Consumerization has finally entered the healthcare realm. Patients and insurance payers don’t just want a good care experience from hospital systems; they want clarity in the form of price transparency. And they’re not the only ones.
Both the federal government and the Centers for Medicare & Medicaid Services (CMS) have set transparency expectations. Nonetheless, as The Wall Street Journal noted in December 2021, many hospitals have dragged their feet. And despite about 335 warnings from CMS, no hospitals have been fined, according to Fierce Healthcare reporting. However, it’s only a matter of time before consumer-centric healthcare and upfront hospital pricing data become the norm.
To be fair, it can be tough to get all hospital systems on the same page. Though CMS expectations ask for pricing data delivered via a comprehensive, machine-readable file, its directive has been interpreted differently by different hospital systems. There are nearly as many file formats as there are hospital systems publishing data. After all, hospital pricing can be complicated depending upon the patient’s needs, running the gamut from daily flat rates to rates based on the severity of the patient’s illnesses to bundled services that include special terms for quality of care.
Plus, the methodology for contracting and reporting will vary from one insurance payer to another. If a consultant uses bad or incomplete information to guide negotiations, the outcome can be less than accurate. For instance, our company has seen a large Arkansas provider network calculate different prices for a number of regional payers. How? It was publishing average prices, not contracted ones. This led to confusion and frustration for all stakeholders involved and required hundreds of hours of work to unwind and explain before real negotiations could take place.
It’s almost impossible to overestimate interest in price transparency. People want to know how their healthcare prices are determined, and payers do, too. But getting that information has proven to be a challenge. Why? Partially because so much pricing data isn’t readable or usable.
What makes healthcare data so hard to define and use? Historically, finance, actuarial, and contracting teams haven’t gathered or shared enough key information about pricing at the micro level. Consequently, a payer has no ability to make adjustments by independent services or categories. Rather, it might commit to boosting its “total contract value” by a certain percentage. That’s not a winning solution because it sets an artificial floor that has zero bearing on individual services, procedures, or cases.
The Case for More Accurate Price Transparency
One way around this problem is through comprehensive price transparency, which can allow for better precision and control over where to make increases and decreases. We saw Arkansas Blue Cross and Blue Shield try this approach successfully. Its leaders were getting ready to raise rates in sync with CMS rate increases. However, they took time to dive deeply into their true position. They learned they weren’t positioned as strongly as they assumed within a specific hospital system. Accordingly, they decided to forgo an annual rate bump in exchange for having a much better pricing position that attracted positive attention.
The bottom line is that healthcare pricing is complicated, whether you’re on the side of the price setter or the price taker. The public likes to assume that health insurance companies decide what a procedure costs. That might be the case with large, national insurance providers, but it’s not true across the board. Most insurance providers are smaller. Plus, they may never have had the opportunity to be informed or strategic about their pricing. For them, meeting hospital pricing demands has been a mainstay. But all that’s about to change.
As smaller providers get more access to thorough, complete price transparency information, they can be more tactical when building relationships with hospitals, exchanging price savings for member volume, and improving their overall spending.
Say a provider realizes most of its members are statistically unlikely to experience cardiac issues. It can then accept higher cardiac procedure rates in exchange for discounts in a different area that affects a higher percentage of the target population, like oncology. At the end of the day, the hospital gets the average rate increase it wants, and the provider exercises smart negotiating power.