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Enforcement of Price Transparency Rules Puts Hospitals in a Fix

A federal appeals court in Washington affirmed the Trump administration policy, which requires hospitals to disclose secret rates that they negotiate with insurance companies beginning Jan1, 2021. This marks a major victory for one of President Donald Trump’s central health-policy initiatives to create more price transparency. This, is being put into effect to bring  greater competition in the market and lower hospitalization costs for patients.

This rule was upheld in June this year, when the federal court ruling gave its nod to improving price and quality transparency in American Healthcare.

The ruling went against the American Hospital Association (AHA) with its general counsel saying that “the disclosure of privately negotiated rates does nothing to help patients understand what they will actually pay for treatment and will create widespread confusion for them.”

What Are the Rules?

The rules require hospitals to make the negotiated rates that they charge insurers for medical services and prescription drugs available in the public domain. It also required hospitals to make prices for healthcare services, such as common tests and procedures available online starting 2021. Hospitals will display prices of shoppable services as a total package in an easy-to-read, consumer-friendly format.

The proposal also asks insurance companies offering group and individual coverage to provide cost estimates to enrollees up front so that patients are able to take an informed decision about their healthcare spending. It requires insurers to publicly release their negotiated rates with in-network providers and the expected payments to out-of-network providers.

Reasons That Drove the Rule

At present, a complex billing structure piles up bills from multiple providers, thus making it difficult for patients to understand the real price and value of care provided to them.

Both the final and the proposed rule aim at making healthcare prices more transparent than ever before. The premise behind the rules is to lift the veil put into place by health insurers and hospitals, under which these players partner among themselves to provide healthcare services at inflated prices.

Per the government, this systematic inefficiency enriched industry giants at the expense of patients. This is also evident from the fact that despite an increase in the cost of healthcare in the United States, the healthcare outcomes of patients remain inferior. Also, the government projects healthcare spending to consume almost 20% of the economy by 2027, one of the reasons being lack of transparency in pricing.

These rules are expected to breed greater competition among hospitals and insurers, thereby reining in the healthcare cost and improving the service quality.

Resistance From Hospital Group

Melinda Hutton, general counsel of the hospital association, said that the trade group is disappointed by the ruling being upheld, which she dubbed a “flawed” policy. She also said that complying with the rule will impose new costs amid the coronavirus pandemic, which anyways dragged down the hospital companies business.

American Hospital Association authorities stated that mandating the disclosure of negotiated rates between insurers and hospitals is not a viable approach as it violates the First Amendment (of the U.S. constitution) by compelling the public revelation of individual rates negotiated between hospitals and insurers. This will confuse patients and unduly burden hospitals, limit plenty of patient choices in the private market and fuel an anticompetitive behavior among commercial health insurers in a highly concentrated insurance industry. This new rule could upend the $1-TRILLION hospital industry by exposing the negotiated rates between the insurance companies and the hospitals, which have been kept under wraps to date and labeled as trade secrets.

Hospitals anticipate that the new rule, issued in November 2019, which requires hospitals to divulge the standard charges including payer-specific negotiated rates for 300 services beginning Jan 1 and post them online, might upset their IT budgets. Hospitals are in fact worried if their websites can handle such large files.

Most hospital companies including HCA Healthcare, Inc. HCA, Tenet Healthcare Corp. THC, Universal Health Services, Inc. UHS and Community Health Systems CYH will have to deal with the changes, which after being implemented might erode their margins due to higher compliance expenses.

Among the stocks mentioned above, Community Health currently sports a Zacks Rank #1 (Strong Buy) while the others carry a Zacks Rank #3 (Hold), presently.

Notably,  year to date, the Zacks Hospital industry has gained 7.5% compared with the  Zacks S&P 500 composite’s  rise of 17.7%.

You can see _1link">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Universal Health Services, Inc. (UHS): Free Stock Analysis Report
Community Health Systems, Inc. (CYH): Free Stock Analysis Report
Tenet Healthcare Corporation (THC): Free Stock Analysis Report
HCA Healthcare, Inc. (HCA): Free Stock Analysis Report
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