Physician Preference Items Part 2: Price Transparency

Physician Preference Items Part 2 Price Transparency featured

This article was written by Lisa Miller.
In our first blog on Physician Preference Items (PPIs), we explored best practice to identify and realize cost savings.
In part two, our focus turns to price transparency.
Physician Preference Items (PPIs) are defined as preferred supplies, instruments, implants or medical devices that physicians choose to use in patient treatments. These often high cost items can account for up to 60% of total supply costs. Physicians may express a strong preference for specific manufacturers based on a combination of factors. These include personal experience, clinical outcomes and their relationship with the sales representative and/or the vendors of these items.
How did the US healthcare sector reach this point?
Previously, physicians were not always aware of the costs of their chosen PPIs.
Hospital departments typically worked in silos. Clinical decisions fell within the remit of the medical staff, while decisions related to pricing remained under the domain of supply chain management and finance.
Research has consistently proven that in the new era of price transparency and value based care, physicians have expressed interest in cost awareness. [1]
In a new era of price transparency and value based care, physicians are increasingly interested in cost awareness relating to PPIs. Click To Tweet
Increasingly, finance, supply chain, and medical staff collaborate to share knowledge, and develop a cost reduction strategy while maintaining high quality care.
As the shift towards price transparency for patients continues, physicians also recognize the necessity to understand PPI costs.
New rules on price transparency
In November of 2019, in response to an executive order by President Trump, CMS issued a final rule on Hospital Price Transparency Requirements. [2]
That final rule requires that hospitals create and publicly display a consumer friendly list of prices for “shoppable services”. These “shoppable services” are defined as services that patients can schedule in advance. These include 70 services/procedures designated by CMS and 230 chosen by individual hospitals.
The implementation date is January 1, 2021 which gives hospitals to compile the information.
This data must include:

  • A description of each service and billing codes associated with the service.
  • Gross charge, charge per insurance company, cash price (if patient has no insurance), and minimum and maximum payer specific negotiated charges.

This ruling has resulted in some angst among providers, payers and healthcare associations.
Payers negotiate pricing with individual hospitals based on their history and utilization. They believe that price transparency would result in two specific outcomes:

  • Undermine these competitive negotiated contracts.
  • Lead to increased prices.

The American Hospital Association [3] – together with other groups in the healthcare sector – believes that the sharing of proprietary negotiated rates is in violation of the First Amendment and would only cause confusion for their patients. It is important to note, however:

  • Healthcare costs and reimbursement are sophisticated and have many nuances, based on factors such as individual patient conditions, comorbidities and their needs (including SDOH).
  • Patients have expressed consistent approval with the ruling, supported by comments displayed on the CMS website.
  • The influence of consumerism on the healthcare sector cannot be overlooked in this issue. As healthcare costs, premiums and deductibles have increased, patients insist that prices should be transparent. Furthermore, if prices vary considerably from one provider to the next, patients expect that they, as consumers, have the right and the ability to select their healthcare provider.

The impact of price transparency on hospitals

How will this federal requirement affect hospitals and the pricing they negotiate with vendors providing Physician Preference Items?
If hospitals are required to display details of total costs, including supplies and procedures, patient accommodation and hospitality, professional and facility fees, and so on, how should the cost of the implants used during procedures be made available on the website?
Note: Implants that are assigned revenue codes 274, 275 and 278 (3) are often assigned additional carve-out payments in payer contracts.
In reviewing the CMS 70 required services to be displayed, several items stand out as particularly relevant in relation to high cost PPIs, for instance:

  • Cardiac valve and other major cardiothoracic procedures with cardiac catheterization with major complications or comorbidities – Inpatient DRG 216
  • Spinal fusion except cervical without major comorbid conditions or complications (MCC) – Inpatient DRG 460.
  • Major joint replacement or reattachment of lower extremity without major comorbid conditions or complications (MCC) – Inpatient DRG 470.
  • Cervical spinal fusion without comorbid conditions (CC) or major comorbid conditions or complications (MCC)- Inpatient DRG 473.

The future of price transparency and PPIs
Price transparency will become a crucial element in vendor negotiation for PPIs.
The role of supply chain has evolved with the use of sophisticated analytics which provide deep insight into benchmarking, contract compliance and pricing strategies.
We recommend partnering with a third party consultant with a proven track record and expertise in this key area who can:

  • Enhance your organization’s knowledge base.
  • Deliver these analytics, together with an ongoing review of costs .

PPI reviews, especially in high cost areas such as orthopedic, cardiac, and spine cases must be the priority. Working with surgeons and vendors to review utilization, component and construct prices, carve outs and reimbursement is also necessary.
As hospitals prepare to list prices on their websites, in accordance with CMS directive, with effect from January 1, 2021, they will be required to understand the total hospital cost of the procedures, as well as the reimbursement they receive per payer contract.
All departments, including finance, revenue cycle, supply chain, compliance, revenue integrity, managed care contracting, and the medical staff must:

  • Implement significant changes to their processes, and;
  • Employ data analytics strategies to institute a culture of transparency with all stakeholders.

Patient care is always the focus of the healthcare system.
High quality medical care, patient safety, patient satisfaction, patient price transparency, and constant new technologies require health care leaders to be open to change and continually reevaluate their processes.
Value based care must remain at the forefront of all decisions made by hospital executives. In addition, the development of innovative, data driven strategies to enhance cost savings with PPIs is now critical for all healthcare providers.

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