Federal efforts to increase hospital price transparency are falling short as hospitals fail to fully comply with requirements. However, states with transparency laws that give them access to comprehensive hospital financial data are using the pricing information to more fully analyze hospitals’ fiscal health and inform states’ cost containment efforts.
For state agencies seeking to better understand rising health care costs, the price of shoppable services is a relatively small piece of the hospital financial puzzle. The federal regulation falls short of requiring other key metrics and data points that states need for oversight and/or for informed policymaking, such as bad debt, net gains/losses, profit margins, charity care, and more.
Additionally, neither the federal executive order nor subsequent regulations outline any sort of standardization for reporting the required data. Having a consistent standard for accounting documents – such as balance sheets, income statements, and statements of cash reserves – would provide comparability and clarity that states would be able to utilize in a multitude of ways. So even if hospitals comply with the current federal requirements, state officials will still lack access to the information they need to fully understand hospital financials and effectively combat rapidly rising health system costs in their states.
Building on a number of state hospital transparency efforts to date, the National Academy for State Health Policy (NASHP) has developed a reporting template and model legislation states can use to require health systems to provide comprehensive, standardized financial data that can inform policymaking and help state agencies better understand what is driving rising hospital costs. Connecticut and Oregon have been collecting hospital financial data for several years –their experiences informed the development of NASHP’s model law and reporting template, and they may be useful to other states.
The Connecticut Office of Health Strategy collects data to evaluate increased hospital expenditures against their revenue to determine if such expenditures are necessary and warranted. Connecticut also uses this data to help answer key questions about hospitals’ ability to continue to meet their debt obligations, pay their employees and vendors, and continue to provide quality care to patients. The standardized data Connecticut collects also helps the state evaluate the changing health care market, which includes health system mergers and acquisitions, increased capital costs, and the differences between increased expenses and revenues.
Assessing hospital financials helps states develop a range of cost containment strategies, from payment and care delivery reforms to policies designed to restrict cost growth. For example, hospital financial reporting serves as a critical companion to Connecticut’s cost-growth benchmark program by helping to contextualize claims reporting data when evaluating system costs over time. When paired with quality measures, all-payer claims database information, facilities fee reporting, discharge data, and cost benchmark data, hospital financial transparency has given Connecticut a fuller, more accurate picture of the health market’s performance statewide. Financial data on its own may not necessarily reveal price variation over time, but when tied with other data, such as reporting on payer mix (public vs. private payers) differences, states can better evaluate their hospital market’s performance.
With hospital costs making up a significant portion of health care spending, states have been interested in tracking the impact of hospitals’ payer mixes and the proportion of hospital costs on overall premium dollar changes over time, especially when compared to federal data. The Oregon Health Authority has been collecting hospital financial data for years and in 2014 began publishing quarterly reports. Oregon documented a rise in state health spending at an average of 6.5 percent per person per year from 2013 to 2017, compared to a 4.5 percent annual increase at the national level. This discrepancy between federal and state-level health cost annual increases encouraged Oregon to develop cost-containment strategies. Additionally, while hospital profit margins were about 7.3 percent statewide in 2019, some Oregon hospitals reported losses that year, which were quickly identified in the state’s standardized financial reporting format.
Oregon has also been able to utilize its financial data to assess the impact of the COVID-19 pandemic on its statewide health systems. As have many states, Oregon observed a decrease in hospital utilization in the second quarter of 2020, caused by the suspension of elective procedures and stay-at-home orders. This resulted in a steep reduction of about 80 percent in net patient revenue during April. Combined with data collected on hospital financial reserves, Oregon was able to prepare for the potential of rapid consolidation – which frequently leads to increased prices impacting consumers and boosting premiums.
While it’s unlikely that hospital transparency efforts on their own will produce lower health care costs, states may want to consider the value of this approach in collecting comprehensive health system data – particularly as care utilization has changed over the past year and its effect on the system remains unknown. NASHP’s model law and reporting template, informed by state experiences, offer a more robust health system financial picture than the current federal price transparency effort.