Embracing Price Transparency: A Clear Strategy for Winning in a Consumer-Driven Healthcare Industry (Part one of a three-part series)
Price transparency is not going to fade away. Healthcare consumers and businesses demand it; the Centers for Medicare & Medicaid Services is now going to mandate it, even if the COVID-19 pandemic delays compliance enforcement. Providers can become more competitive, first by complying with the mandates and then by transforming their business operations to take advantage of the new transparency rules. This three-part series explains why and how.
In November 2019, the Centers for Medicare & Medicaid Services (CMS) finalized one rule and proposed another designed to create greater transparency in healthcare pricing. The final rule requires providers to publish their charges for 300 services by Jan. 1, 2021. The complementary proposed rule, now out for comment, requires health insurers to disclose their negotiated physician network rates and to publish rates they pay to out-of-network physicians. For the 21 states that have previously required publication of health prices this may not be a huge challenge, but there are still new federal rules to abide by. (See Quick Takes below for details.)
The industry has resisted implementing these rules since they were first proposed (via executive order in June 2019). Many providers did not think the rules would go into effect; others said the deadline was unrealistic. Hospitals argued that disclosing negotiated prices will increase healthcare costs by allowing insurers to collude to fix prices. They have also voiced valid concerns that the rules will create more administrative and compliance overhead that will ultimately increase healthcare delivery costs.
However, the transparency rules are not going away: CMS leaders have said empowered patients are the future of healthcare. Further, as we have predicted, some new entrants in the industry offer transparent pricing already. Walmart clinics’flat-rate pricing is just one example. Price transparency will be key as the industry, including providers, steadily shifts to a consumer-driven care-on-demand platform-based business model.
Healthcare consumers are no longer a captive audience. They increasingly have choices about where to get care. Transparency rules will arm consumers with the quality and cost information they need to be better-educated healthcare consumers. Transparency will also equip payers and employers to drive down prices, an outcome more than 25% of providers already expect. Payers will also likely begin offering innovative health plans built on outcomes as well as cost, pushing consumers toward providers that balance quality and cost to offer the best value. That’s added pressure for providers to justify pricing as consumers learn to evaluate whether higher cost always delivers better quality.
Providers will find the new paradigm challenging, yet compliance as a business strategy would net them tangible benefits. Price transparency creates opportunities for providers to get a clear picture of their true costs of service; to align their service offerings more closely with the communities they serve; and to serve patients more effectively with comprehensive information about quality measures, total costs of a procedure and custom payment plans.
Accomplishing those goals will strengthen providers’ ability to compete as the healthcare industry evolves. Here are some key strategies providers can adopt to get there.
Think like a retailer. Providers must thoroughly understand their local demographics. A college town has different healthcare needs than one with many retirees. Providers must then stratify broad categories of healthcare consumers: are the retirees still relatively young and active, or are most of the local facilities skilled nursing centers? What services are they consuming? How are competitors pricing those services? Providers can use this data to develop pricing and care delivery strategies that protect revenues, meet market demand and fulfill their community obligations. These could include bundling service offerings and rebalancing inpatient and outpatient services to earn optimal revenues from each. For example, hip replacements generally require inpatient settings, while knee replacements might be offered at an owned outpatient center. The goal is to create sustainable, agile, defensible pricing that allows providers to better serve their populations while protecting revenue and maintaining quality.
Play to strengths. Providers should carefully select the 230 non-emergency “shoppable” services. They also must evaluate their performance on the 70 procedures mandated by CMS. Which are profitable; which don’t break even? (We will cover this topic in more detail in Part 3 of this series.) Develop a specific pricing strategy for each of these services to capture greater market share. Bundled all-inclusive value-based pricing for procedures may be more attractive to local consumers than à la carte fees. For instance, the cost of a knee replacement only might be listed as $11,000. When the additional services typically required to deliver end-to-end care for knee replacements, including x-ray, anesthesia and physical therapy are added, that can drive the total price to $19,000. Provider organizations should focus on specialized and potentially higher reimbursement services that they deliver with high-quality outcomes while protecting their revenue. They also need to partner with other providers in their market to ensure they’re able to provide their communities with the complete set of healthcare services.
Develop or strengthen lower cost virtual delivery channels. To keep mild COVID-19 cases out of overburdened hospitals and to ensure availability of well care, CMS and many healthcare systems have been driving healthcare consumers to telemedicine. Researchers estimate March telehealth visits increased by 50%, with virtual consults likely to top 1 billion by year-end 2020. Telehealth visit costsare about half those of in-person consults and a fraction of an ER visit. Consumer adoption of telehealth channels may persist post-pandemic; providers should evaluate which shoppable services they could deliver virtually. Price shopping for economic reasons combined with a growing comfort level with telehealth services provides further impetus for healthcare price transparency.
Partner to fill gaps. Form tactical partnerships with other local providers to fill service gaps and deliver needed local services at good value. For instance, a healthcare system lacking strong orthopedic services in a market with demand for them could partner with a local orthopedic practice to create a bundled offering. Providers can also consider expanding or initiating partnerships in areas that augment price transparency efforts, such as patient engagement, market research and virtual care. One example is how the Cleveland Clinic is teaming with American Well to launch a global telehealth service.
Engage healthcare consumers. Providers can build trust and loyalty among healthcare consumers by providing education on healthcare costs and quality information. Help consumers comparison shop by explaining quality information and the difference between a $10,000 published cost for “arthroscopic knee surgery” vs. a published bundled cost of $17,500 that includes the initial evaluation and MRI, the procedure, including anesthesia, and post-discharge follow-up appointments and therapy.
Leverage the payer transparency rule. The proposed CMS rule for payers requires health plans to publish negotiated rates and provide members with accurate out-of-pocket cost estimates. Providers can use this information to their advantage. Health systems often struggle to collect co-pays and co-insurance, in part because these amounts have been difficult to calculate in advance. Combined provider and payer price transparency should make it easier for providers to help healthcare consumers understand their financial responsibility and create custom payment plans. Discussing these options during initial counseling sessions could help improve cash flows. Nearly two-thirds of consumers in one study said they’d make at least a partial payment if they understood their out-of-pocket estimates. Reviewing financial options before treatment could also enhance outcomes by preventing patients from avoiding follow-up care out of fear they can’t afford it.
Use improved all-payer claims database (APCD) access. Just as CMS wants to give consumers estimates of reasonable medical costs by procedure and geographic location, providers can use this data to fine-tune their own costs and pricing strategies. Providers and their developers can also tap APCD data to create cost comparison tools for consumer engagement.
Transparency creates many options for providers to reshape how they deliver care and build healthcare consumer loyalty. The next generation of healthcare consumers will demand new buying options and clear prices, which we discuss in part two of this series. Hospitals that are quick to comply with the new rules can position themselves for success in this more competitive, value-oriented price-conscious market.
How Healthcare Price Transparency is Unfolding
A Look Back
Multiple regulatory mandates for price transparency.
Out-of-pocket expenses drive demand for transparency.
Silos of pricing data biggest barriers to success.
Digital experience key to success.
White House issues Executive Order 13877 and the Proposed Rules:
“Executive Order Improving Price and Quality Transparency in American Healthcare to Put Patients First.”
CMS Finalizes Rule
“Calendar Year 2020 Outpatient Prospective Payment System & Ambulatory Surgical Center Price Transparency Requirements for Hospitals to Make Standard Charges” becomes final.
Hospital Rule Requirements
One Comprehensive Machine-Readable File.
Required Data Elements:
A description of each item or service.
All standard charges (gross charges, payer-specific negotiated charges, discounted cash prices, minimum and maximum negotiated charges) that apply to each inpatient and/or outpatient item or service.
Codes, e.g., HCPCS codes, DRG codes, or other common payer identifier.
Consumer-Friendly List of Shoppable Services:
“Shoppable” means schedulable in advance.
70 CMS-specified charges and 230 hospital-selected charges.
Prices updated yearly and monitored for compliance.
Penalties for noncompliance are set at $300 per day.
Proposed Payer Rule
“Transparency in Coverage” proposed rule would require most payers to:
Disclose price and cost-sharing information to participants, beneficiaries, and enrollees up front.
Show out-of-pocket estimates in real-time.
Disclose negotiated rates for in-network providers.
Publish allowed amounts paid to out-of-network providers.
Disclose cost-sharing information (e.g., co-pays, co-insurance).
Increase access to de-identified claims data.
Provider opportunities from payer transparency:
Optimize prices; negotiate better rates based on higher outcomes efficiency scores.
Educate healthcare consumers on value vs. cost.
Capture growing market of healthcare shoppers.
Optimize prices in local/regional marketplace.
Improve POS collections.
Create new care delivery and business models.
Provider associations sue federal government to stop rule.
American Hospital Association (AHA)
Association of American Medical Colleges (AAMC)
Children's Hospital Association
Federation of American Hospitals (FAH)
Potential Legal Outcomes
Scenario 1 – Court strikes down the Rule
Court strikes down entire executive order.
States dictate price transparency.
Trade secrets protect pricing and contract rates.
Scenario 2 – Rule Implemented As-Is
Court dismisses lawsuit.
All provisions retained as is.
Compliance date still 1/1/2021.
Providers and payers face uphill challenge to meet deadline.
Scenario 3 – Rule with Limited Provisions
Court provides some relief in compliance date due to unprecedented volume pressure on hospitals from COVID-19.