AHA Statement On Lowering Unaffordable Costs: Examining Transparency and Competition in Health Care

Statement

of the

American Hospital Association

for the

Committee on Energy and Commerce

Subcommittee on Health

of the

U.S. House of Representatives

“Lowering Unaffordable Costs: Examining Transparency and

Competition in Health Care”

March 28, 2023

Chairman Guthrie, Ranking Member Eshoo, and members of the subcommittee, on behalf of our nearly 5,000 member hospitals, health systems and other health care organizations, our clinician partners — including more than 270,000 affiliated physicians, 2 million nurses and other caregivers — and the 43,000 health care leaders who belong to our professional membership groups, the American Hospital Association (AHA) appreciates the opportunity to provide the hospital perspective on transparency and competition in health care.

Given the hearing topics of transparency and competition could touch on a number of issues, we provided comments on the following areas: hospital compliance with the Hospital Price Transparency Rule and other transparency efforts; mergers and acquisitions; site neutral payment policies; the 340B program; and physician-owned hospital restrictions.

HOSPITAL PRICE TRANSPARENCY

Hospitals and health systems are committed to empowering patients with all the information they need to live their healthiest lives. This includes ensuring they have access to accurate price information when seeking care. Hospitals and health systems are working to comply with both state and federal price transparency policies, which are varied and sometimes conflicting. At the federal level, these include:

• Hospital Price Transparency Rule. As of Jan. 1, 2021, hospitals are required to publicly post via machine-readable files five different “standard charges”: gross charges; payer-specific negotiated rates; de-identified minimum and maximum negotiated rates; and discounted cash prices. The rule also requires hospitals to provide patients with an out-of-pocket cost estimator tool or payer-specific negotiated rates for at least 300 shoppable services.
• Good Faith Estimates. The No Surprises Act requires hospitals and other providers to share Good Faith Estimates with uninsured/self-pay patients for most scheduled services. Future regulations will require unaffiliated providers to combine their estimates for an uninsured/self-pay patient into a single, comprehensive Good Faith Estimate for an episode of care.
• Advanced Explanation of Benefits. The No Surprises Act requires insurers to share advanced explanations of benefits with their enrollees, though implementation is currently on hold pending rulemaking. Hospitals will need to provide Good Faith Estimates to health insurers to operationalize this policy.

Hospital Price Transparency Rule

Over the past several years, the AHA has engaged hospitals and health systems in substantial education and engagement on the Hospital Price Transparency Rule. This includes:

• Establishing a CEO-level Price Transparency Task Force that helped guide the AHA in developing policies and sharing best practices with respect to price transparency and patient billing;
• Conducting education through multiple webinars, bi-weekly “office hours” with AHA and Healthcare Financial Management Association technical experts, issue briefs, case studies and podcasts;
• Providing an implementation guide, including implementation checklists and FAQs;
• Conducting a three-part webinar series on Health Care Consumer Expectations and Experiences with Kauffman Hall;
• Hosting a multi-stakeholder intensive design process, which included providers, payers, patient advocates, technology vendors and others, to develop solutions to improve the patient financial experience of care;
• Supporting CMS efforts to establish voluntary sample formats that hospitals may use to meet the federal requirement to make certain standard charges publicly available through a machine-readable file by connecting the agency with experts from the hospital field; and
• Updating the AHA’s Patient Billing Guidelines, which include a focus on helping patients access information on financial assistance.

CMS has a process in place to ensure hospital compliance with the Hospital Price Transparency Rule. This includes a review, usually involving direct discourse with the hospitals; if deficiencies are identified, a warning letter is sent from the agency; and if the deficiencies are not corrected, a corrective action plan is requested. Should a hospital continue to fail to come into compliance, CMS then applies a civil monetary penalty.

CMS found that in 2022, 70% of hospitals complied with both components of the Hospital Price Transparency Rule, including the consumer-friendly display of shoppable services information, as well as the machine-readable file requirements. This is an increase from 27% in 2021. Moreover, when looking at each individual component of the rule, 82% of hospitals met the consumer-friendly display of shoppable services information requirement in 2022 (up from 66% in 2021) and 82% met the machine-readable file requirement (up from 30% in 2021).

These numbers show significant progress on the part of hospitals and health systems — while acknowledging the work that remains — in implementing these requirements. The lower compliance rate in 2021, however, should not be interpreted as a lack of hospital commitment to transparency. Instead, it reflects the incredible challenges hospitals were experiencing in 2020 and 2021 in addressing the most acute phases of the COVID-19 public health emergency, which strained hospitals’ staff and required the diversion of personnel and financial resources. As the pandemic phase of COVID-19 winds down and hospitals have been able to resume more standard operations, they are able to dedicate the resources necessary to build the full suite of price transparency tools.

CMS also shared information regarding how it has interacted with hospitals to support compliance and the issuance of penalties:

“As of January 2023, CMS had issued nearly 500 warning notices and over 230 requests for corrective action plans since the initial implementing regulation went into effect in 2021. Nearly 300 hospitals have addressed problems and have become compliant with the regulations, leading to closure of their cases. While it was necessary to issue penalties to two hospitals in 2022 for noncompliance (posted on the CMS website), every other hospital that was reviewed has corrected its deficiencies.”

Unfortunately, some third parties continue to issue reports mischaracterizing whether hospitals are complying with the Hospital Price Transparency Rule, as was detailed in a letter AHA sent recently to House Energy and Commerce Chair Rodgers and Ranking Member Pallone. These reports fail to acknowledge CMS’ requirements, such as how to fill in an individual negotiated rate when such a rate does not exist due to patient services being bundled and billed together. In this instance, CMS has said a blank cell would be appropriate since there is no negotiated rate to include. Despite this, some outside groups still count any file with blank cells as “noncompliant.” This fundamental misrepresentation of the rules has only served to advance misinformation and confusion on the issue and distract from genuine productive discussions and efforts around what patients want in terms of transparency data and how best to provide that information.

In addition to the CMS report on compliance, we would draw your attention to a recent NBC Nightly News story, “Are hospitals complying with the federal price transparency law?” which highlights CMS’ oversight work. We also would note that Turquoise Health, a health technology company that analyzes provider and payer data, has shown in its review similar uptake to the CMS results with respect to hospital compliance. In an October report, Turquoise found that through the third quarter of 2022, 76% of hospitals (4,909) have posted a machine-readable file.

Recommendations

Hospitals and health systems are eager to continue working towards providing the best possible price estimates for their patients. We ask Congress and the Administration to take the following steps to support these efforts, including:

• Review and streamline the existing transparency policies with a priority objective of reducing potential patient confusion and unnecessary regulatory burden on providers;
• Continue to convene patients, providers and payers to seek input on how to make federal price transparency policies as patient-centered as possible; and
• Refrain from advancing additional legislation or regulations that may further confuse or complicate providers’ ability to provide meaningful price estimates while adding unnecessary costs to the health care system.

HOSPITAL MERGERS AND ACQUISITIONS

Mergers and acquisitions are one of the most important tools that some hospitals use to increase access, provide quality care and manage financial pressures and risk. These partnerships enable hospitals to expand service offerings, broaden networks and access to specialists, improve quality and better serve patients where they live. They also provide scale to help reduce costs associated with obtaining medical services, supplies and prescription drugs, and enable health systems to reduce other operational costs. Ultimately, hospital mergers and acquisitions expand and preserve access to care.

Emerging research has demonstrated a clear association between consolidation and quality improvement. For example, one study found that a full-integration approach is associated with improvements in mortality and readmission rates, among other quality and outcome improvements.¹ Another study found significant reductions in mortality for a number of common conditions — including acute myocardial infarction, heart failure, acute stroke and pneumonia — among patients at rural hospitals that had merged or been acquired.² 

Mergers and acquisitions help hospitals improve access to care by expanding the types of specialists and services available to patients. According to an analysis by Kaufman Hall, nearly 40% of affiliated hospitals added one or more services post-acquisition. Mergers and acquisitions also are a vital tool that some health systems use to keep financially struggling hospitals open, thereby averting bankruptcy or even closure.³ When hospitals become part of a health system, the continuum of care is strengthened for patients and the community, resulting in better care and decreased readmission rates.

Mergers and acquisitions have also played a critical role in preserving access to care in rural areas. An AHA analysis of the UNC Sheps Center data on rural hospital closures between 2010 and 2020 shows that slightly more than half of the hospitals that closed were independent. Health systems typically acquire rural hospitals when these hospitals are under financial distress. Research has shown that rural hospitals are less likely to close after acquisition compared to independent hospitals and that mergers have improved access and quality of care for rural hospitals.⁴ Acquired hospitals typically form new collaborations or partnerships with larger health systems, which promotes access to specialists, telehealth and other care for rural patients.⁵

MEDICARE OUTPATIENT SITE NEUTRAL PAYMENT REDUCTIONS

The AHA strongly opposes additional site-neutral payment cuts, which threaten access to care, especially in rural and historically marginalized communities. Existing site-neutral payment policies have already negatively impacted the financial sustainability of hospitals and health systems, particularly as they continue to manage the aftermath of the COVID-19 pandemic as well as the challenges posed by workforce shortages, broken supply chains and historic levels of inflation that have increased the costs of caring for patients. In addition, underpayments from Medicare already put a strain on hospital finances by reimbursing hospitals significantly less than the cost of providing care for those beneficiaries. Further cuts would exacerbate that gap and may cause hospitals to significantly reduce services.

Site-neutral policies also fail to account for the fundamental differences between hospital outpatient departments (HOPDs) and other sites of care. The cost of care delivered in hospitals and health systems takes into account the unique benefits that they provide to their communities. This includes the investments made to maintain standby capacity for natural and man-made disasters, public health emergencies, unexpected traumatic events as well as deliver 24/7 emergency care to all who come to the hospital, regardless of ability to pay or insurance status. Hospitals and health systems provide access to critical services and programs that may not be otherwise available, especially in low-income and rural communities.

Hospital facilities also treat patients who are sicker and have more chronic conditions than those treated in physician offices or ambulatory surgical centers, which requires a greater use of resources. In addition, hospital facilities must comply with a much more comprehensive scope of licensing, accreditation and other regulatory requirements compared to other sites of care.

Moreover, Medicare payments already fail to cover the costs of caring for Medicare beneficiaries — a fact that even the Medicare Payment Advisory Commission (MedPAC) has acknowledged. This underpayment is due in part to existing site-neutral payment policies that have substantially cut reimbursements; further site-neutral cuts would only exacerbate this gap. According to MedPAC, overall Medicare hospital margins were -6.3% in 2021 after accounting for temporary COVID-19 relief funds. Without these temporary relief funds, the overall Medicare margin for 2021 remained depressed at -8.2% after hitting a staggering low of -12.3% in 2020. This marks nearly two decades in a row that Medicare payments have not covered patient costs. On average, Medicare only pays 84 cents for every dollar hospitals spend providing care to Medicare beneficiaries. Moreover, median hospital operating margins have stayed negative throughout 2022. Site-neutral cuts have already contributed to these shortfalls, and any further expansion of these policies will threaten patients’ access to quality care.

Now more than ever, hospitals need stable and adequate reimbursements as they face challenging financial circumstances. Expanding site-neutral cuts to additional HOPDs would endanger the critical role that hospital-based outpatient departments play in their communities, including access to care for patients, especially the most medically complex.

340B DRUG PRICING PROGRAM

The 340B Drug Pricing Program, for more than 30 years, has allowed hospitals to stretch limited federal resources to reduce the price of outpatient pharmaceuticals for patients as well as expand health services to the patients and communities they serve. 340B hospitals achieve savings by purchasing drugs at a discount. The amount of that discount depends on drug companies’ pricing decisions, with the Health Resources and Services Administration (HRSA) estimating that the average discount is anywhere between 25% to 50%.

Hospitals use 340B savings to provide a range of vital programs and services, which include, but are not limited to, the provision of free or discounted drugs to low income patients, free care for uninsured patients and support for behavioral health clinics and community health programs. In fact, in the most recent year for which information is available, tax-exempt 340B hospitals provided nearly $68 billion in total benefits to their communities.6 This drug pricing program is particularly important as drug prices continue to rise and hospitals face increased inflationary cost pressures across all their supplies and services. The AHA urges Congress to continue to protect this critical program and oppose efforts further restrict eligibility, which would result in reduced access to quality care for the patients and communities served by 340B hospitals.

The AHA is also alarmed by some drug companies’ efforts to restrict access to 340B discounted drugs for 340B hospitals that have established community and specialty pharmacy arrangements. Since October 2022, over 20 drug companies have adopted these restrictive policies to the severe detriment of 340B hospitals and their patients. The financial impact on 340B hospitals is significant. For 340B critical access hospitals, AHA’s survey reports average annual losses of over $500 thousand and 340B disproportionate share hospitals have average annual losses of nearly $3 million.7 The AHA continues to actively support HRSA in its efforts to enforce the requirements for drug companies set forth in the 340B statute.

RESTRICTIONS ON PHYSICIAN-OWNED HOSPITALS

America’s community hospitals and health systems welcome fair competition, where health care entities can compete based in quality, price, safety and patient satisfaction. But physician-owned hospitals (POH) — where physicians cherry-pick the healthiest and best-insured patients and self-refer those patients to facilities in which they have an ownership interest — represent the antithesis of competition. The AHA strongly opposes any changes that would either expand the number of POHs or ease restrictions on the growth of existing facilities.

Congress acted in 2010 to close the “whole hospital” loophole in the Stark law and placed restrictions on POHs. That provision represented a carefully crafted compromise to protect hospitals with a Medicare provider number as of Dec. 31, 2010 and allow those facilities to expand when increased hospital capacity is needed. Since 2010, eight POH hospitals have applied for the exceptions process and have been allowed to expand.

Several analyses, including by the Congressional Budget Office, MedPAC and independent researchers, have concluded that physician self-referral leads to greater per capita utilization of services and higher costs for the Medicare program. In fact, according to the Congressional Budget Office, closing the “whole hospital” exception loophole in the Stark law reduced the federal deficit by $500 million over ten years. Bills that would repeal the 2010 law would erase those savings and increase the federal deficit.

Furthermore, POHs tend to cherry-pick the most profitable patients and services, jeopardizing communities’ access to full-service hospital care. The Government Accountability Office, CMS and MedPAC have found that patients in POHs tend to be healthier than patients with the same diagnoses who are taken care of by community hospitals. This practice of self-referring physicians carefully selecting their patients creates a destabilizing environment that leaves sicker and less-affluent patients to community hospitals, thereby placing these hospitals at a distinct financial disadvantage. This is because community hospitals rely on cross-subsidies from those services targeted by POHs to support essential, but under-reimbursed, services such as emergency, trauma and burn care. By siphoning off the most profitable services and patients, POHs threaten the ability of community hospitals to offer quality, comprehensive care and serve as the health care provider for all patients, regardless of income or insurance status, in their communities.

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¹https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2787652
²https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2784342
³ https://www.aha.org/system/files/media/file/2021/10/KH-AHA-Benefits-of-Hospital-Mergers-Acquisitions-2021-10-08.pdf
⁴ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9250050/
⁵ https://www.aha.org/system/files/media/file/2021/10/KH-AHA-Benefits-of-Hospital-Mergers-Acquisitions-2021-10-08.pdf
⁶ Blog: 340B program helps advance health for patients, communities | AHA News
⁷ Survey Brief: Drug Companies Reduce Patients’ Access to Care by Limiting 340B Community Pharmacies | AHA