that is, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service. I wonder how they propose to deal with the issue of the “silent PPOs”. This is when an undiscovered discount is taken by a seemingly undisclosed payer. The provider believes that there is no contract in place. While the discounts are minor, it just shows the complexity of what CMS is asking hospitals to accomplish.
The crux of the CMS’s goal is clearly stated “Having insight into the charges that have been negotiated on one’s behalf, however, is necessary for insured health care consumers to determine their potential out-of-pocket obligations prior to receipt of a health care service. For example, if a health care consumer knows that he or she will be responsible for 20 percent of the charges for a hospital service, her or she can compare the charges that the third party negotiated with hospital A and hospital B and, from that, the consumer can determine his or her expected out-of-pocket costs at hospital A versus hospital B.”3 While this is an admirable goal in the patients interest, the industry is just not able to support this type of information release and support. The example is rudimentary and uses an old school indemnity plan. I am not sure how common they are these days, but I feel it’s an overly simplistic approach. In the example I created above the patient would be misled as to the best deal.
There are two separate requirements under the proposed rule for the level of information provided. For the three hundred shoppable services, seventy dictated and two hundred and thirty hospital selected, such that it be “consumer-friendly charge information”4.
Consumer Friendly Charge Information (CFCI)
- Plain language description (https://plainlanguage.gov/guidelines/ )
- Payer-specific negotiated charge that applies to each shoppable service.
- Name of the payer and the rate
- Associated ancillary items and services that the hospital provides with the shoppable service, including the payer-specific negotiated charge for each ancillary item or service
- Location of the service delivery and whether the payer-specific negotiated charge is different by location, campus, department, or patient type
- “Primary code” used by the hospital for accounting or billing. Examples HCPCS, CPT, DRG
The proposed rule skips over the variation in the associated ancillary service provided with each primary service. It gives no guidance on using average, median, etc., for charge data. The issue of patient type is also interesting. If you think about it, a lab service may be paid at a fee schedule amount for an outpatient and haver no separate payment for inpatient. I guess that will be listed as a zero, unless it’s a percent of charge payer. Other complexities exist that the proposed rule appears to ignore such as lesser of language and stop loss. In these cases, the payment may totally change based on the totality of the individual claim and render any charge information useless.
The proposed rules envisions CFCI data displayed online, but does not give specific requirements. There is some discussion in the proposed rule of using an API format that would allow for easy search. Since not all patients have computer access, the computer the rule requires the ability to provide this information a written format within seventy-two hours of a request. In other cases, the information should be available in a public website “displayed prominently” with “no reliance on breadcrumbs to help with navigation”5. Additionally, “without barriers” would mean the data can be accessed free of charge, users would not have to input information (such as their name, email address, or other PHI) or register to access or use the standard charge data”6. Some of these proposals seem to be in response to the behavior of a number of hospitals as detailed by our analysis below.
Gross Charges and Payer-specific Negotiated Data
In addition to providing the CFCI information, hospitals will be required to provide the rest of their pricing data.
- Machine readable format
- Individual items and “service packages”
- Gross charge (inpatient and outpatient if applicable)
- “Payer-specific negotiated charge”
- CPT, HCPCS, DRG, NDC or other applicable code
- Revenue code if applicable
The rules states that if there is a “common billing code, such as a HCPCS”, a short description is sufficient. The revenue code is used to identify the departments where the hospital may have different prices for the same service.
On January 1st, 2019 the Centers for Medicare and Medicaid Services implemented a new rule that required hospitals to publish their prices online. This was the latest step in the push for greater pricing transparency. Many states had already created similar requirements. The Federal mandate forced hospitals to respond in a variety of ways. AppRev conducted an extensive online analysis of how and where providers complied with this new mandate. We wanted to look first at the rate of compliance then how they complied. Here are a few of the attributes that we studied:
- How easy was it to find the pricing information?
- Where there any steps to access the information?
- How useful was the information?
- What information was provided?
- MS-DRG pricing
After reviewing the websites representing 2,199 hospitals, we determined that 94% had some form of pricing reference on their website. For the 6% that did not appear to comply, it may have been that we simply could not find their pricing information on their website. Some hospitals made it challenging to find as discussed below. Listed below are some examples of the different approaches providers took to meet this requirement.
- Listed statewide databased in addition to theirs
- Required clicking successfully through three or more pages to find the data
- Required the user to click to accept data and security polices
- No machine-readable file available
- “Use our price estimator tool” with no file available
- Price list to “be posted soon”
- reCAPTCHA to eliminate screen scraping
Of the nearly 2,200 hospitals tested, only ONE had its price list on the home page! Approximately 40% included information on the charges by MS-DRG. Surfing through the long list of hospitals, you can see the variety of approaches to this requirement.
It remains to be seen how much of the proposed rule becomes final. There is a serious question as to whether the statute allows CMS to define Standard Charges in the manner they have in the proposed rule. Another question is how providers will create information on the CFCI prices. There will be great variation in what is included with the shoppable services. Hospitals should communicate with their respective state hospitals associations and other groups that can advocate for their interests. We at AppRev will be following their process and are ready to help our customers in preparing the proper response. We are all in for a wild ride!
About the Author
Seth Avery has over 25 years of experience as a healthcare executive, serving as an auditor, consultant, Administrator and Chief Financial Officer (CFO). He has been certified by the American Academy of Professional Coders (AAPC) as a Certified Professional Coder (CPC). He has a BS from Campbell University, an MA from the University of New Mexico and a Juris Doctor from Texas A&M University. Seth is a 14-year veteran of the US Military. He is a frequent speaker at Healthcare Financial Management Association conferences and presents webinars providing education on various healthcare finance topics.