Price Transparency: Why Knowing and Defending Your Price Matters
There is a lot of discussion about Price Transparency in Healthcare across our country. Many state legislatures are getting involved, including Florida. Recently, Florida Governor Rick Scott announced he will encourage (some might say push) state legislation to require hospitals to post their prices for procedures and services as well as their average reimbursement on the hospitals' websites in early 2016.
This sounds reasonable, right? Most consumers want to know ahead of time what their financial obligation will be for services rendered – regardless of the industry. And, in healthcare, providers should be able to give patients a reasonable expectation of what to expect for tests and procedures that are routinely performed.
However, it’s not really that easy for patients to compare services between two or more providers. First, there are conflicting terms such as charges, cost and price. A ‘patient’s cost’ is based on a combination of factors including:
- Provider’s negotiated rates with the insurance company,
- Patient’s co-pay,
- Co-insurance (which is based on the allowable),
- Deductible and remaining out-of-pocket
- Secondary insurance coverage if applicable
- Payer’s consideration of non-covered charges and denials
These are all in addition to the fact that each hospital has a unique Chargemaster, unique practice patterns, and often pay differing amounts for supplies.
And, let’s admit it: the sticker price (i.e. the billed charge) in a hospital’s Chargemaster often does not correlate to cost or expected reimbursement from payers and ultimately the patient’s ability to receive an easily understood quote of the price.
Benchmarking tools like Online Analytics allow hospitals to compare their pricing (i.e. charges) to other hospitals. A quick analysis shows that five Florida hospitals within a 25 mile radius have pricing that varies up to 40% at a macro level and up to 300% at the line item level.
When a hospital enables price transparency and allows potential patients to either obtain estimates via your website or by calling a patient access representative, it seems obvious that a full review of the Chargemaster and how your pricing compares to nearby hospitals is a prerequisite.
To prepare for the inevitable Price Transparency mandate, a chargemaster review is important. The sooner it’s done, the better a hospital will be positioned to prepare for this change. Strategic pricing allows a hospital to compare their retail pricing (i.e. charges) using a variety of criteria, including:
- Market pricing – what other hospitals in the area are charging
- Actual cost(s) – what an item or procedure actually costs and a reasonable mark-up
- Impact on net revenue based on payer contracts
For the healthcare provider, the end result of the Price Transparency initiatives and the strategic pricing analysis is defensible pricing based on market conditions and true costs. For the patient, they have a better understanding of what their insurance will cover and their personal obligation for care.
If your charges are significantly higher than your actual reimbursement and you are looking for help on how to conduct a chargemaster review, I encourage you to watch the webinar session “Today's Trends in Chargemaster Review.”