PERSPECTIVES

Make Provider Price Transparency a Clear Winner: Optimize Pricing Strategies and Retool Business Models (Part three of a three-part series)

2020-08-11

Thriving in a price-transparent world requires providers to understand their true service delivery cost and offer services that meet community needs while ensuring their financial health and survival.

The provider price transparency rule finalized by the Centers for Medicare and Medicaid Services (CMS) requires providers to publish standard charges for a list of 300 schedulable, non-emergency procedures. Industry associations lost their challenge of the rule in federal court. While appeals are likely, providers would be well served by assuming the mandate will go into effect as scheduled on Jan. 1, 2021, even if the COVID-19 pandemic delays the compliance enforcement date. Pricing transparency gives providers the opportunity to reimagine how they deliver care and how consumers will shop for healthcare services if given clear information.

Of the 300 procedures, CMS has mandated 70 services for which providers must list prices, while providers choose the other 230. With this data becoming public, providers should expect downward pressure on prices — emanating from payers and consumers. To remain competitive, providers must streamline their operations, justify their prices with outcomes data and renegotiate payer contracts to remain competitive. Here is a blueprint that will help in carrying out those objectives:

  • Calculate the true costs of delivering each service. Few providers in our experience have this level of visibility. Gaining this specificity requires internal operational data from activity-based costing (or one of the many comparable techniques, such as marginal costing). CMS allows providers to include supplies and procedures, room and board, facilities fees, professional charges, and any other items or services for which a hospital has established a standard charge for a specific service.

    Providers must ensure they are capturing all the costs associated with delivery of healthcare services (including post-discharge care). The cost of service would typically include all of the costs of services delivered, including labor, procurement, patient acquisition, capital acquisition, etc. Establishing processes to collect, consolidate and derive meaningful cost insights will be a key business and technology challenge. Knowing the true cost of a service provides a baseline for evaluating whether the service is profitable and, if it is not, for identifying the underlying causes.

  • Determine how to publish standard charges specified by CMS. Payer-specific negotiated charges, de-identified minimum and maximum negotiated charges, and discounted cash prices must be displayed. Providers generally have the data required to calculate these charges, though some data might be in silos across contracting, billing and collection systems. One technical challenge is extracting and consolidating the data from multiple operational systems (spread across hundreds of contracts and thousands of patient accounts) to fulfill all CMS requirements. Another is implementing a repeatable process to extract, analyze and report the data in machine-readable specifications as mandated by CMS.

  • Select and price discretionary "shoppable" services to publish. The activity-based costing and customary pricing analysis should provide the business intelligence providers will need to select the 230 optional services. They must also draw on information about their local community’s demographics and clinical needs; their current competencies and delivery methods; and a competitive analysis of their local market. Given the cross-disciplinary sources of data and information and analysis involved in this price optimization activity, it’s critical to have the entire C-suite involved in making the choices — not just the CFO, as is often the case in provider pricing decisions. The 230 services providers choose will affect not only the potential customer base but also the standings of hospitals in their communities.

  • Create a care delivery mix. Optimizing the mix of inpatient, outpatient and telehealth (now a critical care delivery channel because of COVID-19) shoppable services is key to protecting revenues and capturing market share while meeting community care needs. While outpatient facilities generally are lower cost, providers must consider risk and complication factors. Not every higher-priced service should be moved to an outpatient setting. Providers must also think about the end-to-end patient experience and how it aligns to their demographics. Less price-conscious customers might prefer their procedures to be handled in the hospital, rather than at an outpatient clinic. The blend is key: hip surgeries are probably best done in the hospital setting, but the post-operative therapy could be done as an outpatient service.

  • Bundle pricing. Providers should offer cost information for bundled/total cost of care along with cost information per service, as required by the mandate — for example, “total knee replacement and recovery” versus “knee replacement.” The bundled cost will include the cost of surgery, post-surgical care, physical therapy, etc. This would provide consumers all the costs associated with the episode of care.

  • Form care-delivery partnerships. Providers that routinely lose money on a CMS-mandate listed service such as knee replacements could choose to partner with a local orthopedic practice with high-quality rates for the surgery, then provide post-surgery and ancillary services such as skilled nursing and rehab.

  • Transition to outcomes-based reimbursement measures. As pricing data for different services becomes publicly available, providers should work with payers to define service-based performance measures that combine clinical outcomes with pricing and reimbursements associated with the service. One such measure we have developed is the “Outcomes Efficiency” metric (see Figure below).
  • Launch change management. Significant training and change management is necessary to ensure all customer-facing staff members are well versed in the CMS transparency mandates and understand the information that must be made available to consumers.

Maintaining competitive transparency

To ensure pricing remains appropriate in their market, providers must have analytical tools that periodically scan publicly available competitive pricing information. These insights will be critical inputs in annual financial planning and pricing strategy and in considering closures, divestures, and mergers and acquisitions in a provider’s market.

Pricing transparency is here to stay. The demand from healthcare consumers for enhanced visibility into the actual cost of services before those services are delivered will keep growing. Here is how to get started:

  • Review and assess the 70 mandatory services required by CMS and their impact on the organization.

  • Evaluate and identify shoppable services in small chunks — start with 20 services and build a comprehensive list.

  • Re-imagine and re-think the organization’s role in the community and how to form partnerships for price-efficient care delivery.

  • Operationalize transparency and be the market leader by educating consumers and making the price catalog easily accessible and understandable.
  • QUICK TAKE

    A Price Transparency Checklist

    Process

    • Leverage industry best practices to develop and implement price transparency policies and procedures.

    • Create both short- and long-term pricing goals tailored to the community.

    • Streamline and validate the collection of operations/cost of service data.


    Technology

    • Implement technology solutions to generate insights on pricing based on public/private data (CMS, third-party publishers).

    • Implement a technology pipeline to extract, manage and publish pricing for the 300 services.

    • Make available a web/app-based price estimator tool that gives consumers accurate estimates for all services.


    Communications

    • Train staff to educate consumers on pricing transparency data/tools available.

    • Publicize the availability of prices and the estimator tool in the local market.

For more information on pricing transparency, please read Part 1 and Part 2 of this series.

To learn more, visit the Healthcare section of our website or contact us.

This article was authored by Srivaths Srinivasan, Ruchi Mishra, Kinshuk Kaushik, Basel Basha, Lauren Fung and Michael Tucker of Cognizant’s Healthcare Consulting Practice.

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