This article was written by Jim Cagliostro.
The day before I was scheduled for a one and half hour outpatient surgery, I began to understand the impact of price information in healthcare and get a glimpse into the not-so-clear future of price transparency.
Firstly, I received a call from the hospital to say that my total bill for the procedure would amount to $6500. I queried this amount as I had confirmed with the hospital and the insurance company that everything would be considered “in-network.” That meant the maximum amount owing would be 25% of the final bill.
I had also confirmed with the insurance company that we were very close to our in-network out-of-pocket maximum, which was $4000.
The caller reentered my insurance details and informed me that we would actually owe a maximum of $1100, a payment which could be made after surgery.
Upon arrival at the hospital, however, I was informed at the registration desk that I was required to pay $6500 before I could register for my procedure.
I explained the situation and the conversation I’d had just the day before. We were then directed to a very small financial aid office where we were not allowed to register until a payment was made. The environment was hostile – my wife and I were not even offered a seat – and we spent half an hour exchanging ‘‘counteroffers’’ until we agreed on a payment of $1000.
My wife and I had woken up at 4am and driven two hours in hazardous conditions to be faced with what I can only describe as a ‘’used car lot’’ experience for surgery that had been planned and cleared by insurance two months ago.
It was apparent that the individual we negotiated with had experienced this situation numerous times. During a pressured conversation, we clearly heard him make comments such as, “they always do this to me” and “the hospital will go out of business if patients do not pay something up front.”
The employee of a very large hospital (it consistently ranks as top 15 in the nation), had failed to view the financial situation from the patient’s perspective.
Unfortunately, I am not the exception. This scenario plays out all too often across the country on a daily basis.
A timeline for price transparency
On June 24, 2019, President Trump’s administration issued an executive order to improve price transparency.
The order describes US healthcare as a system that prohibits patients from knowing the price and quality services in advance, preventing them from making fully informed decisions.
“With the predominant role that third party payers and government programs play in the American healthcare system…patients often lack both access to useful price and quality information and the incentives to find low cost, high quality care.”
Providing more meaningful price and quality information to patients will generate increased competition between providers which should result in less inflated prices and reduce the number of surprise bills for patients. Price transparency is also expected to result in more innovation and value in healthcare.
On November 15, 2019, the Centers for Medicare & Medicaid Services (CMS) issued an announcement that they would take “historic steps to increase price transparency to empower patients and increase competition among all hospitals, group health plans and health insurance issuers in the individual and group markets.”
The key points of this announcement are:
- Health plans must give consumers access to cost sharing information, including an estimate of their financial responsibility for all covered healthcare items and services.
- This must be made available via online tools and in paper form at the consumer’s request.
- Health plans must disclose their negotiated rates for in-network providers and allowed amounts paid for out-of-network providers on a public website.
- Hospitals must make their “standard charges” public in a “comprehensive machine-readable file” and by “displaying shoppable services in a consumer-friendly manner.” Shoppable services are those which can be scheduled by a healthcare consumer in advance (non-emergency).
The effective date for the rules has been delayed to January 1, 2021 to give healthcare providers more time for implementation.
What price transparency means to patients
American healthcare is the most expensive and least efficient in the world.
According to the CDC, 47% of the US population has a High Deductible Health Plan (HDHP), which means greater financial responsibility for medical bills is falling on the patient.
Furthermore, a 2019 HFMA survey found that patients with HDHP require most patients to know prices in advance. The survey also shows that hospitals have begun to reduce prices or limit increases as a result of the push towards price transparency.
If the rules set forth by CMS accomplish the aims of the Executive Order, patients will benefit by the ability to make informed choices when it comes to healthcare.
Some concerns remain, however, regarding the implement of price transparency.
If price transparency is defined as simply making a hospital’s chargemaster publicly accessible, then the potential for confusion is significant. American Hospital Association (AHA) President and CEO, Rick Pollack, believes that:
“…instead of giving patients relevant information about costs, this rule will lead to widespread confusion and even more consolidation in the commercial health insurance industry.”
Since hospitals and third party payers negotiate rates for specific procedures, determining what patients will owe is a complex process. The terms “consumer friendly” and “plain language” are also subjective and may be interpreted by healthcare professionals in a variety of ways.
The concern over the potential confusion is valid. The rules issued by CMS on 15 November 2019 are open to interpretation. Currently, many hospitals make their chargemaster available, but it is often difficult to locate and not “consumer friendly”, nor written in “plain language.”
Another source of confusion can be attributed to online price calculators offered by many hospitals. These cost estimators are a significant step towards empowering patients and increasing competition. These can contain inherent problems, however:
- Some omit estimates for basic procedures such as chest X-rays.
- Others simply do not work, depending on the insurance information entered.
- A majority of price estimators do not clarify that the estimated cost is strictly the facility fee and does not include professional fees.
Using cost estimators can give patients a false sense of expectation and leave them with surprise bills.
To summarize, patients may be given plenty of data but not all of the information they need to determine how much they will owe. Furthermore, research suggests that few patients actually use existing price transparency tools.
These findings will lead some hospitals to question why they should invest in significant resources to comply with regulations that make little to no difference for most patients.
The challenge for healthcare providers will continue to be providing patients with easier access to the information they want in a way they can understand that is specific to their situation and insurance coverage.
If hospitals fail to provide all the information that is needed for patients to make informed decisions, the decision is no longer informed. Patients are left frustrated and at best hopeful that they are able to pay all of their medical bills.
If the information provided is too complicated or cryptic for the average patient to understand, then any efforts made will prove to be a drain on hospital resources and offer minimal value to patients who want to take back control of their healthcare spending.
What price transparency means for hospitals
The AHA and others have challenged the ruling that hospitals must disclose their privately negotiated rates with commercial health insurers. They explain that they are committed to “ensuring patients have the information needed to make informed healthcare decisions, including what their expected out-of-pocket costs will be.”
However, they claim that the rule violates the First Amendment by compelling the public disclosure of individual rates negotiated between hospitals and insurers in a manner that will confuse patients and burden hospitals which are already facing excessive regulatory measures.
CMS expects opposition to the new price transparency rules as it calls for changes in philosophy and business practices that have come to define American healthcare.
Some hospitals are already investing significant money in price transparency. One California hospital spends $18,000 per year to provide online self-service cost estimators through a third-party vendor.
Other hospitals may refuse to comply with price transparency rules and choose rather to pay the $300 daily fine, which would cost the hospitals $109,500 annually.
Hospital administrators should consider the long term impact of such a decision, however.
If fully implemented, the rule will undoubtedly impact negotiations between hospitals and third party payers, as they will have access to the rates insurers are paying to their competitors. Hospitals with lower negotiated prices may negotiate to receive more comparable payment from insurers, while hospitals with higher prices will be under pressure to reduce their prices.
Insurers would also have access to the prices hospitals are charging their competitors, creating even more complex issues when it comes to negotiating rates with hospitals.
The concern about price fixing among hospitals and insurers warrants a certain level of discussion, but this may prove to be a challenge in the current market.
How should your hospital respond?
The shift to price transparency has already begun and the Department of Health and Human Services has made it clear this is the future of healthcare in this country.
One thing is certain: hospital administrators cannot ignore it and hope the problem goes away.
We recommend the following steps:
Acknowledge that significant resources must be allocated to establishing price transparency in your health system. Budgets must be revamped. Strategies will have to be tweaked. If patients are truly at the center of everything you do, you must invest in their experience and empower them to make more informed decisions about their healthcare.
Develop an accurate cost estimator. Simply making your chargemaster available online is not enough. Your cost estimate must take into account a patient’s insurance coverage or ability to self pay. Multiple vendors in the US have successfully developed cost estimators for health systems that are being used today. Empower your patients by giving them all of the information they need in a clear and concise way.
Combine price transparency with financial assistance and consumer friendly payment plans. This will position your hospital as pioneers in offering improved value of care. For the most part, patients want to pay their medical bills. Providing accurate expectations relating to cost and multiple options for bill payment empowers your patients.
Consider your location and other health systems offering similar services.
Price transparency – no matter what form it eventually takes – will affect competition in healthcare. Mandatory price transparency may necessitate your organization to develop a team or hire consultants, especially if your hospital is in a densely populated healthcare market.
Establishing price transparency will require collaboration between healthcare providers, third party payers, vendors, and patients. While patients have the least amount of power, they are often the ones most negatively affected by the lack of transparency. Providing an accurate cost estimate in advance of their care gives them back control in a situation where they can often feel powerless.
Benefits of price transparency for your hospital
Developing and improving price transparency benefits your hospital in numerous ways. Patients are able to make informed decisions and are better equipped to ‘‘choose the healthcare that is best for them’’. The risk of receiving a devastating medical bill is also mitigated.
However, there are also many benefits to providers who comply with the changing CMS rules and commit to price transparency now.
Avoidance of penalties and a negative reputation: Hospitals can avoid a potential $300 daily fine or $109,500 annually, as previously mentioned, by complying with the new rules. Furthermore, failure to comply with the new CMS rules may damage your reputation in the community and present regulatory obstacles in obtaining certain accreditations and certifications.
Stay ahead of the competition: While some hospitals have made significant steps towards providing patients with the information they need, the majority haven’t as they are simply not required to do so at this time. In a competitive market, taking strides towards price transparency enables your hospital to stand out from your competition when patients are looking for care. Patients know healthcare is expensive. What most expect is to have an accurate idea of what that healthcare will cost them.
Increase patient satisfaction: Price transparency is increasingly having an impact on overall patient satisfaction. Historically, the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS), has never included questions about the financial experience of patients. With the rise of High Deductible Health Plans (HDHPs), however, more patients are financially responsible for their medical bills than ever before in this country.
Increased reimbursement from CMS: By giving patients access to the information they need in a way that is easy to understand, your organization demonstrates that it values its patients, leading to better patient experiences, improved patient satisfaction scores, and increased reimbursement from CMS. The billing experience is very much a part of the patient experience and has the potential to help or harm patient satisfaction throughout your organization.
Attract new patients: Similarly, price transparency can help bring new patients in to your health system. By giving patients what they want, hospitals establish trust and build confidence in the provider-patient relationship. That trust and confidence is negatively affected if you provide cost estimates only after a penalty is associated with failing to do so. Patients want more transparency from their providers. If your hospital is not providing that, they will look elsewhere for their care.
Build loyalty with existing patients: Connected very closely to attracting new patients is the need for your organization to ‘retain’ customers. Patients are the most important people in your healthcare organization. Your hospital can build trust and loyalty if you clearly show that your patients are a priority and you are listening to them. If patients feel their needs are being heard and met, including those relating to price transparency prior to a test or procedure, they are more likely to return to the same facility for future care.
Improve collections: Price transparency can also increase collections. A major challenge with a lack of transparency is the surprise bills that patients often receive. The surprise can often be that insurance does not cover a certain service or that the cost of that service was much higher than anticipated. This results in frustrated patients and decreases their ability and motivation to pay their medical bills. An accurate estimate of what they should expect to pay before services are rendered enables patients to better plan how they will pay. Offering a variety of payment plans will enable patients to view you as an advocate, rather than an adversary, in patient billing.
Help plan and price for the future: While most health systems are reluctant to publicly reveal their standard charges for common procedures and tests, there is a flip side to the new rules that can be used to your advantage. The standard prices charged by your competitors will also be in the public domain and can help you strategically price your services and plan for the future.
The outcome of my own patient experience
To conclude the opening story about my own experience, I was ultimately allowed to register for my surgery but only after paying $1000. The surgery went well, and I had a full recovery. However, the $1000 was ultimately an overpayment beyond my out-of-pocket maximum and I spent the next few months in discussions with the hospital to get the excess reimbursed.
The lack of transparency in healthcare pricing not only leads to frustration and stress, but it can actually cost patients more time and money in the end.
For a less personal and more national perspective, medical problems contributed to 66.5% of all personal bankruptcies between 2013 and 2016, and over half of American adults report “medical financial hardship.” CMS considers these statistics unacceptable, which is why they are implementing the new rules to require price transparency.
The shift to price transparency in healthcare is a daunting one, requiring changes in strategy and investments in tools your hospital may not yet have access to.
It has become increasingly clear that it is the right thing to do for patients.
The goal of the new rules is to eliminate barriers to patients who are trying to make informed decisions. This is achieved by working closely with third party payers and patients to develop solutions that your hospital will provide to increase the value of your care, while remaining competitive.
This may be as simple as providing an easy to read chargemaster or working with a vendor to develop a cost calculator that can give specific estimates to each potential patient.
The current state of American healthcare is complex and changing. The financial strain placed on hospitals facing this constant state of transition and regulatory burden calls for them to take a proactive approach to provide quality care to patients, while remaining profitable.
Accepting price transparency as the new reality in American healthcare will require collaboration, time, resources, and some creativity, but it is possible. It is wise to begin the conversation now and start planning for a future in healthcare where price transparency is required.