Price Transparency: Where Does the Hospital Industry Stand Today?

November 10, 2016 9:48 am

Hospitals appear to be changing how they communicate price information now versus in 2014.

Price transparency continues to be a top concern for many hospitals, according to our latest survey on the topic. In 2014, we performed our first survey of hospitals to discover how they were responding to calls for transparency by the media and government at the time. Now, two and a half years later, we have surveyed hospitals again to find out what they have been doing and how concerns have changed—if at all—over that period.

In our current survey, we included responses from 58 healthcare financial executives representing 150 hospitals and health systems. Approximately 75 percent of hospitals that responded indicated that price transparency is among their top concerns, and 83 percent noted that the issue is more important to their business today than it was two years ago. That same percentage considers price transparency when planning annual price changes, compared to only 71 percent in the 2014 survey.

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This raises two questions: Why is it more important now than it was a couple of years ago, and what actions are hospitals taking in this high-priority area?

The Importance of Price Transparency

We inquired as to where the highest pressure is coming from relative to price transparency, and not surprisingly, the top answer was patients with high-deductible health plans or high copayments, which was indicated by 84.5 percent of those surveyed. This is higher than the 72.3 percent who responded affirmatively to a similar question in 2014, when it was also the most common reason cited.

Other sources of transparency pressure cited by survey respondents were state/national requirements at 44.8 percent, freestanding competitors at 43.1 percent, market peers (other hospitals) at 32.8 percent, and physicians at 24.1 percent. In 2014, the second most common answer was public pressure followed by the press and the Affordable Care Act.

The outside influences on hospitals to be more price transparent do not appear to have changed, and these external pressures are likely why this issue is top of mind for administrators. How are hospitals responding? By communicating better and reducing prices.


Hospitals appear to be changing how they communicate price information now versus in 2014.

More hospitals are making their prices available now than in 2014, when 77.3 percent were responding to inquiries only when initiated by patients. However, 42.1 percent of respondents are still taking that reactive approach.

It is interesting to note that the hospitals that reveal pricing only when asked by patients have the highest average Hospital Charge Index (HCI). HCI is a measure that compares a hospital’s charges to the median charges at U.S. hospitals. An index lower than 100 indicates a charge position that is lower than the U.S. median.

We also looked at 2015 operating margins and found that hospitals with high HCIs had a lower average operating margin than the group as a whole at 4.99 percent compared to 6.07 percent. Perhaps these hospitals have resisted making prices more public due to the fear that they may need to respond with larger price reductions, which may further impact their margins.

In addition to communication methods, we queried respondents on the types of information being communicated. We found that both price and payment elements are being considered by hospitals, with 82.8 percent of those surveyed having invested in resources to make copayment and deductible estimates available prior to procedures. Patients appear to be satisfied, as 61.2 percent of hospitals have received favorable patient responses as a result.

However, only 23.5 percent of hospitals say the resources are being used on greater than 75 percent of planned patient visits, while 31.4 percent say that the resources are being used on less than 25 percent of planned visits. Therefore, a gap still exists between available patient information and the utilization of that information. This would appear to be an area where hospitals can still do more to educate their patients.

Price Reductions

Many hospitals also are dropping prices. Survey responses showed that 40 percent have reduced inpatient and outpatient prices. This figure aligns with our previous research that showed 25 percent of all U.S. hospitals reduced overall inpatient and outpatient charges for all service lines from 2011 to 2014 (Cleverley, J., “In Light of Transparency, How are Hospitals Changing Their Prices?” Strategic Financial Planning, HFMA, Spring 2016). While not all 40 percent of these respondents may be lowering charges to result in a facilitywide charge decrease (like those we saw in our previous research), it is clear that charge reduction strategies are being implemented at a significant number of hospitals.

One strategy that hospitals are employing is separate “retail” or outpatient-oriented pricing for key services. These lower prices allow hospitals to compete on price with freestanding providers such as imaging centers, ambulatory surgery centers, and independent laboratories. We found that approximately one-third of respondents have created such prices, while 21 percent expressed plans to build, purchase, or enter into a joint venture with freestanding centers to retain volume in retail areas. Retail services are those considered to be more easily comparison shopped.

It is likely that hospitals have created separate pricing structures for retail areas to mitigate the financial impact of making wholesale chargemaster changes for all patient types. Furthermore, some hospitals defend these different structures because there is a resource cost differential between delivering care in certain settings (e.g., outpatient versus inpatient). It is not likely that further significant price reductions will occur without hospitals renegotiating contracts to keep net revenue whole.


Of those who have employed one of the previously mentioned actions, one-fourth have experienced a loss of net revenue while more than half have remained stable or grown. Interestingly, almost 20 percent engaged in renegotiations of their payer contracts to offset losses in revenue due to lowering prices.

We also evaluated these responses in conjunction with the HCI values and found that those hospitals that experienced a loss in net revenue are the hospitals that made the biggest reduction in their overall charge position, while those hospitals that maintained or grew volumes experienced very little change in their overall charge position. It appears that hospitals that took a more measured approach experienced better outcomes than those that made significant price reductions.

Even with all of these changes, 73 percent responded that they were confident they could defend their charges. This is a large increase from the 55 percent who answered affirmatively in the study two years ago.

While the primary method the respondents use to defend their charges appears to be comparison to hospital peers, nearly half make the argument that they charge what they do in order to ensure the organization’s viability. Cost relationships also appear to be important to many.

It was encouraging that the efforts these hospitals are taking to change pricing are evidently increasing their confidence in defending prices to external stakeholders.

More To Be Done

Our survey shows that hospitals have taken action to be more transparent. Rather than waiting for patients to inquire, more hospitals are making their prices publicly available and investing in resources that enable patients to be better informed about their financial responsibilities.

In addition, we learned that there is more to be done. While the majority of hospitals in our survey have invested in patient education resources, patients are not taking full advantage of these resources.As patients continue to lead the push for price transparency, we can expect to see more change in how hospitals respond.


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