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The Push for Hospital Pricing Transparency: How is Your Organization Responding?

Posted by Matthew Smith on Jun 2, 2015 11:15:00 AM

By Tawnya Bosko, MHA, MSHL, MS, Senior Manager, and Matthew Briskin, MPH, Senior Consultant, The Camden Group

Post-image-transparency.pngIt is evident that government officials, policymakers, and others believe in the power of access to clear pricing to help reduce healthcare costs in the United States.The Center for Medicare and Medicaid Services (“CMS”) took steps in the fiscal year (“FY”) 2015 Inpatient Prospective Payment System (“IPPS”) final rule to implement the Affordable Care Act’s (“ACA”) provision requiring hospitals to “establish and make public a list of its standard charges for items and services”[i]. In the final rule, CMS reminded hospitals of this requirement and reiterated that they encourage providers to move beyond just the required charge transparency and assist consumers in understanding their ultimate financial responsibility. Beyond the federal government requirements, many states have implemented rules around disclosure of charge and sometimes price information. Further, all payer claims databases (“APCD”) have been established and stakeholders continue to build apps and other databases to assist consumers in assessing hospital pricing information, and as more consumers enroll in high deductible health plans—in other words, the out-of-pocket costs for healthcare services are becoming more of a driver in consumer decision-making—those resources (APCDs, apps, and other databases) are becoming increasingly popular. The trend is clearly moving toward increased transparency of price and quality information, yet many hospitals lag behind and have yet to address the antiquated chargemaster (“CDM”) and incorporate pricing into their overall strategic plan.

Legislation Surrounding Price Transparency

Coupled with the ACA and FY 2015 IPPS final rule requirements for hospitals to disclose charge information to consumers, CMS also continues to publish individual hospital charge, utilization, and reimbursement information for the most common inpatient and outpatient services. Additionally, 28 states have legislation around price transparency with various requirements of hospitals and other providers[ii]. While most states do not have robust systems in place for transparency, the majority are beginning to pursue these initiatives, with Colorado, Maine, Massachusetts, Vermont, and Table1_DRG.pngVirginia making the strongest push[iii]. For example, Table 1 shows an excerpt from the Colorado Hospital Price Report, which reflects volume, average length-of-stay and the range of charges for DRG 470, major joint replacement or reattachment of lower extremity without major complications. The site also provides average reimbursement information by payer and diagnostic category, though it does not get to the level of individual hospital.

Pricing transparency initiatives are clearly not specific to federal regulations and Medicare information. In addition to the state regulations around transparency, many states are engaging in initiatives to bring APCDs to their state. Figure 1 (note: click here for interactive map) shows the status of APCDs by state as provided by the All Payer Claims Database Council.

Figure1_APCD.pngAs shown, 12 states have existing, required participation APCDs and another 6 are in the implementation phase of a required APCD, which typically are able to provide charge and reimbursement information, though reimbursement information at the individual hospital level by payer is not always disclosed.

Why Is This Important?

Transparency initiatives are being pushed from the federal government, state governments, employers, consumers, and other stakeholders. People want to understand the costs of care in order to make better purchasing decisions.

 

Key Considerations as Part of a Hospital Pricing Strategy Include:

Cost Structure

If the move to value-based reimbursement isn’t enough of a push to get a better understanding of your cost structure, add transparency to the list of reasons why hospitals must understand what it costs for them to provide a service. You can’t ‘right price’ your services if you don’t know what your costs are.

Quality Scores and Performance

In the new era of healthcare, quality is extremely important. Not only is it be linked to value-based reimbursement, but as in most markets, the supplier (hospital) should understand the quality of their product or service and integrate that information into their pricing strategy and payer negotiations.

The CDM

It is important to ‘right price’ your services. The old ways of setting charges to capture maximum reimbursement but not considering costs will soon be extinct. A revitalized strategy around the hospital CDM and coordination with costs, quality and reimbursement will become a necessity.

Payer Strategy and Reimbursement

Updating the CDM and becoming more transparent with prices cannot happen without consideration of the payer strategy and the impact of changes on reimbursement. Engaging payer partners in this process early is important to success.

The Market

Hospitals should be aware of how quickly their market is moving on transparency initiatives, both from state regulations and payer initiatives, as well as staying aware of how their pricing compares to their peers and competitors for key services.

Whether or not hospitals are ready to disclose this information, the push for transformation is steady and strong. Hospitals should be at the forefront of understanding their cost structure and how that relates to the often antiquated CDM and ultimately to reimbursement, quality, and patient financial responsibility. Making this connection and transition won’t be easy, but hospitals that are able to master their pricing strategy early on and convey this information to consumers will be competitively positioned for success in the post-reform era.

[i] The Center for Medicare and Medicaid Services, 2014
[ii] The National Conference of State Legislatures, 2015
[iii] Healthcare Incentives Improvement Institute, 2014

bosko_headshot.pngMs. Bosko is a senior manager with The Camden Group and specializes in designing and implementing clinical integration, high growth medical service operations (“MSO”) and finance, physician hospital organization  and MSO development, managed care strategy, and physician alignment. She may be reached at tbosko@thecamdengroup.com or 310-320-3990.

 

 

Briskin_headshot.pngMr. Briskin is a senior consultant with The Camden Group specializing in finance. He has extensive experience working with both payers and providers. Mr. Briskin specializes in revenue enhancement initiatives related to chargemaster pricing optimization and managed care strategy. He may be reached at mbriskin@thecamdengroup.com or 714-263-8206.

Topics: Tawnya Bosko, Chargemaster, Matt Briskin, Charge Information, APCD, Hospital Pricing Transparency, Pricing

Mergers & Acquisitions: An Opportunity to Align Charges Across a System

Posted by Matthew Smith on May 20, 2015 2:30:00 PM

By Matt Briskin, MPH, Senior Consultant, and Tawnya Bosko, MHA, MS, MSHL, Senior  Manager The Camden Group

health-dollar-335x251.jpgWith merger and acquisition (“M&A”) activity remaining steady, hospital systems have the opportunity to strategically align charge description master (“CDM” or “chargemaster”) prices to fit with their system-level corporate strategy, specifically targeting defensible pricing, revenue growth, or the managed care strategy.

Hospital M&A Activity on the Rise

Recent projections suggest that M&A in the healthcare industry will continue to rise in the next year. Given this trend, hospitals should seize the opportunity to align their chargemasters during the phase of integration, but also need to be aware of the risks associated with alignment.

M&A: A Great Opportunity to Align CDMs

Given a system with multiple hospitals in the same market with homogenous patient-payer mixes and service offerings, prices likely need to be aligned such that services provided at hospitals located close to one another are charging patients the same price for the identical good or service. Having prices that are aligned across hospitals in the same market where the hospitals are within reasonable cost-to-charge ratios refers to the practice of ‘defensible pricing’ and is very important as an increasing amount of states regulate that hospital chargemasters be available to the public. Furthermore, from a revenue perspective, as hospital systems grow larger, they may desire to renegotiate their payer contracts to support the changes in the organization. As a result, systems may be in a position to negotiate different reimbursement methodologies. Having all hospital systems on similar pricing schedules will support the overall managed care strategy for the newly developed system and may save the system from answering payer questions such as “Why does Hospital A charge so much more than Hospital B for the same service?” Furthermore, aligning the CDM across the system could lead to operational efficiencies from integration of functionality to support the CDM.

When Not to Merge CDMs

On the opposite end of the spectrum, healthcare systems with hospitals serving diverse patient populations or different markets may want to price goods and services differently across the system. Similarly, a hospital system with a specialty facility may benefit from having a separate CDM due to the nature of highly-skilled or unique services provided at that hospital. 

Systems with recently acquired hospitals need to closely evaluate whether aligning prices across a ‘system CDM’ is the best strategy.  Successful system-wide CDM strategies should be approached with clearly defined goals and revenue projections from day one. Without clearly defined goals and up-front due-diligence, hospital systems run the risk of lost revenue from reimbursement or patient leakage (ultimately, lost revenue) if prices are too high and patients seek services at a lower-priced competitor. As hospitals plan their post M&A integration strategies, the CDM should make the list of items under consideration.


Briskin_headshot.pngMr. Briskin is a senior consultant with The Camden Group specializing in finance. He has extensive experience working with both payers and providers. Mr. Briskin specializes in revenue enhancement initiatives related to chargemaster pricing optimization and managed care strategy. He may be reached at mbriskin@thecamdengroup.com or 714-263-8206.

 

 

bosko_headshot.png

Ms. Bosko is a senior manager with The Camden Group and specializes in designing and implementing clinical integration, high growth medical service operations (“MSO”) and finance, physician hospital organization  and MSO development, managed care strategy, and physician alignment. She may be reached at tbosko@thecamdengroup.com or 310-320-3990.

 

 

 

Topics: Tawnya Bosko, Mergers, Acquisitions, Mergers & Acquisitions, Chargemaster, CDM, Matt Briskin

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