Price Transparency: Go Deeper Than Compliance with New CMS Rule

Chalk one up for advocates of consumerism. CMS is encouraging price transparency with its FY2019 Inpatient Prospective Payment System (IPPS) rule released in August.

Beginning January 1, 2019, hospitals must publish a list of standard charges on their websites in a machine-readable format (i.e., not a PDF). This list of charges can be drawn directly from the hospital chargemaster. However, the rule requires hospitals to update that list “as appropriate,” but at least annually.

CMS received pushback to this requirement when it issued its proposed rule in April. Commenters pointed out that charges can be misleading for patients because they don’t take into account insurer and self-pay discounts, as well as other variables. CMS’ response was hospitals are free to provide supplemental information to educate patients and the public about their expected payment obligations.

Why You Should Consider Going  Beyond Compliance

Hospitals should strongly consider going beyond simply complying with this rule as written. Posting chargemaster rates without providing further context could lead to some undesired outcomes.

The average patient who lands on a hospital’s site and sees that a procedure appears to cost tens of thousands of dollars will naturally start looking for less expensive options. In many markets, these options exist in the form of freestanding imaging and ambulatory surgery centers, as well as urgent care and retail clinics. The truth is that out-of-pocket costs at your hospital may be comparable to costs at the freestanding centers, but patients have no way of knowing that upfront.

Another danger of simply making the chargemaster public without further explanation is what I call the “lazy reporter on a slow news day” hazard. The high cost of healthcare — a legitimate concern, to be fair — has become a staple of national and local news reporting in recent years. When reporters call with a barrage of questions about your hospital’s charges, how will you respond?

Price Transparency Strategy

You can avoid these potential outcomes with some forethought and communication. First, engage your hospital leaders in a discussion about a holistic price transparency strategy, which can entail one or more of the following tactics:

  1. Benchmark your hospital’s charges. As part of your chargemaster review (which you should undertake at least every three years, if not annually), compile a report that compares your charges to those of your peer group. Where your charges vary markedly, consider whether you should adjust them to remain competitive. At a minimum, have a documented, defensible rationale so you won’t be caught flat-footed by hard questions from consumers, journalists, advocacy groups or your own board of directors.
  2. Supplement the list of charges to provide context for consumers. Purchasers of healthcare services want to know upfront what their payment obligation will be. In the face of increasing competition from other healthcare providers, many hospitals will be wise to take the time and effort to provide the most detailed information they can. At a minimum, this might mean including the hospital’s average discount rate—perhaps in a field next to each charge item, or in a banner that remains at the top of the page as the viewer scrolls down.
  3. Provide an estimate of patient out-of-pocket payments. Hospitals that can access more granular financial data should consider providing estimates of the patient’s expected costs. For example, University of Utah Health’s price estimate guide provides patients with estimated fees by allowing them to enter information about the desired procedure, their insurance type, deductible, copay, coinsurance and out-of-pocket maximum—all with the clear disclaimer that the site is for informational purposes only and is not actual pricing for services. For hospitals in competitive markets, providing this information can provide patients with the justification to choose your hospital instead of a freestanding imaging center a few miles away.

Informed Consumers Will Bend the Cost Curve

Price transparency has the potential to bend the cost curve in healthcare even more than all the other health reforms combined. When consumers are armed with information about actual expected costs before making a purchase decision, they will be able to choose a lower-cost option. As a result, healthcare providers will feel increasing market pressures to price their services competitively.   

A word of caution here: Understanding the incremental costs of delivering those services is essential to avoid growing market share to the detriment of your bottom line. As we’ve written in past blogs, a granular understanding of costs is a necessity in the new world of value-based healthcare.

The CMS requirement to make standard charges public is only the beginning. As the agency continues to push providers to make their pricing more transparent, consumers will demand more clarity on pricing. Hospitals and other healthcare providers that act decisively to provide the information consumers want will become preferred providers — by the patients, their family members, and as a result, by the insurance companies and employers who foot the majority of the bill.

To learn more about creating your strategy for price transparency, contact the HORNE Healthcare team.

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Topics: Price Transparency, Hospital Chargemaster, IPPS

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