Hospitals Squeal Over Trump Proposal to Disclose Insurance Company Discounts

In one of his intermittent gestures of concern for ordinary people, Trump made what ought to be a modest proposal: to require hospitals to disclose the discounted prices they have negotiated with various insurers. Hospital industry spokescritters reacted as if Trump was planning to throw their children in a vat of boiling oil.

The vehemence of the hospitals’ response, along with the ludicrous claims made, seems surprising given how toothless the Trump proposal is. Hospitals that don’t play ball would be fined up to $300 a day. Yes, you read that correctly. $300 a day, maximum.

However, as we’ll discuss, even a weak proposal like this could have significant impact if even a few hospitals were to accede to the Administration’s wishes.

First, a brief overview of the Trump plan, courtesy the Wall Street Journal:

Hospitals would have to disclose the discounted prices they negotiate with insurance companies under a Trump administration rule that could upend the $1 trillion hospital industry by revealing rates long guarded as trade secrets.

Hospitals that fail to share the discounted prices in an online form could be fined up to $300 a day, according to a rule proposed in the Federal Register. The price-disclosure requirements would cover all the more than 6,000 hospitals that accept Medicare.

Comments on the proposal would be due in September and, if completed, the rule would take effect in January.

Hospitals would have to disclose the rates for services and treatment that they have negotiated with individual insurance companies such as Aetna Inc., Cigna Corp. and Anthem Inc. under the proposal released Monday. The Trump administration is also working on initiatives that could compel insurers to disclose their rates, part of a push to publicize costs that is likely to spur lawsuits and sharp resistance from the industry.

The initiative represents the Trump administration’s growing effort to shift away from rolling back the Affordable Care Act rollback and put its own stamp on health care instead. Central to that strategy is the notion that more price transparency will inject greater competition into the market and lower costs.

An additional element, per CNBC:

As part of the proposal, the administration would require hospitals to publish insurer-specific prices for at least 300 “shoppable services” consumers might consider beforehand, such as X-rays or lab tests.

We have to stop and note that the Journal dignifies the laughable industry assertion that negotiated prices constitute a trade secret. A trade secret is intellectual property developed by the producer that is so important to its competitive standing that disclosure would amount to irreparable harm. Classic examples of a trade secret are the formula for Coca Cola and the designs for chips. The claim that a mere figure that was the result of a negotiation between two parties could ever be deemed to be a trade secret is ludicrous.

The fact that an industry shill managed to get the Journal to run such palaver is a sign that hospitals don’t have good legal arguments for preserving the secrecy of this information if government bodies require them to disclose it.

So what are the hospitals so keen to hide? That the discounts can be massive. One account from a reader who has lots of doctors in the family. A woman in California had her mother come from India to pay a visit. During her stay, the mother was diagnosed with breast cancer. The daughter wanted her to have surgery in the US. The mother did not have insurance. The hospital gave a rate of $120,000 for the procedure.

The daughter was able to ascertain that only about $7,500 was the hospital’s charge for the operating room; the rest was for the doctors. She contacted the surgeon whose fee was roughly $100,000. She was able to get him to agree to take only half. She continued working on him. By the time she was done, he agreed to charge the rate that would have been billed to an insurer: $3,800. (The part that is not obvious from this interaction is how much of the doctor’s fee actually went to the hospital. Calling it a surgeon’s fee, implies that it all or largely went to the surgeon personally, which is not the case.)

Moreover, so far, hospitals appear to have had to do very little to beat back other reforms, such as a California bill to bar the abuse of “surprise billing,” also known as balance billing. As we noted in a post earlier this month:

This article demonstrates the power of health care industry incumbents. “Surprise billing” is pure and simple price gouging, particularly since hospitals routinely game the system, such as by scheduling doctors who are not in a patient’s network on his operation, even when the patient has gone to considerable lengths to try to prevent that.

All these hospitals did was the equivalent of yelling “Boo” at the legislature, and the legislation to combat surprise billing was yanked, even though there has been a great deal of deservedly critical press coverage of this abuse.

On this issue, the hospitals’ mouthpieces have roused themselves to muster arguments but they don’t stand up to scrutiny. From the Journal:

Industry groups have argued that mandatory price disclosure could push up costs if hospitals see competitors are getting higher payments and demand the same. They say the federal government is overstepping its statutory authority and interfering in private contracts between insurers and hospitals. The contracts are generally bound by confidentiality agreements.

Tom Nickels, executive vice president of the American Hospital Association, has said consumers care more about their expected out-of-pocket costs.

“Disclosing negotiated rates between insurers and hospitals could undermine the choices available in the private market,” he told the Journal in March, when the White House was considering initiatives on price disclosure. “While we support transparency, this approach misses the mark.”

Help me. How does disclosing prices reduce choice? This is bafflegab.

It is also not a secret that some hospitals, particularly teaching hospitals, demand and get higher reimbursements from insurers. And some even stare them down. For instance, the University of Alabama at Birmingham has the best med school in the South. The contracts between United Healthcare and UAB Health System members, such as the UAB hospital, Kirklin Clinic (a huge outpatient center), all other UAB Medicine primary care, specialty care, and urgent care clinics, as well as other operations expires this week. That means anyone with United Healthcare who goes to a UAB System participant, save for the emergency room, will pay the full rack rate.

And what hospitals are keen to hide is the gap between their out of network versus in network rates, which per the comment above, they are desperate to hide because putting out of network doctors in an operating team is their big way of larding up prices to patients. Exposing the size of the gap between the rack rate and the insurers’ prices will put pressure on hospitals to end or at least curtail this abuse.

It is entirely possible that even if the Administration prevails, some or even many might defy the new rule and pay the fine. But they run the risk that Trump will use his media megaphone to hector them. That has driven down stock prices upon occasion, hitting execs in their weak spot. And local media and local politicians might name and shame the refusniks.

This Trump plan is clearly just an opportunistic gesture to allow the GOP to pretend they are serious about combatting ever-rising health care prices. But it’s also a sign that more and more Republicans see defending the status quo as a political loser.