All Eyes on Pricing Transparency

October 24, 2019

Randi A Brantner, MBA-HA
Director, Financial Analytics
PARA HealthCare Analytics, Inc., An HFRI Company

Like it or not, pricing transparency has moved to the forefront of healthcare reform efforts. That means hospitals must be ready to make detailed price information available for consumers interested in shopping procedures and services.

Yet it’s no secret transparency is a double-edged sword. Publicizing pricing information before an organization has made sure its prices are rational, competitive and defensible can damage a hospital’s brand and undermine the bottom line.

The good news is that capabilities now exist to help hospitals develop comprehensive, market-based pricing strategies that allow them to optimize margins while remaining competitive with local and regional peer organizations. This pricing data can then be shared publicly in easy-to-use formats and harnessed to accurately convey patient payment responsibilities.

Government pressure

Price transparency has been one of the most talked-about healthcare reform objectives for a decade or more. Much of this emphasis has been fueled by the continued growth of high deductible insurance plans. Proponents say consumers need, and expect, detailed price information to be sure they’re getting the most for their hard-earned healthcare dollars. Policymakers also believe transparency will spur provider competition and help drive down costs.

But with much of the industry’s attention focused elsewhere in recent years – notably on the implementation of value-based reimbursement models – transparency has taken a back seat. In fact, the percentage of hospitals unable to provide price information increased between 2012 and 2016, from 14 percent to 44 percent.[1]

That’s likely to change, however, now that the government has signaled it’s serious about making hospital pricing information more accessible to all. In January 2019, the Centers for Medicare and Medicaid Services (CMS) announced a rule mandating that hospitals post their standard charges, or chargemaster, online.

CMS then upped the ante in July of this year with a proposed rule that would require hospitals to post not just the often-inflated numbers of the chargemaster but also typically confidential information showing actual negotiated rates by payer and plan for specific procedures and services.

Failure to comply with the rule, which is scheduled to take effect on Jan. 1, 2020, could result in civil monetary penalties of up to $300 per day. Hospitals could also be subject to audits and corrective action plans if they fail to disclose negotiated rates.[2]

Both hospital and insurance groups are vehemently opposed to the requirement that negotiated rates be made public. They argue that publicizing the information could inhibit competition, increase the administrative burden for hospitals, increase costs and reduce access to care.[3]

As a result, the rule is expected to trigger a number of legal challenges, and whether it will take effect in January remains to be seen. But if the past is any prologue, government healthcare reform efforts — regardless of their popularity — eventually find their way into the market, in one fashion or another.

Peer analysis

That’s why forward-thinking hospitals would do well to begin developing their own transparency strategies. Before this can happen, though, it’s essential that organizations are fully confident the numbers they’re prepared to share publicly make economic sense and are justifiable when it comes to peer pricing.

Healthcare Financial Resources (HFRI) has developed a comprehensive process to help hospitals create rational pricing models built around cost, reimbursement and peer pricing data. The effort begins with a review of existing pricing information across all hospital revenue streams, including room rates, emergency visits, diagnostic and therapeutic procedures, operating room, anesthesia, PACU, pharmacy and medical supplies.

Once this baseline information is established, HFRI will compare service line and procedure prices against equivalent pricing from a designated group of peer institutions. The latter information is acquired through review of the most recent quarterly Inpatient and Outpatient Standard Analytic File (SAF) data generated by the Centers for Medicare and Medicaid Services (CMS).

Using these comparisons, hospitals can to see exactly how their pricing stacks up against specific facilities and also against averages for the entire group. Quantifying in percentage terms the extent to which the price for a particular service or product deviates from the group average enables hospitals to quickly spot opportunities for increasing prices while still remaining competitive. Conversely, HFRI can also flag any instances in which an organization’s high prices represent over-market outliers.

The right prices

Armed with this data, HFRI pricing experts work alongside the hospital’s financial management team to establish specific pricing targets and timelines based on the opportunities presented. These calculations will also take into account contractual reimbursement rates to ensure the new prices are consistent with payer policies.

Likewise, HFRI can help develop effective strategies for areas or services that require pricing sensitivity. For example, an organization may want to keep prices at, near or even below cost for some services to remain competitive with independent, free-standing facilities.

Importantly, the pricing developed through HFRI’s rational pricing model is competitive with peer pricing and therefore both defensible and supportive of an effective consumer-facing transparency strategy.

A comprehensive solution

Meeting the challenges of pricing transparency demands a systematic approach grounded in empirical evidence and a capable staff implementing proven solutions. HFRI can help you refine your pricing to improve revenue capture and strengthen margins while remaining competitive in your market. Contact us today to learn more about how we can help your organization prepare for the transparency transformation ahead.

[1] Tony Abraham, “No way to enforce hospital price transparency rule, CMS says,” Healthcare Dive, Jan. 11, 2019.
[2] Jacqueline LaPointe, “Proposed Hospital Price Transparency Rule Faces Industry Criticism,” RevCycle Intelligence, Aug. 5, 2019.
[3] Ibid.

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