Healthcare organizations are shielded from many market pressures traditionally affecting organizations in other sectors because of the complex ways healthcare services are funded and providers are paid. This situation is epitomized by healthcare pricing.
Price underpins the basic economics of an efficient market, which is one of the reasons healthcare costs exceed 17 percent of the U.S. gross domestic product. Lawmakers recognize this fact and continue to undertake legislative efforts to increase price transparency in the U.S. health system. Any national effort to improve transparency would put pressure on a health system’s market share because it would fundamentally change the way consumers choose their providers. Healthcare leaders are left to wonder how their organizations should prepare for this new world of increasing price transparency.
Lawmakers, managed care payers, and healthcare institutions are engaged in a tug-of-war over disclosing the costs of care. Healthcare trade organizations and lobbying groups have demonstrated repeatedly that they can influence legislation. For example, the industry challenged Ohio’s Healthcare Price Transparency Law and has successfully delayed its implementation effective date. When and if the law is implemented, it will require that providers “give patients a ‘good faith’ estimate of what non-emergency services would cost individuals after insurance before they commenced treatment.” a It’s easy to imagine how patients might carefully evaluate the value of receiving certain care if all hospitals had to disclose anticipated costs prior to providing the service.
The Centers for Medicare & Medicaid Services (CMS) has taken action recently to increase pricing transparency in its pursuit of creating a patient-centered healthcare system. The 2019 Inpatient Prospective Payment System (IPPS) ruling requires hospitals to post their charges online in a machine-readable format. CMS also plans to refine its policies by seeking public feedback on the way hospitals can display price information to “allow consumers to more easily access relevant healthcare data and compare providers.” b
In addition to legislative efforts, as employers and insurers continue to design benefit plans that push cost increases directly onto the consumers, they concurrently are increasing their efforts to improve costs transparency for consumers. High-deductible health plans (HDHPs) are popular among insurers because of their success in driving down the utilization of services, which also means reducing cost. Consumers are drawn to such plans because of their lower premiums and will continue to demand more in terms of cost, quality, and access because of higher cost sharing.
Implications for Providers
Again, the effect of improved price transparency, rising out-of-pocket costs, and the availability of technology that provides a platform for comparing prices will be to fundamentally change the way consumers select healthcare services. The initial impact for healthcare organizations, if they have not already experienced it, will be on commoditized services such as lab and imaging. Consumers do not differentiate between high and low quality on a commoditized service the same way a physician might, which means cost plays a larger role in consumers’ decision making.
Consider a patient who sprains an ankle and is then referred to get an X-ray. If that patient was facing a $2,000 deductible and had a mobile app that enabled a price comparison, he or she may select a lower-cost option so long as the quality appeared to be sufficient. The issue for the healthcare organization is not necessarily losing the scan, but rather losing the follow-up services.
In addressing this concern, it is imperative that healthcare organizations include the following three tactics within their long-term access strategy.
1. Make Strategic Charge Description Master (CDM) Adjustments
In a more price-transparent world, because price will play a larger role in a patient’s perception—and therefore choice—of a provider, healthcare organizations should begin transparency efforts with the most fundamental element of price: charges. Healthcare leaders often overlook the strategic role of the CDM because charges often do not represent the true out-of-pocket price consumers face. However, the widespread reporting of charges across the industry—more so than prices—means they are most likely to be scrutinized by the government, media, and consumers.
The most common mistake organizations make is in how they make charge adjustments on an annual basis. Organizations frequently will apply an across-the-board flat percentage increase to services on the CDM, which can cause charges to become disproportionately higher than an organization’s costs or market averages. No organization should be adjusting its CDM this way.
When managing charges within a CDM, organizations should consider how a consumer might respond if the charges were shared. The organization’s objective should be to align charges with the cost of service and/or with relevant market data, which will require a strong CDM management process enabled by software that compares an organization’s charges with its own cost information as well as local and national benchmarks. All charges must be defensible, ethical, and publishable.
2. Get Smart About Providing Out-of-Pocket Price Estimates
Organizations can benefit from investing in price-estimation technology to meet the growing consumer base that is interested in price. Insurance companies, employers, and private firms all are working toward making price information more accessible. Without technology, healthcare organizations cannot engage in a meaningful conversation about prices, which would pose a clear disadvantage as the industry shifts to a value-driven model in which providers are expected to discuss the best care option based on the patient’s condition and socio-economic status.
As consumers turn to providers for price information, providers should be able to deliver a reasonably accurate estimate. Price transparency technology provides a competitive advantage in these situations because it avoids the pitfall of quoting charges. Organizations that quote charges will have difficulty explaining how the charge information relates to the amount the patient owes, which is a poor formula for securing a service.
Organizations with price estimation technology should focus on high-volume outpatient services, such as imaging and simple procedures (e.g., endoscopy, colonoscopy, and physical therapy evaluations) because the technology is sufficient. There are myriad reasons price estimates become increasingly inaccurate as they become further removed from basic outpatient services. Alternative estimation processes are needed in more complex situations, such as emergency or inpatient services. In such cases, financial counselors, social workers, and case managers should work with the patient’s insurance company to fill the gaps.
3. Centralize and Specialize the Price Conversation
For many consumers, price is the most pressing issue when seeking a service. Healthcare leaders should focus on building a strong value proposition for this population of price-sensitive consumers. However, this is no small task. Legacy processes, decentralized access points, and variable degrees of health benefit knowledge are significant challenges that must be overcome.
Healthcare organizations can make inroads with consumers by adequately training patient access staff and other frontline personnel with health benefit knowledge. Such information is the cornerstone for an effective conversation. Staff must be able to clearly articulate how charges, allowed amounts, deductibles, co-insurance, co-payments, and out-of-pocket maximums work together to produce an out-of-pocket price. Healthcare organizations should make such knowledge a standard employment competency.
Moving price estimate conversations to a central location gives healthcare organizations the best opportunity to establish quality standards with their staff. The organization can more easily define knowledge requirements and training standards, and build a customer-service culture focused on educating patients.
There are additional benefits to moving these conversations to a central location, all of which have natural synergies with common access-related issues. For example, training staff on scheduling and price estimation can drive volume. Well-trained staff can maneuver a price quote inquiry into a scheduling conversation. What if the price is higher than the consumer expected or than a nearby competitor’s price? Arming staff members with talking points about how the higher-than-expected price relates to the higher quality of the service, for example, would go a long way in securing a service.
If done well, a centralized price estimate service can relieve pressure faced by staff and physicians. Many consumers expect physicians and nurses to understand the costs of care. Yet all too often, physician s will refer patients for routine bloodwork, only to have the patients find that the cost was hundreds of dollars. Such situations are completely avoidable. A centralized area can ease this burden, so providers can focus on providing clinical care. A strong service that provides price and financial assistance will build confidence with physicians and capture cost sensitive patients.
An Opening Window
Health care is the only major industry where cost is not known prior to service. And although the industry isn’t at a place where consumers can expect a reliable answer when asking what they will pay and what the clinical outcome will be, there are signs that day is coming.
Price transparency presents a new and essential challenge for healthcare organizations. Traditional access strategies that focus on network design, physician referrals, appointment wait times, and the like will fall short if they don’t include price transparency services. Acknowledging and embracing this imperative is the only way healthcare organizations can effectively meet the demands of a growing market of cost-seeking consumers.
a. Bluth, R., “Price Transparency In Medicine Faces Stiff Opposition—From Hospitals and Doctors,” Kaiser Family Foundation, July 25, 2017.
b. CMS, “CMS Finalizes Changes to Empower Patients and Reduce Administrative Burden,” Aug. 2, 2018.