Doing the Right Thing for the Right Reasons

Richard L. Clarke, DHA, FHFMA

The drumbeat for rational hospital pricing is not going away; it's getting louder.

Witness, for example, the recent study "From 'Soak the Rich' to 'Soak the Poor': Recent Trends in Hospital Pricing" by Gerard Anderson of the Johns Hopkins Bloomberg School of Public Health (Health Affairs, May/June 2007). Using 2004 data, the study found that the prices hospitals charged self-pay patients were two to three times more than what hospitals charged commercial payers and Medicare. The report further noted that this gap grew significantly from the mid-1980s. The mainstream press response to the study "reinforced the notion that the uninsured billing issue is far from being resolved in the public's mind" (Becker, C., "Uninsured Billing Study Déjà Vu?" Modern Healthcare, May 14, 2007).

The pricing problem will continue until hospital prices are linked to some rational basis, such as cost or market prices. The root causes of why illogical pricing exists and why change is so difficult are deep and require political will and broad-based collaboration to address. Hospital leaders must play a role in encouraging the former and participating in the latter.

However, while working toward long-range, multi-stakeholder solutions, hospital leaders can take steps now to rebase their prices. HFMA's just-released PATIENT FRIENDLY BILLING® project report, Reconstructing Hospital Pricing Systems, provides suggestions and examples of how this can be done.

Obvious and understandable motives for hospital leaders to move toward rational pricing include the desire to allay community concerns, media outcry, and potential government regulation. Understandable as they are, these motives could be characterized as reactive or defensive-the wrong reason to make the investment in rational pricing.

However, rational pricing brings with it benefits so critical that they transcend the more reactive or defensive motivations for action.

A pricing system based on a clear understanding of the cost and market price of services and with a clear relationship to the organization's strategic goals will help the organization operate more efficiently in the short term and create a substantial competitive advantage in the long term.

Even more important-and also a strategic benefit-rational pricing will help hospitals continue to build trust in their communities. The current system erodes public trust. Our communities deserve to be able to make healthcare decisions based on understandable, comparable price and quality information. Providing that information is the right thing to do.

Enhanced public trust leads to patient loyalty. Patient loyalty leads to organizations that are more financially successful. And financial success means that an organization has more resources to put toward community benefit, particularly by providing unprofitable but important community health services.

While long-term efforts to improve the pricing system are under way, hospital leaders also should take meaningful actions to create rational pricing in their own organizations. They should take those actions for the right reason: to build community trust.


Adapted from "Hospital Pricing: Doing the Right Thing for the Right Reasons" by Richard L. Clarke, Modern Healthcare, June 25, 2007.

Publication Date: Sunday, July 01, 2007

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