Demands for Price Transparency Pressure Providers

Healthcare providers must clear several regulatory and economic hurdles in their response to new rules that require public disclosure of medical services pricing.

For healthcare providers, price is just the tip of the transparency iceberg, according to an Ohio hospital association's recent report.

Providers are wary of price transparency and a consumer-driven healthcare market, and the Cleveland-based Center for Health Affairs report highlights several sources of that anxiety. The challenge is not simply shining light on pricing data that was previously hidden from view, according to the CHA report, because transactions for medical goods and services are extraordinarily complex.

"There are so many different players that are part of the purchase decision," says Deanna Moore, VP of corporate communications at CHA. "Sometimes, especially with inpatient care and emergency situations, you don't know what you're getting into."

Rick Gundling, VP of healthcare financial practices at the DC-based Healthcare Financial Management Association, echoed a fundamental finding of the CHA report: healthcare pricing is so complex it has developed its own vocabulary.

"A lot of the confusion about healthcare pricing stems from confusion about terminology. You tend to see [the terms] 'cost', 'charge', and 'price' used interchangeably, but in reality these have very different meanings in healthcare," he says.

Kill Your Chargemaster

"Charge is the dollar amount a provider sets for services rendered before negotiating any discounts. Price is the total amount a provider expects to be paid by payers and patients for healthcare services. Cost varies by the party incurring the expense."

The CHA report paints a dark healthcare price transparency picture, and lays out several vexing variables:

• A hospital's "chargemaster" list of prices for thousands of goods and services is only a baseline reference because the identity of the payer usually determines a patient's billed price. For any given procedure, billed prices can vary widely depending on whether commercial insurance carriers, Medicaid, Medicare or uninsured patients are paying the bill.
• Every patient is unique and can present specific complications that have variable impact on goods and services pricing.
• The cost structure of any business impacts the price of its goods and services. Hospitals are complicated enterprises, with some more complicated and costly to operate than others—an academic medical campus is going to feel higher cost structure pressure than a rural community hospital.
• The "purchasing equation" in healthcare is usually more complicated than one buyer/patient and one seller/physician. Insurers and other payers play a key third-party role, shielding consumers from a large portion of costs until relatively recently. Physicians also play an active decision-making role in patient care, adding another layer of variability.
• Provider pricing information is becoming widely available nationwide, but quality data is lagging. In an ideal consumer-driven market, quality and pricing data are available at the same time.

Consumer-Driven Healthcare Rolling
Regardless of whether the chargemaster continues to guard the hospital pricing gate, a more transparent and consumer-driven healthcare economy appears to be on the horizon.

Regulators in states that have been pushing for value-based healthcare reforms are unlikely to give healthcare providers a pass on price transparency. Barbara Anthony, Massachusetts undersecretary of consumer affairs and business regulation, says claims of uniquely difficult circumstances and highly complex transactional economics will not stand as obstacles to enforcement of The Bay State's new price transparency rules. "You hear it all the time from everybody," she says of claims asserting regulatory exceptionalism.

"We don't want to be glib about this. [Buying] healthcare services is not the same as buying a car, a computer, or a television." The high-stakes and complex nature of healthcare heighten the urgency to enact consumer-enabling reforms. In my view, it deserves even more price transparency and scrutiny than other businesses."

While acknowledging that the treatment of individual patients comes with a measure of variability, Anthony says hospital officials can calculate the cost of performing even the most demanding medical procedures: "It isn't so complex that it isn't itemized; it is itemized."

The CHA report, she says, leaves out the most insidious factor in the variability of healthcare provider pricing: anticompetitive business practices: "Variability in pricing is Hospital A charging 50 % more than Hospital B because of market power, without any justification based on differentiation in quality. What we should be worried about is market power that leads to price gouging."

As value-based reforms take hold in healthcare, "What consumers will increasingly be interested in is knowing the price that they will face," says Katherine Hempstead, a team director and senior program manager at Princeton, NJ-based Robert Wood Johnson Foundation.

4 Ways to Lower the Cost to Collect from Self-Pay Patients

Consumers become alert when anyone pinches their wallets and "the chargemaster is in essence the 'un-discounted' price that a hospital will try to charge an uninsured patient, with varying degrees of success. Thanks to coverage expansion, self-pay patients represent a declining share of patients, particularly in states that expanded Medicaid. For both care in the ED and even more so for inpatient care, in an increasing share of health plans, consumers need to meet their deductibles, and then will pay co-insurance. These changes in plan design serve to increase consumer interest in the prices that their carriers have negotiated with hospitals. It seems inevitable that these prices will need to be communicated to consumers."

Payers Man Price Transparency Frontline
While consumers stand to bear a growing share of healthcare costs, they may find themselves in league with payers, who appear destined to play a pivotal role in exposing prices and crafting more consumer-driven healthcare market.

The CHA report says payers have price-related information such as health-plan-specific deductibles that hospitals and health systems are ill-equipped to offer patients. "A key participant in any effective price transparency initiative is health insurers," the report states.

"While a hospital can post a list of charges for common treatments, and even proactively provide information to individual patients in advance of their treatments, this information is of little value to consumers who are trying to determine the actual prices and, from there, the portion of the costs they'll be responsible for paying."

Commercial insurance carriers are playing an active role in shaping the new healthcare marketplace, Hempstead says. "Insurers can really drive the bus with plan designs that increase the demand for transparent pricing. Yet this may ultimately put pressure on insurers to release information that has historically been considered proprietary. The insurance exchange context, in which consumers can choose plans, really serves to turn up heat—letting people know what kind of out-of-pocket expense they might be in for depending on which plan they choose."

Gundling says insurers are well-positioned to be the primary source of pricing information for patients, with providers filling the pricing information role for uninsured patients and out-of-network care. "Health plans should serve as the principal source of price information for their members," he says.

To help enable consumers, Gundling says insurance carriers should provide a basic set of pricing information for their members, including "the total estimated price of the service, a clear indication of whether a particular provider is in the health plan's network, and a clear statement of the patient's estimated out-of-pocket payment responsibility."