On March 1st, CMS released the stable v1.0 schema for payers to disclose negotiated rates pursuant to Transparency in Coverage (TiC). For price transparency aficionados like us, this day felt like the release of the first iPhone, Avengers Endgame, or the Rocketman remix with Elton John and Dua Lipa. It was a big day. And at the final hour, before the theatrical global release, CMS officially added per diem and % of billed charge payment methodologies to the schema.

We were pleasantly surprised, kind of like when Ken Jeong made a cameo in Avengers Endgame. This creates a whole new universe of data for patients who want (and, soon through No Surprises, legally have a right to) shoppable service estimates.

For over a year, the government has interfaced with payers and the healthcare community at large via GitHub (yes, Medicare has started making laws with GitHub! 2022 is crazy). There are innumerable algebraic methods under the sun by which healthcare gets paid. At Turquoise, it’s our good (mis?)fortune that we’re familiar with almost all of them. While conversations on GitHub ranged from case rates to Average Wholesale Price to stop loss, the government’s team narrowed in on the most prevalent payment methods that drive healthcare.

Why is it so important that % of billed charge made it into this v1.0 schema? Let us show you, the same way we showed CMS in February when they solicited comments from Turquoise.

Despite the Popularity of Value-Based Care, % of Charge is Still Very Common

% of billed charge works exactly how it sounds: you (the patient at a hospital or clinic, e.g.) will show up for treatment without knowing the charges, you will receive an array of previously unknown items and services, and you will eventually get a bill in the mail letting you know what you “bought.” This is like going to a big fancy dinner where the menu didn’t have any prices and the restaurant billed you long after you had forgotten you ate there.

% of billed charges is a bastion of “fee for service” healthcare. The provider renders services and is reimbursed in a linear relationship to the services rendered:

  • Jodie goes to the hospital and receives a $10,000 outpatient bill
  • Blue Cross has negotiated with the hospital for 50% of charges, so they allow $5,000
  • Jodie has a high deductible of $5,000 and foots the entire allowable
  • Jodie sincerely regrets going to the ER for a sinus infection

Ultimately, % of billed charges places “risk” on the payers of healthcare (insurance companies and ultimately patients). Providers favor % of billed charge rates as the “risk” of performing services poorly (the patient getting readmitted or needing a surgery revision) is largely reduced, and the provider still gets paid.

In early 2022, the government was curious to hear just how prevalent % of billed charges payments are still found in US healthcare. Fortunately, we have some game film on this! Here’s what we showed them.

You may have read that we recently ingested nearly 200 HCA hospitals’ machine-readable files into our database via the hospital price transparency disclosure. HCA, like many other hospitals, revealed more than just their standard charges: they also gave us a glimpse into the reimbursement algebra behind their payer contracts. It just so happens that HCA also accounts for 5% of all hospital encounters for patients in the US and operates in 21 states. So, we can somewhat reliably use HCA as a proxy for what patients face across the US. Let’s take a look at a sample HCA disclosure for Cigna at Overland Park Hospital (this is just a snippet from the top):

HCA disclosure for Cigna at Overland Park Hospital

For commercial, medicare advantage, and managed Medicaid plans, HCA often broke down payment constructs at the provision level. We see that Burn DRGs, certain ER services, and Gamma Surgery are paid at a % of billed charges, while other services are paid at Fee Schedule and Case Rate (a flat number).

If we zoom out and look at the prevalence of all provisions across HCA files, here is what we get.

% of charge prevalence of all provisions across HCA files

The topline commercial numbers are extremely revealing. 73% of commercial contracts across HCA have at least one % of charge (in the industry, often referred to as POC) provision. 27% of commercial plans are entirely paid at % of charge!

The middle numbers refer to “Qualified” POC provisions. All this means is that the provision has some billing codes that map a service to a rate (such as Burn, Gamma, and ER above). So then what falls into the “unqualified” POC bucket? The “Global Rate.” Think of it as the kitchen sink: “if the services rendered don’t qualify for any of the above provisions we’ve spelled out, we’ll just pay this at X % of charges.” This is highly common and often referred to as the “All Other” rate.

Why is the % of Billed Charges Inclusion a Big Win for Price Transparency (and patients)?

Before this was announced, % of billed charges rates would have been excluded entirely from the TiC disclosures, as CMS required all rates in a dollar amount form. As we see above, that’s a huge universe of services in healthcare that patients across the US could not use for price estimates. Additionally, this would have acted as a shield for % of billed charge payers to not-so-transparently hide behind.

Now, consumers (and more importantly, third parties like Turquoise Health who make this data available to consumers) can do some basic math to create rudimentary estimates powered by % of billed. This is where the interplay of the triumvirate of price transparency rules gets really cool. We’ve been told CMS has planned for these three rules to mix all along – if they didn’t, I still think it’s worth claiming for the street cred:

  • Hospitals disclose List Prices in the machine-readable files (via Hospital Rule)
  • Payers disclose % of billed charge rates (via Payer Rule/TiC)
  • (Turquoise Health does some math and computer stuff by multiplying the % of billed charge rates by their corresponding List Prices)
  • Both payers and providers work together (and likely, with third party help) to create accurate price estimates for patients (required by No Surprises)

Ultimately, this increases liquidity in the market for competition powered by savvy consumers. In the end, how will % of billed charge estimates (which vary wildly) fare against more straightforward bundled prices and case rates? Probably not very well. One could extrapolate that market forces, coupled with this disclosure, could be the necessary kick in the butt to finally move decisively towards Value-Based Care.

At Turquoise Health, we’re hard at work on preparing our Clear Rates Data Platform to house all this juicy data and present it to customers. We’re also working to help payers prepare for the all-important July 1, 2022 disclosure deadline. In the coming weeks, we’ll be commenting with additional thoughts on the other changes to the TiC schema (per diem rates and the “additional information” column, for example). Until then, drop us a line at info@turquoise.health with any questions!