Jim Summers
Michael Nowicki

Does your pricing policy help you or hurt you?

Price transparency means both buyer and seller know their prices. One knows what it will charge. The other knows what it will pay. Seems simple, doesn't it?

Healthcare financial managers need to make sure their pricing policies are clear to both staff and patients. Patients should know what they have to pay, and the bills should be clear. Earlier this year, two patients had experiences that suggest price transparency is not in effect at all hospitals. Even worse, their experiences indicate that some business office staff apparently do not know what their hospital's prices are. This apparent lack of transparency can cause patients to wonder whether the hospital is run effectively and safely. If multiple errors occur in the billing process, how can a patient have confidence in care received?

Healthcare financial managers likely can explain the apparent misunderstandings described here. However, a lack of price transparency can confuse patients and have a negative marketing effect. Patients perceive disorganization and price opacity. In marketing, the reality is the perception.

In the cases of these two patients, all of the physicians and therapists submitted their bills quickly, and the billing practices were uniformly clear. This was not the case for four hospitals.

Billing Confusion

Patient 1 had nose surgery at Hospital A in May 2006. The patient then visited Hospital A's emergency department later in May to stop a nosebleed, visited an out-of-state ED in late June 2006, and then had surgery for a total knee replacement at Hospital B in July 2006.

Before the first surgery, Hospital A advised the patient he owed $729, which he charged to his credit card. Later informed of additional financial liability, the patient arranged to have a check for $100 arrive two days before the bill was due. Two days before the due date, a professional but curt collection agent called to see where the $100 was. From that point, everything went downhill.

The patient received a letter from Hospital A indicating "the insurance company has not yet paid, and what they owe is your responsibility." Total charges were $12,400, with the insurance company still owing $701 and the patient $688. After calling the hospital to negotiate payment terms, the patient was told he owed $13, not $688. When he asked what happened to the rest of the amount, the representative said the patient never owed $688 and had no idea where that number or the amount due by the insurance company came from. The patient also learned the $100 check, received a week or so earlier, was still being processed. This experience raised questions about cash flow management and how accurate the hospital billing process can be when these numbers are so variable and hospital representatives cannot explain them. The patient has not received any more bills for this account.

A complication from the nose surgery recovery led to the ED visit at Hospital A in May. As of November 2006, the patient had not received any hospital bills from that visit. The ED physician was paid long ago.

Patient 1 also visited an ED that was part of a Bureau of Indian Affairs hospital in Montana in late June 2006. Not being a qualified American Indian, the patient presented his insurance card. Not only was no copayment required, the patient also received all needed prescriptions from the hospital pharmacy without charge. Checking on this visit several weeks later with the insurance company disclosed that there was no record of any charges submitted. Will there be a charge to the patient? As of November 2006, neither the patient nor the insurance company had paid a penny for that ED visit.

Payment Confusion

For the second surgery, at Hospital B, Patient 1 was told he would be liable for $1,400 of the bill. Hospital B is much larger and is in a partnership with the national for-profit hospital chain that owns Hospital A. Without asking about the patient's ability to pay, Hospital B offered to arrange payment terms. Before then, the patient had planned to use a credit card. Asked whether the terms require the patient to pay interest, Hospital B said "no." The patient signed up for the slowest payment plan possible, which included $500 down.

Hospital B essentially gave away money with no known marketing advantage. Why would a payment plan have no interest? Why would a payment plan be offered if the patient was willing to pay the entire amount before or at the time of service? The patient had no real choice about where to get the surgery. Giving preferable financing terms did not make him choose that facility over competitors. Nor was it likely the patient could price shop financing on surgery with any ease.

With the first payment to Hospital B coming due, the patient called to see if the $50-per-month arrangement required a monthly check or if the hospital would automatically charge the credit card. The hospital had no record of the patient owing any money at all but did have a record of receiving the $500. The representative said to forget about the $50 per month until the patient received new bills. Forget about it? This is good cash flow management? Wouldn't it be better to collect the money according to the note, and then provide a refund if one is due? As of November 2006, no further bills had been received.

Lack of Transparency

A physician scheduled Patient 2 to undergo some diagnostic procedures at Hospital C in another city. The hospital called the patient and told him he would be liable for 20 percent to 80 percent of the total charges; the insurance company would cover the rest. When the patient asked what the charges would likely be, the hospital refused to release any pricing information to the patient.

The patient cancelled the procedures, and the physician was furious at the hospital. Sound familiar?

What Can Healthcare Financial Managers Do?

What is the point of these anecdotes? As former hospital executives who now teach healthcare administration at the college level, we were both appalled by these patients' experiences. Your patients may well be confused about vagaries in billing practices, even if healthcare financial managers can eventually explain them. In an industry beset with concerns about preventable medical errors, apparently opaque and unclear medical bills can do little to assure patients of the organization's competence. Would anyone think you are running your business well when you offer overly generous payment terms that were never requested?

We suggest healthcare financial managers conduct their own marketing research on the extent of confusion about their organization's billing practices. Whether or not the stories related here mirror what happens at your organization, the stories are true and suggest that it might be worthwhile to look into your hospital's practices to see if what you are doing makes sense to patients and if you are giving away money unnecessarily. Furthermore, it might be important to find out who is communicating this information to your patients and whether they are qualified to do so.


Jim Summers, PhD, CHE, is a professor of health administration, Texas State University-San Marcos (summers@txstate.edu).

Michael Nowicki, EdD, FHFMA, FACHE, is a professor of health administration, Texas State University-San Marcos, and a member of HFMA's South Texas Chapter (nowicki@txstate.edu).

Publication Date: Friday, December 01, 2006

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