“Shoppable Services” Identified by CMS in Final Pricing Rule

Original story posted on: November 18, 2019

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EDITOR’S NOTE: Healthcare attorney David Glaser reported on the CMS final rule’s reference to “shoppable” services during today’s edition of Monitor Monday. The following is his report.

On Nov. 15, the Centers for Medicare & Medicaid Services (CMS) released an advanced copy of a final rule that will require all hospitals in the United States and its territories to publicly release a list of their standard charges for items and services. But the rule goes much farther than that. While it’s safe to assume that there will be litigation to attempt to prevent the rule from taking effect, if that litigation fails, I suspect that years from now, we will look at this rule as having a dramatic impact on the healthcare industry – though as discussed below, I am not sure exactly what that impact will be. 

Note that this is not a Medicare-specific rule. In fact, it appears in Title 45 of the Federal Regulations, the Public Welfare section, not in the usual Title 42, which focuses on Public Health, primarily Medicare and Medicaid. Among the regulation’s requirements, which take effect Jan. 1, 2021, is an obligation to create a machine-readable file that lists all of the standard charges for all items and services.

But the more interesting part of the rule focuses on certain services the rule deems “shoppable.” Shoppable services are those that patients are likely to price out in advance, including labor and delivery, colonoscopy, and hundreds of others laid out in codes detailed in the rule. Hospitals will have two options for making this price data available. They may use an Internet-based price estimation tool that allows a health consumer to get a specific estimate of the fees they will be obligated to pay. Alternatively, the hospital will need to publish a list for each of its shoppable services, which will include information that has historically been highly confidential. In particular, the list must include both the lowest negotiated charge the hospital has with an insurer for each code, and the highest charge that the hospital has negotiated with a payor. It must also list the discounted cash price the hospital will accept. While there may be space to argue this, it seems to me that when the rule refers to the “charge,” it is really referring to the reimbursement received, not the amount billed out on claims. In some cases, the term “charge” is ambiguous. If you send a bill for $100, knowing the insurer will pay you $75, have you billed $100 or $75? Here, the regulation defines “charge” as “the highest (or lowest) charge that a hospital has negotiated with all third-party payors.” In other words, the “charge” is the contracted rate.

Hospitals will face an interesting strategic decision. If hospitals choose the option of the price-estimating tool, they can avoid the need to disclose the minimum and maximum negotiated charges for each code. Will hospitals go that route? I suspect that many will. But if not, there will be a bigger and more interesting question: how will the marketplace respond if the agreed payment rates between hospitals and insurers become public? It seems quite likely that there will be less hospital-to-hospital variation in reimbursement. If hospitals know what their competitors are paid, hospitals receiving the lowest reimbursement will seek higher rates. Will they succeed, or will insurers push the rates at highly compensated hospitals down to the lower rates? I wonder if insurers, worried about the former, will object to the rule. I don’t know, but I am certain that this rule will have hospitals deciding whether they’d rather use a pricing tool or be forced to publish their reimbursement rates. Do hospitals all want to know their competitors’ rates? If so, this rule creates an option to legally share that data. 

If the rule isn’t overturned, it will be fascinating to see which options hospitals choose and whether the rule ultimately pushes reimbursement rates up or down. 

David M. Glaser, Esq.

David M. Glaser, Esq., is a shareholder in Fredrikson & Byron’s Health Law Group. David helps clinics, hospitals, and other healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David’s goal is to explain the government’s enforcement position and to analyze whether the law supports this position. David is a popular panelist on Monitor Mondays and a member of the RACmonitor editorial board.


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