Hey everybody! The government passed the Transparency in Coverage Rule.

So healthcare is affordable now, right?

The Transparency in Coverage Rule (TiC) went into effect in July of 2022. It requires that hospitals publish prices for the 300 most common services and be accessible in a consumer-friendly format. The remainder of services must also be published but can be published in non-standard formats like JSON, a Java Script format.

However, do not expect any time soon to price shop for a colonoscopy the way you would for a phone charger on Amazon. To-date, most of the data is hard to find and many argue that hospitals have largely ignored the Rule all together.

The rule also applies to certain group health plans and health insurance issuers and went into effect on January 1, 2023. Just like hospitals, insurers are required to disclose pricing for a number of services, and drugs, with contracted providers. They are also supposed to disclose costs for out-of-network procedures. By 2024 the rule requires that all services and drugs be listed.

I will believe it when I see it.

Why TiC?

The TiC rule is a first step in bringing transparency to an industry that is anything but. I challenge you to name one other service industry where upfront pricing is such a controversy. Auto mechanics come to mind. But at least auto mechanics will provide a written up-front estimate. Their final bill also typically shows a breakdown on the parts and labor. In other words, they attempt to take an unpredictable service like diagnosing and repairing a car problem, and present the bill in an understandable and fair manner. This practice helps mechanics avoid bad Yelp reviews and small claims court and being spat upon in the face. It also helps them earn trust and build a loyal customer base – what a concept!

Yelp reviews and small claims court? If only such a recourse existed for patients scorned in the world of healthcare. Perhaps if scorned patients had a means of recourse, providers would care more about fair billing practices!

Medical procedures can also be complex and unpredictable. But unlike auto mechanics, healthcare providers go out of their way to avoid, deny, reject and refuse upfront estimates and cost breakdowns on the final bill. Their stance is, “We are heroes. Now pay the bill in full right now or it goes to collections!”

Let’s use a real-life example from the groundbreaking book on healthcare costs, “The Price we Pay” by Dr. Marty Makary. The patient in the example needed a non-emergency Achilles tendon procedure and had time to shop. But unlike most patients, this person was a healthcare administrator. He was both a trained doctor and a lawyer. He knew how to navigate the system. He knew how to get pricing information and he knew within reason what the procedure in question should cost. This patient decided to shop, and bargain hunt he did.

Hospital 1: $37,000 with a $5,000 deductible

Hospital 2: $1,500 (but with the same doctor from Hospital 1 because the doctor worked at both facilities)

By shopping he saved himself $3,500 out-of-pocket and saved the rest of us $32,000 which is the amount Hospital 1 would have passed along to the “system”. I am not kidding. This example happened, and it happens every minute of every day because most patients do not shop and unscrupulous hospitals take advantage of this fact.

61% of Americans Cannot Afford Their Deductibles

From the example above, we see how TiC could be an important breakthrough. One of the main aims of the rule was to de-mystify the out-of-pocket portion of a medical bill. We live in a time where a lot of working people do not have the cash to cover the deductible and co-insurance on a costly medical bill. A study in 2021 found that 61% of Americans could not afford $1,000 for an emergency. If that is truly the case, then an overwhelming number of people could not afford the $5,000 deductible from Hospital 1 above, and they would have to go into debt. Truth is, they probably can’t even afford the $1,500 from Hospital 2.

 

Obstacles to Overcome

First is compliance. TiC could be great for those with high deductible plans. By shopping, the patient above saved $3,500 and got the same doctor. But for that outcome to happen at scale, the hospitals and insurers need to comply with the rule. They must publish the costs and make them easy to find. Or, third-party websites could scrape the non-standard data and present the data in a user-friendly format. Perhaps time will solve these problems. We shall see.

Second, is low deductible plans. People with these plans are not overtly incentivized to shop. The popular book “Nudge” by Richard Thaler and Cass Sunstein would refer to the difficulty in shopping as “sludge”. Providers avoid providing estimates by making getting an estimate a hassle – faxed forms, weeks of waiting, waiting on hold, etc. They do the same for itemized statements and will even charge you for one. Anything to wear you down and get you to go away. Providers have made an artform out of making an impossible hassle to get up-front and transparent pricing.

The sludge is purposely in the way to prevent you from shopping and nudge you into these lines of defeated thinking:

• “I don’t have time to price shop and why should I? I’m not paying for this.”
• “A higher price means higher quality, right?”
• “I pay $1,200 a month for this insurance out of my paycheck. I want my money’s worth!”

Thirdly, should by some uncanny phenomenon patients begin price shopping en masse, hospitals will just raise their prices. This line of thinking may seem counter-intuitive, but we are not talking about elastic demand. When you need healthcare, you will get it. Lasik and hair transplants on the other hand can compete on price because they are luxuries. But rehabilitation after an accident is rehabilitation that someone must have one way or the other. Published pricing actually helps competitors in inelastic demand situations engage in tacit price fixing. From the Achillies example above, what if Hospital 2 studied Hospital 1’s pricing and realized they were leaving money on the table? Hospital 2 could, and probably would, raise their price significantly.

Overall, I think TiC has potential to help curb rising healthcare costs and is a small step in the right direction. It may hopefully nudge providers to behave more like auto mechanics and attempt to explain the costs of a complex and unpredictable job. But there are still many, many roadblocks in the way. In the next article we examine the allegation that many hospitals and insurers are not compliant.