CMS wants payers to offer price transparency. That'll be tricky, industry experts say

Patient online health information
Health plans will need to make some significant investments to comply with a new price transparency mandate. Here is how much the Centers for Medicare & Medicaid Services—and the industry—each say it will cost. (Getty/AntonioGuillem)

First, the good news: While a new federal mandate requiring health plans to build an online shopping tool for members will be a heavy lift for some payers, most major health plans already offer online cost estimator tools.

That will give them a leg up compared to payers that will have to build tools from scratch, according to industry experts.

“Payers and employers have been offering price transparency tools for decades. That’s nothing new in the industry,” said Minal Patel, M.D., founder and CEO of Abacus Insights, a data management company that works with health plans. Patel served as head of strategy at a large health insurance company prior to launching Abacus Insights.

Now for the bad news: The new final regulations issued by the Trump administration last week, which will impose price transparency requirements on group health plans, could still be pretty tricky and costly to comply with. 

Beginning in 2022, insurers must post online machine-readable files that include their in-network negotiated provider rates, out-of-network coverage rates and in-network drug pricing. The following year, in 2023, insurers must offer an online shopping tool or similar platform that includes an out-of-pocket cost estimate and negotiated prices for 500 of the "most shoppable" services. By 2024, the requirement will be extended to all services.

“The complexity here is around mapping the data sources to the real-time calculations based on benefit design and cost-sharing," Patel said. "How that gets done is going to be complicated.”

Patel used the example of a patient wanting to see a doctor for back pain. “That could be something as minor as a strain, all the way through to a malignancy that requires an MRI. The mandate isn’t going to solve those complexities as payers implement these capabilities,” he said.

“No question, it’s going to cost a lot of money," Patel said. "It’s going to require real effort to get it done and, most importantly, get it done correctly so the right information is available at the right time. And those dollars will come out of other initiatives that health plans need to invest in to service their members.”

RELATED: Trump administration finalizes rule forcing payers to post negotiated rates, cost-sharing data

The Blue Cross Blue Shield Association, which represents 36 Blues plans, said that an economic analysis from the firm Bates White found that the total setup and maintenance cost for an insurer to comply with the rule was $13.63 million. That is 26 times higher than the administration’s original estimate of $510,000.

In the final rule (PDF), the Centers for Medicare & Medicaid Services (CMS) estimates that building a consumer-friendly price transparency tool from scratch will cost about $5.3 million in the first year. For health plans that already have price estimator tools, CMS estimates it will cost about $1.6 million to modify the systems to meet the new requirements.

CMS also estimated it will cost about $3.6 million during the second year to meet the requirements and about $1 million per year to maintain the tool.

The push for cost transparency in healthcare has opened up a market for startups that work with providers, health plans and employers to provide online cost estimator tools. Companies like HealthSparq, Castlight Health, Healthcare Bluebook and Truven Health Analytics, now part of IBM, use data analytics to provide estimates of out-of-pocket healthcare costs.

While payers will have to develop price transparency tools themselves in the next couple of years, administration officials are hoping that posting the data online will allow third-party developers to design tools for consumers as well.

Most health plans will be tapping third-party vendors to create these online tools as technology companies have expertise in user interface design and user experience, according to Morgan Reed, executive director of ACT | The App Association, a group that represents app makers and connected device companies.

RELATED: Insurers press for more time to respond to transparency rule, say changes could disrupt market

“There are two vantage points. One is, what does the insurer need us to build? From a technical consideration, the major issue is, what does the data look like and how can we use that data from an algorithmic perspective,” Reed said. “And then two, how do we make this as user-friendly and informative as possible for the potential patient.”

“Some of the comments made in opposition to the rule had fair points," Reed said. "You have to simplify complex information that probably has multiple levels of negotiations that went into, and put it into a transparency app that is engaging and informative and includes things like accessibility and language features."

Health plans also will have to invest in educational initiatives to increase their members' awareness and understanding of the information provided by these tools, according to Lillian Phelps, senior director of product management at Availity, a company that provides a health information network for providers and payers.

"It is going to be a big lift for payers. It's going to take time, energy, investment, and education to ensure folks are able to understand the information they are given," she said. 

Health plans that already have cost estimator tools will have to enhance the search capabilities to show members negotiated prices and out-of-pocket cost estimates for each service and each provider, according to Bill Kampine, co-founder and senior vice president at Healthcare Bluebook.

RELATED: CMS Administrator Verma scoffs at hospital execs' arguments against transparency

"We have lessons learned from over a decade of doing this work. Our focus is to take complex information and make it easy for consumers to understand," he said, noting that the company already is working to modify its platform to meet the new transparency mandate.

About a third of Americans (37%) go online mostly using a smartphone, according to the Pew Research Center. This also creates a challenge for developers of these healthcare price transparency tools to break down complex information in a convenient and useful format that consumers can access on a small screen, according to Reed.

“It will cost money and take time to do it right. The worst outcome from the CMS rule is the data is available but the products are of poor quality or not very usable, which doesn’t help patients and it doesn’t help payers to meet the compliance requirements,” he said.

Hospitals are pushing back against a similar regulation finalized late last year that requires them to post their negotiated rates with insurers online beginning in January. It's expected that insurers will not accept the new rule without a fight.