The emphasis on price transparency by states and the federal government presents a challenge for healthcare providers, but it also denotes an opportunity for strategically nimble organizations to become leaders in consumer-focused care.
The first day of 2019 marked the deadline for hospitals and health systems to publish their chargemaster list pricing online, as outlined in the final rule for the Medicare hospital inpatient prospective payment system (IPPS) and long-term acute care hospital (LTCH) prospective payment system (CMS-1694-F). a
Many states have made efforts to improve price transparency, but this final rule issued by the Centers for Medicare & Medicaid Services (CMS) is the first nationwide mandate. Among the litany of concerns raised by critics of the requirement, three are most prevalent:
- That publishing charges will create confusion and misunderstanding among patients because the charges do not represent the actual price
- That patients will choose to forego care due to misgivings about what it will cost
- That charge transparency will enable payers, employers, the media, and other stakeholders to use the information against health systems
Yet this new policy also comes with an opportunity that has received little attention: Few healthcare leaders are considering the opportunities to leverage charge transparency as a method to capture patients. In light of the new policy, it behooves healthcare leaders to focus on identifying the primary considerations for building a pricing strategy and translating those ideas into action that will help them grow their organizations’ market share.
The Rising Influence of Price on Patients
Numerous studies and statistics indicate that the cost of care has become burdensome to patients. Almost everyone has a personal story of a friend or family member who has experienced sticker shock due to the high out-of-pocket cost of a healthcare service. A recent Kaiser Family Foundation study showed that patient deductibles greater than $2,000 grew from 7 percent to 27 percent between 2009 and 2017. b This trend is fundamentally influencing how patients choose providers.
Meanwhile, providers also are taking a financial hit: An Advisory Board study found that patient obligations written off as bad debt rose from 0.9 percent to 4.4 percent between 2008 and 2015. c
In response to these trends, senior healthcare leaders should engage in focused conversations to address three strategic pricing considerations:
- How to position their organizations’ pricing relative to that of competitors
- How the charge transparency mandate is likely to affect the way their organizations are perceived in their markets, and its likely impact on the organizations’ patients and mission
- Whether a plan is in place that aligns the infrastructure, processes, and communication tools in a way that prepares enables the organizations to prepare for the mandate
Impact on Ambulatory Care
The impact of pricing is felt most in the ambulatory arena due to the elective nature of medical office visits, outpatient procedures, and outpatient diagnostics. Among healthcare consumers responding to a 2017 survey, 75 percent said that lower out-of-pocket costs were a critical or very important influencer in their choice of physician. d Often, that choice leads to a lasting relationship and use of the healthcare system for other services the patient may need.
The proliferation of ambulatory alternatives that offer lower prices and easier access—such as online telehealth options (e.g., MDLIVE), urgent care centers, and retail clinics—is impacting many healthcare systems’ market share and finances. There are three steps a health system’s leaders can take immediately to respond to this competition:
- Create a pricing team composed of senior executives in strategy, finance, marketing, and ambulatory care and charge the team with setting priorities for development of an ambulatory pricing strategy.
- Evaluate the market’s pricing landscape and sensitivity to understand how the organization compares with its competition.
- Align the organization’s pricing strategy with its ambulatory healthcare delivery strategy.
Organizations that do not have an ambulatory healthcare delivery strategy should take this opportunity to create one in concert with the pricing strategy.
Areas of Strategic Focus
To support the pricing team in creating an ambulatory pricing strategy, health system leaders should focus their efforts in the following five areas.
Assessing the ambulatory care market and segment patient types. Performing such an assessment is fundamental to any pricing endeavor. The difficulty is that the pricing information available may be imperfect. The data will most likely be based on secret-shopper surveys and may be estimated. Most health systems allow the perfect to be the enemy of the good when it comes to charge pricing data. When developing a pricing strategy, teams should be allowed to form educated ranges of how the organization compares with its market peers.
Understanding the costs (fixed and variable) of delivering ambulatory care. Many health systems do not know the costs of providing care in their inpatient arena let alone in their ambulatory care facilities. As with the market data, cost assessments in the ambulatory arena should be performed to create an estimated cost range for key ambulatory services. These data can provide a basis for developing margin estimates and targets.
A thorough review will identify scenarios in which small ambulatory cost and pricing adjustments can enable dramatic gains in patient volume and revenue.
Communicating ambulatory pricing effectively. Effective communication of pricing can be an effective strategic means for influencing patient choice. It therefore is important for an organization to develop a pricing communication/education plan to support its pricing strategy. Communications should be targeted, easy to access, and transparent. The target groups for such a plan may include:
- Referring physicians and medical front office staff
- Patients (segmented by payer and demographics)
- Employers and payers
- Employees’ friends and families
Many health systems that have been forward thinking regarding price as a strategic differentiator have leveraged pricing estimate tools either through a web-based portal or through partner organizations that provide mobile-based price comparison tools. Indiana University Health’s price estimator tool, for example, is available through a portal for patients to use for making price comparisons. Other tools are available through partnerships—including Healthcare Bluebook and myriad other emerging third-party online pricing platforms. In all cases, a pricing comparison tool is only as effective as the organization is in marketing its platform to distinguish it from those of competitors as the low-cost alternative providing the same or better quality.
The gateway to price transparency is through transparency regarding charges. In concert with the requirements to publish chargemasters, there is an opportunity to avoid market confusion and educate patients concerning around chargemasters and what constitutes the actual price. This educational effort should include definition sets around how the price is determined—including the following, for example:
- Self-pay patients —where the patient lacks insurance coverage, and the price listed in the chargemaster is the price for the service, which may be discounted based on the health system’s policies around income capability
- Not-covered services —where the patient’s insurance does not cover the service, and the chargemaster price is the price for the service, which, again, may be discounted based upon the health system’s policies around income capability
- Services covered by insurance —where the patient has insurance that covers the condition, and the insurer’s contract pays a percentage of charges listed on the chargemaster and/or the charge is below the payer’s fee (i.e., the “discounted price” for the patient)
- Services that include patient deductibles and coinsurance —where the patient pays an amount allowed or a fee based on his or her insurance and not the charge
As mentioned previoulsy, many health systems have developed tools and/or partnered with organizations that facilitate the process for patients of entering their information online to learn the actual prices, thereby lessening the confusion. That said, it is important to find the right tools to communicate ambulatory and inpatient pricing information. A technology vendor selection process or build-versus-buy analysis is imperative, as is investigating what other leading healthcare systems have done to communicate price (e.g., Spectrum Health and Priority Health).
Partnering to succeed. Forming a partnership to accelerate the strategy may improve the chance of success. A health system that has strong relationships with insurers and/or employer may find it beneficial to engage these organizations in its effort to develop a pricing strategy. The insurers or employers may have access to the market data that will enable the health system to develop a more accurate pricing.
Strategic vendors and consulting firms also can help accelerate the data analysis and facilitate the relationships and structures required to develop an ambulatory pricing plan.
Tying the ambulatory pricing strategy to convenience. Creating an ambulatory pricing strategy should be part of a larger effort around an ambulatory strategy based on convenience. An organization can deliver consumer-focused care much more powerfully when the effort includes the ability to provide consumers with insight into price. Such an effort allows the organization to set priorities for consumerism, infrastructure, and alignment in a way that not only helps it sustain its pricing strategy, but also could meaningfully differentiate its ambulatory strategic footprint through convenience.
The infrastructure around care teams and scheduling can be tied to price in innovative and interesting ways. For example, some patients may be willing to pay more for access that is more timely, in accordance with their perceived need for immediate care. The infrastructure and alignment of an organization’s ambulatory convenience strategy should accommodate these preferences with different pricing based on these market realities and demands.
Keys to a Successful Journey to Price Transparency
Given the Jan. 1 charge pricing transparency mandate, health systems should—at a minimum—engage in a strategic conversation on price and decide how to communicate their pricing via online channels. To succeed in their pricing journey, health systems should embark an ambulatory pricing strategy that includes the five areas of focus described here. Such an effort can enable an organization to gain market share and differentiate itself from is competition. Organizations that do not pursue a strategy now may miss a rare and fleeting opportunity to become industry leaders by motivating and aligning resources to create real value.
Craig Allan Ahrens, MHA, MBA, is a managing director, Ankura, Chicago.
Sarah G. Hull is a senior director, Ankura, Chicago.
a. Centers for Medicare & Medicaid Services, “Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2019 Rates; Quality Reporting Requirements for Specific Providers; Medicare and Medicaid Electronic Health Record (EHR) Incentive Programs (Promoting Interoperability Programs) Requirements for Eligible Hospitals, Critical Access Hospitals, and Eligible Professionals; Medicare Cost Reporting Requirements; and Physician Certification and Recertification of Claims,” Federal Register, Aug. 17, 2018.
b. Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits: 2017 Annual Survey , 2017.
c. Lagasse, J., “Hospital executives say Affordable Care Act insurance reforms driving up bad debt,” Healthcare Finance News, June 19, 2018.
d. Sutherland, S., “Weatherby Healthcare Survey Finds Cost, Location and Insurance Biggest Factors When Choosing a New Doctor,” press release, Weatherby Healthcare, April 25, 2017.