The Benefits and Challenges of Healthcare Bill Estimates

By David Shelton, chief executive officer, PatientMatters.

More than half of Americans have experienced the sick feeling that comes with opening a medical bill they assumed would be covered by insurance. Surprise medical bills are on the rise, often driven by services administered at an in-network facility using out-of-network providers.

A Journal of the American Medical Association (JAMA) analysis of privately insured patients showed that between 2010 and 2016, inpatient admissions with an out-of-network bill increased 16%, and emergency department (ED) admissions with out-of-network billing went up more than 10 percent.

As alarming as the number of surprise bills is the impact on patients’ pocketbooks. In the same timeframe, potential patient liability skyrocketed from $804 to $2,040 for inpatient services and from $220 to $628 for ED visits.

Price transparency and accurate estimates are critical to preventing surprise bills and giving patients more control over their healthcare spending. Many providers are experiencing increases in self-pay patients, often because patients have a high-deductible plan that requires significant out-of-pocket before coverage kicks in. As such, patients need the ability to compare prices across providers and get accurate estimates of what they’ll owe before making healthcare decisions.

Why healthcare bill estimates are so difficult

Many factors contribute to the historical absence of bill estimates, but it starts with healthcare payment system fundamentals. Unlike other industries where transactions involve a buyer and a seller, healthcare brings in a third party, the payer, who is typically reluctant to reveal publicly what they pay various providers for services. Contracts, discounts, coding and other variables make it inherently difficult to achieve price transparency.

Price transparency progress

A step toward more price transparency came when the Centers for Medicare & Medicaid Services (CMS) required hospitals to publish their chargemasters online, starting January 1, 2019. Unfortunately, neither consumers nor many hospital employees could translate the data into usable, patient-specific bill estimates. In fact, more than half of hospitals in a 2019 survey said the move created further confusion.

In June 2019, President Trump issued an Executive Order to improve healthcare price and quality transparency. CMS later issued a final rule expanding current requirements for hospitals. These include providing a machine-readable file containing negotiated rates for all items and services annually and a consumer-friendly display of gross and negotiated rates for 300 “shoppable” items and services, including 70 defined by CMS. Insurers would also be required to provide members personalized out-of-pocket costs for all covered services in advance. These new rules are planned to take effect Jan. 1, 2021.

Benefits and challenges

Few can argue the benefits of allowing patients to make apples-to-apples price comparisons across hospitals and see negotiated rates for in-network providers and allowed amounts for out-of-network providers. The thinking is, price transparency will promote competition and potentially lower costs for all patients, not just those who shop around. The government projects insurers and consumers will save about $128 million per year in lower medical costs, and insurers will save $67 million in annual medical loss ratio (MLR) rebates to consumers.

While many support price transparency and resulting bill estimates, there is ongoing debate about how the CMS rules will be applied. One concern is the feasibility of implementing technologies and processes. Experts say front-end bill estimation tools for patients should be coupled with back-end solutions that make revenue and coding changes electronically to help hospitals comply with price transparency rules. These investments are key to improving the patient financial experience, customer service scores and related payments.

Action steps for hospitals

CMS’ new price transparency rules take effect in less than a year, giving hospitals no time to waste. How to build a bill estimation tool, establish supporting processes and communicate with patients are important considerations in a sound price transparency strategy.

First, to create confidence among consumers, bill estimation tools must provide specific prices, not averages, that are meaningful to each patient based on their insurance, deductibles and copays. The tool should account for all facility and provider charges down the physician level and diagnosis related group (DRG). This is essential because, as an example, two surgeons doing the exact same procedure could use different equipment or staff the operating room differently, generating dramatically disparate costs.

Second, hospitals must thoroughly integrate bill estimation tools into everyday operations. If not used and updated with contract and other changes regularly, tools become inaccurate, causing staffs and patients to distrust them. Hospitals should maintain 95 percent or better accuracy and hold staff or technology providers accountable for continuous accuracy measurement.

Third, hospitals must allocate training resources to ensure a smooth transition to new bill estimate processes, not only for staff and providers, but for patients. It is essential to engage patients in financial conversations early and confirm they understand estimates, insurance deductibles and co-pays and payment plan options.

Evolving to a new era

The healthcare industry’s evolution to price transparency and accurate bill estimates has the potential to lower costs, give patients more control over healthcare decisions, reduce or eliminate surprise bills and, importantly, increase patient satisfaction. Providing this information goes beyond compliance; patients want it and will gravitate toward hospitals and healthcare providers who deliver it.


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