Why the call for price transparency is a call for innovation

In order to navigate and respond to the murky issue of price transparency, hospitals and health systems must innovate.

The Trump administration and others in the U.S. healthcare policy space have been calling for price transparency to the extent of sharing negotiated health plan rates to inform consumers on the costs of care. The executive order signed on June 24 appears to push the industry in that very direction, representing yet another call for innovation.

To begin to address this challenge, we can look at the requirement for publicizing prices much like we did at the outset of the prospective payment system (PPS) back in the 1980s. Despite practical objections from the industry, policy makers implemented the change in payments. So we had to change our business model to adapt to the PPS. Yes, price transparency is not quite the fundamental shift we saw back then, but it does appear to be a potential fundamental change in the way we approach pricing, and certainly a change in how we communicate pricing to our customers.

Prompting innovation

Let’s look at the order and what innovation it might prompt. So far, what we know is that our negotiated payment rates by payer will be subject to publicity through some public agency. And there are some practical issues to deal with there. What we consider to be “price” under this new regulation is just a start to that list of issues. Explaining the differences in how prices are determined – per diem versus DRG, for example – will be an added patient education effort. Capitation also will be an issue.

Payments often are based on a prospective rate rather than the per-item price that makes up most of our chargemasters. The fundamental disconnect between our price structure and our payment structure right away poses problems. I can envision a situation where providers will need to staff a call center to explain the nuances in the prices. That’s not an innovation — that’s a waste of resources. But perhaps this development calls for us to change pricing structures.

Reviewing the chargemaster role

There is a challenge right off the bat. The chargemaster does help us with tracking resource utilization by department, so I’d say it still has a role, just maybe not in pricing anymore. From an operations management perspective, we have to track many items on the chargemaster to assess productivity and resources provided to patients. It may be necessary to find new ways to track resources and service item utilization without tying those items to pricing, because chargemaster prices are not the prices we likely will be publishing. For most consumers, the price they shop for is the insurance out of pocket and those won’t be published anyway.

Let’s assume for a moment that such a challenge is on your desk. An approach that introduces a DRG-based charge that aligns with your contracted payments (and perhaps makes out-of-network payments easier to handle) might address questions consumers and regulators are asking. But how do we implement that process? Now we are getting into the realm of innovation.

We’ve established that there is a place for the chargemaster. We know there is a need for a charge structure that lines up with data out in the market. We don’t want our patient financial services staff spending all their work time reconciling charges to a new charge to adjust to a prospective payment. We don’t want an army of call center staff having to answer questions about why the price the consumers see does not agree with the prices on the itemized statement. We can conclude that this issue is probably not solved by trying to change the way we handle charge capture and account adjustments in patient accounting. This challenge calls for true innovation that considers the whole new picture.

Let’s consider this new problem with the help of some of the ideas I have raised in recent columns. We can dismiss the idea of a new app right away (see my February 2019 column in hfm). If someone does come up with a new application for this issue, it will come from the regulators that publish our prices. That said, a change like this will probably call on us to look at how we are using existing technology and existing data. We might look, for example, for a way to align the data we have in patient accounting so a charge for a service better aligns with the prices we will be required to publish. The database is already there, so a need for technology is not our challenge.

Meeting new challenges using technology

The problem lies in identifying what data we are capturing and determining how to publish it so we can address the consumer question without creating undue hardship on our business functions. We need to find ways to leverage our existing technology in a new way to meet this industry challenge.

The innovation killers (see my April hfm column) seem most likely to be our main obstacle in this exercise. Adaptation to price transparency is a great example of an innovation need that will not have a large or easily measurable ROI. Nonetheless, the innovation is necessary. That said, there will be some degree of resistance from those who don’t see value in the effort, so I foresee a big challenge getting some folks to participate in finding and implementing this solution. Getting the existing decision structure to acknowledge the challenge and deal with it is likely to be the bane of many a manager trying to find ways to foster innovation around price transparency. The manager must explain any changes in revenues and gain support from board members or community stakeholders who understand only the status quo and could view any pricing changes as a potential revenue loss.

Framing the managerial challenge

Data is there for you in several ways, forms and sources (see my column in the June issue of hfm). The managerial challenge in developing an innovative way to address price transparency comes from identifying the most relevant data to meet the regulatory requirement. At the same time, we must find the best way to use the available data we have, particularly in patient accounting, to create and implement a process that meets the price disclosure requirement, minimizes the extent of patient concerns and perhaps enhances the efficiency of the patient accounting function, all at the same time.

Do we use our data to guide community outreach and target education on published pricing? Probably. Do we use utilization statistics from the chargemaster to renegotiate pricing structures that are easier to explain and more consistent across payers? We could, but that will work only if we don’t sacrifice collections on contracts that may already be on thin margins. Otherwise, go back and reconsider the concerns just raised about “innovation killers.”

We have some time before the actual regulations on price transparency come to life. Because the executive order was just signed at the time of this writing, we have ample lead time to ponder what the challenges will be and to figure out the best way to respond. There is a lot more to follow in this story. But for now, let’s consider it an opportunity for innovation.