What makes hospitals comply with price transparency rules (or not)?

Since 2021, the Centers for Medicare and Medicaid Services (CMS) has required hospitals to publish the prices for services they negotiate with insurance companies, which previously had been kept secret. Hospitals must provide pricing information online in both a comprehensive machine-readable file and a display of shoppable services in a consumer-friendly format. While some hospitals quickly posted their prices, compliance overall has been less than ideal. And even when hospitals do publish their prices in the format CMS requires, they’re not easy to understand for the average patient, advocates and researchers point out

Fortunately, there have been some encouraging updates in the price transparency space. On the regulation front, CMS recently announced they are updating their price transparency rules to address concerns about data complexity and usability. And on the research front, a fascinating series of interviews with hospital leaders shows what factors drive price transparency compliance. Here’s what you need to know.

Price transparency rule updates

In a final rule Medicare regulation, CMS announced they are adding further requirements for hospital prices, that take effect in 2024:

  1. Hospitals will have to use a standard template for their machine-readable file created by CMS. This ideally will make this information more uniform and easier for researchers to compare across hospitals.
  2. A link to the machine-readable file must be in the footer of the hospital website, to avoid the maze of clicks that it often takes to reach the price transparency data  
  3. Along with their charges and payer-negotiated prices, hospitals will also have to report the “estimated allowed amount” for services, which is the average amount hospitals have historically received from that payer for that service.
  4. Hospitals will have to include a statement attesting that the price data they are reporting is “true, accurate, and complete.” This will be a step forward in accountability and give hospitals more incentive to ensure accuracy in the price data they publish.

CMS estimates that these additional requirements will cost hospitals under $3,000 on average to CMS will also publish data on how well hospitals have complied and whether they have been fined for noncompliance.  

What drives hospitals to be transparent? 

Hospitals’ compliance with price transparency has been variable, with some hospitals receiving accolades for their full compliance and many others avoiding the regulation. What made some hospitals decide to publish their prices and others resist? 

A recent Health Services Research article asked representatives from 12 non-profit healthcare organizations what influenced their decision to comply with price transparency regulations in the first year of the law. 

They found that of the 12 organizations, five complied to the regulations in what the researchers called “good faith” efforts without resisting. Three organizations chose a “compromise” strategy– complying with the regulation but at the same time putting pressure on CMS through state or local hospital organizations. Four chose an “avoid” strategy, not posting their prices or just posting enough to not get caught. Some hospitals had plans to fight back against CMS if they were fined, one participant saying, “If CMS got to the point that they actually levied fines, and fined [our organization], we will subjugate the legitimacy of the fine…[and] go to our state hospital association and see if they will help us fight.”

The strategies that health systems decided to take were based on both internal and external factors, including:

  • Alignment with organizational mission — Some hospitals viewed the disclosure of price information as central to their core ethos and as something that sets them apart.
  • Availability of time and money — Assembling prices for every medical service is a complex task, and almost all organizations hired consultants and external vendors to help. Some hospitals reported it costing millions to do so. And as Covid-19 hit, some hospitals put aside price transparency to focus on the emergency at hand.
  • Reputation — Some hospitals wanted to avoid being seen as non-compliant or on CMS’ “naughty list,” because they were afraid of public shaming.
  • Competition — Some hospitals wanted to keep their prices secret to maintain a competitive advantage with their insurer negotiations, while other hospitals with lower costs were happy to share the data.

Although financial penalties are CMS’ primary method of enforcing the rule, none of the hospital organizations reported fines as having a big impact on their strategic response and compliance. The amount of fines for noncompliance has increased over time, so they likely have a larger impact now than in the first year of the rule.

As hospitals gain clarity around regulations and their impacts, we should expect to see an increase in compliance rates. Hopefully, this coincides with lower costs to patients and a more cost efficient healthcare system.