2020 OPPS: Hospital Price Transparency Under Scrutiny

Original story posted on: August 14, 2019

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Confusion abounds, but compliance is required.

The Centers for Medicare & Medicaid Services (CMS) has entered into the fray of transparent hospital pricing in a very big way. 

The new OPPS (Outpatient Prospective Payment System) rule appeared in examination format (i.e., unofficial format) in the July 29 edition of the Federal Register. It contains a rather extensive section on transparent pricing, along with a new proposed CFR (Code of Federal Regulations) section, namely 45 CFR §180, Hospital Price Transparency. Comments will be accepted until Sept. 27.   

Virtually all hospitals will want to comment on CMS’s proposals in this area because of the significant operational ramifications of making payer-specific information available to the public. This is a far-ranging Federal Register entry, including definitions, requirements, and compliance penalties. Here are just a few items for consideration and possible comment:

(Note: This is an extremely difficult and detailed topic. The relationship of the OIG (Office of the Inspector General) through 42 CFR §1001.701 is not addressed. Also, the Provider Reimbursement Manual at §2203 is not addressed. There are some fundamental disconnects in what CMS is discussing, particularly with the distinction between charges and payments.  Establishing charges through the hospital’s chargemaster, in and of itself, represents a very real challenge.)

The new proposed CFR section starts with definitions. The term “chargemaster” is defined as the charges for all items and services. Gross charges are those that are found in the chargemaster. The use of the word “gross” is indicative of concepts to come. Payer-specific negotiated charges are the charges that the hospital has negotiated with a third party for a given item or service. This is the point where there seems to be confusion.

Hospitals do not negotiate charges; generally, it is payments that are negotiated. For instance, a hospital may be paid a given percentage of charges through a contract. Many hospitals would argue that they charge the same to everyone (i.e., charges from the chargemaster), and it is the payments that vary. A typical business model is to have discounted charge schedules; that is, certain special customers are charged less based upon special characteristics of the customer’s buying regimen. This is where healthcare (in this case, hospitals) differ in that the charges are fixed and the amount of payment varies.

This very issue was addressed in proposed changes by the OIG in the Sept. 15, 2003, Federal Register. In that proposed entry, the OIG indicated that the discounted payment was to become the charge. CMS does not appear to make this clear, blurring the distinction between charges and payments. Given the fact that hospitals, under this proposal, will be required to report payer-specific negotiated information (charges, payments, etc.) at the third-party payer level, the difference between charges and payments is fundamental and must be well-defined.

(Note: The whole process of reporting payer-specific negotiated information is not dissimilar to the cost reporting process in that charges are converted to cost using the CCRs (cost-to-charge ratios). CCRs are developed from the cost report for each hospital, then the costs are adjusted relative to charges, and this information is used to calculate payment rates under DRGs (Diagnosis-Related Groups) and APCs (Ambulatory Payment Classifications). For instance, let us consider a given third-party payer that wishes to pay about $1,000 for a given service. There are three different hospitals, one with a very high set of charges, one that has a moderate level of charges, and one that has a low level of charges. The third-party payer will negotiate a payment rate of 50 percent for the high-charging hospital, say, 70 percent for the intermediate-charging hospital, and then 85 percent for the low-charging hospital. By doing so, the third-party payer will end up paying about $1,000 to each of the hospitals, even though there are different charge structures. This could easily extend into a discussion of PCRs (payment-to-cost ratios), and for the three hospitals in our very simple example, they would report about the same payer-specific negotiated information.)

Another feature of the proposal is to include employed physicians in the reporting requirements. Sometimes hospitals employ physicians (e.g., anesthesiologists, radiologists, pathologists, hospitalists, etc.), and now, with provider-based clinics, any type of physician may be employed. Because of this variability, the required reporting of payer-specific information on the professional side becomes moot. Professional fees can certainly be reported, but this new proposed reporting requirement should apply only to hospital charges, not physician professional charges. Professional, physician charge information can be provided separately, but should not be mandated as a part of transparent hospital pricing.

CMS also seems to be under the impression that all hospital billing systems are loaded with reimbursement (i.e., payment) information from their various contracts with third-party payers. CMS states that it should be easy for hospitals to report payer-specific information because this information is already in their billing systems, but this may or may not be true for a given hospital.  Some hospitals do have extensive information about their private third-party payers, as well as the various governmental payers. Some hospitals do not have extensive information loaded about their private third-party payers, or may have information about only their major private third-party payers. Thus, the ability of a hospital to provide detailed information about all of their private third-party payers (i.e., those with whom they have a contract) is at best problematic.

All of this transparent pricing relates to what CMS calls “shoppable services.” According to the definitions, a shoppable service is a service package that can be scheduled by a healthcare consumer in advance. Of course, “service package” must be defined, and according to the proposed CFR section, it is an aggregation of individual items and services into a single service with a single charge. How many of these discrete packages are there at a typical hospital? Take a simple example of cataract surgery (i.e., capsule removal and IOL, or intraocular lens, insertion). Such procedures can be done unilaterally, bilaterally, with or without special IOLs, and in 10 minutes for some surgeons versus 30 minutes for other surgeons. Even with just these variables for one specific type of surgery, there could be multiple service packages, and the charges will differ to some degree even with the same third-party payer. 

DRGs are used as a means of identifying certain shoppable services. However, DRGs are a payment mechanism, not a charging mechanism. It is after the fact that a DRG is determined, based upon procedures and diagnoses. Thus, DRGs and APCs should not be used as service packages. A given patient may schedule for a cystoscopy. The only problem is that the cystoscopy may be purely diagnostic, or there could be a number of different therapeutic services that might be provided. Thus, there may be multiple service packages that go well beyond DRGs and APCs.

CMS identifies 70 basic shoppable services, most of which are indicated with a CPT code. These services are just the basic core, with 300 being the final goal for a given hospital. The proposed CFR section uses the language “…a combined total of at least 300 shoppable services.” The list of 70 is certainly interesting and should be studied by hospital personnel quite closely. The really big question is how the 300 or more shoppable services will be determined, and by who?  There is quite a difference between a small rural hospital and a large metropolitan hospital. How can there possibly be hard and fast numbers of shoppable services between these two extremes?

Reporting of the charge information (reimbursement) is an issue as well. Certainly, a description of the standard charges and the gross charges (chargemaster charges) should be included at the item and service level. Also, the charges must be delineated by individual third-party payers. Where does this leave shoppable services? Are we really addressing two types of information? Standard code sets are mandated, which includes CPT, HCPCS, NDC (national drug code), and DRGs. As mentioned before, the use of DRGs and APCs does not appear appropriate, because these are payment mechanisms under Medicare.

Within the proposed CFR language, revenue codes are also mentioned, namely, “revenue codes as applicable.” The use of the word “applicable” is not further defined. Given that each line item in a chargemaster has an associated revenue code, this applicability concept needs further explanation. While the assignment of revenue codes is generally standard, there can be some variations in choice by those that maintain the chargemaster. CMS is going to have to provide explicit guidance in this area.

Another piece of data that is required is the location of the facility that is providing the service for which the pricing information is provided. Possibly, a chargemaster could have charge information about shoppable services that differ from one location to another, either by type of shoppable service or by the difference in charges. For smaller, self-contained hospitals, this will probably not be a problem, but for large hospitals that are part of an integrated delivery system, the indication of location could be an added burden.

One part of the reporting process is to identify the specific third-party payer along with the data. Again, at issue here are the number of contracts that a given hospital might have with different third-party payers. For a small hospital, the number of contracts could be 25 or fewer. For a large hospital, the number could be significantly higher. If this charge or pricing or payment information is specific to a given third-party payer, then the amount of data that must be provided could be staggering. Some mechanism, such as the percentage of business, must be put into place to reduce the amount of data to some degree of reasonableness.

There are many other issues at hand, including CMS’s ability to generate these kinds of rules that affect all types of patients and various third-party payers. Presumably, any sort of confidentiality of payments that is part of a given contract will be overridden by this transparent pricing mandate. Compliance, including monitoring, enforcement, corrective action plans, and civil monetary penalties, will all need consideration.

Hospitals are encouraged to comment and make their concerns and suggestions known. How soon CMS intends to implement this is not known, but there is much work that must be accomplished before transparent pricing, in CMS’s view, as proposed, can be implemented.

Duane Abbey, PhD, CFP

Duane C. Abbey, PhD, CFP, is an educator, author, and management consultant working in the healthcare field. He is president of Abbey & Abbey Consultants, Inc., which specializes in healthcare consulting and related areas. His firm is based in Ames, Iowa. Dr. Abbey earned his graduate degrees at the University of Notre Dame and Iowa State University. Dr. Abbey is a member of the RACmonitor editorial board and is a frequent guest on Monitor Mondays.

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