United States

Industry Outlook: Health Care

Health care faces demand for pricing transparency


On June 24, President Trump signed an executive order designed to improve transparency in the pricing of health care. It’s the latest move in an environment where consumers are exercising power over the cost of treatment, an area that historically offered them little wiggle room. Health care executives must consider that their consumers (patients) are now looking at their service offerings the way they look at any other products or services in the marketplace—with an eye toward quality and value.

The stated purpose of the administration’s executive order, Improving Price and Quality Transparency in American Healthcare to Put Patients First, is to “enhance the ability of patients to choose the health care that is best for them. To make fully informed decisions about their health care, patients must know the price and quality of a good or service in advance.”

On July 29, the Centers for Medicare and Medicaid Services issued a proposed rule related to the executive order. The rule would require hospitals to display negotiated charges for at least 300 services, 70 of which CMS would select, the other 230 to be selected by the hospital. The proposed rule as written would go into effect on Jan. 1, 2020.

The executive order goes on to discuss milestones focused on pricing transparency:

  • Within 60 days of the executive order: the Secretary of Health and Human Services shall propose a regulation to post not only the health care providers’ charges but also information about their negotiated rates with health plans.
  • Within 90 days of the executive order: the Secretaries of HHS, Treasury, and Labor shall issue an advance notice of proposed rule-making, soliciting comment on a proposal to require providers, health plans, and self-insured groups to provide (or facilitate) access to information about expected out-of-pocket costs for items or services before they receive care.
  • Within 180 days of the executive order: the Secretary of HHS shall issue a report describing the manners in which the Federal government or the private sector are impeding health care price and quality transparency for patients.

Pricing transparency is a widely discussed topic in the health care ecosystem as patients increasingly view themselves as consumers with more control over choice. According to the Centers for Disease Control and Prevention, 47% of the commercially insured, pre-Medicare population was covered by a high deductible health plan in 2018. With so many people covered by HDHPs, it is no wonder more patients are focused on the out-of-pocket costs they face when receiving medical care.

Technology and demographic changes are also driving the push for lower costs. The Pew Research Center expects that some time in 2019 the millennial generation will—or likely have already—overtaken the baby boomer generation. This shift, which coincided with the digitization of information and the ease with which consumers can access it, has accelerated market demand for transparency.

Consumers’ experiences with on-demand service providers like Uber and Netflix have also helped to shape expectations in the health care market. Although these online platforms have different core services–Netflix for entertainment, Uber for transportation–they both offer three elements critical to their user experience: on-demand service, customization and mobility. They have also added adjacent services; Uber created Uber Eats, while Netflix started its own production studios.

Netflix, Uber, and other online platform business are often valued in some part by the number of subscribers they have. Netflix, which recently announced it did not add as many subscribers as it had forecast, saw it stock price drop from about $362 a share to $321, an 11% decrease.

One reason subscribers matter to Netflix is that they represent a recurring revenue stream to offset fixed costs. Perhaps an even more valuable component is the data that they bring to the platform. This intelligence allows the platform to bring its customized user experience to life. Similarly, using data provided by your patients to deliver personalized care allows you to bring customizable advantages to your health system. And if you can use artificial intelligence and machine learning to suggest adjacent services, even better.

Subscribers and transparency

Transparency is just one of many expectations your new health care consumer demands. Recently RSM interviewed several health care executives among our clients and heard a common theme—they noted that users of the health care system simply don’t have the time to shop around before treatment is sought. That may be true for emergencies or non-scheduled surgeries. However, offering transparency is not a strategy to gain market share of patients who utilize your services for an emergency; it is to gain share of subscribers who use your services on a routine basis. Consider if your health system had more proactive offerings such as wellness applications, fitness trackers, and other similar on-demand services. Subscribers to these services will provide valuable information to help you better understand their behaviors and expectations. Moreover, a lack of transparency could drive the growing cohorts of millennial consumers to other providers.

The executive order and the link to data

The executive order had an interesting segment in Section 5.

Increasing Access to Data to Make Healthcare Information More Transparent and Useful to Patients.

“Within 180 days of the date of this order, the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury, Defense, Labor, and Veterans Affairs, and the Director of the Office of Personnel Management, shall increase access to de-identified claims data from taxpayer-funded healthcare programs and group health plans for researchers, innovators, providers, and entrepreneurs, in a manner that is consistent with applicable law and that ensures patient privacy and security. Providing access to this data will facilitate the development of tools that empower patients to be better informed as they make decisions related to healthcare goods and services.  Access to this data will also enable researchers and entrepreneurs to locate inefficiencies and opportunities for improvement, such as patterns of performance of medical procedures that are outside the recommended standards of care.  Such data may be derived from the Transformed Medicaid Statistical Information System (T-MSIS) and other sources.  As part of this process, the Secretary of Health and Human Services shall make a list of priority datasets that, if de-identified, could advance the policies set forth by this order, and shall report to the President on proposed plans for future release of these priority datasets and on any barriers to their release.”

We understand through several interviews with our clients that one impediment to sharing data is the fear of breaching patient privacy laws. The above section signals a potential shift in government regulation that could make data sharing, providing a framework around how health care providers could go about sharing de-identified patient information.

Additional observations

RSM clients noted a few barriers to pricing transparency:

  • The chargemaster is built upon historical pricing models which may have no basis. In other industries charges for goods and services are built on cost to produce or provide. However in health care this is sometimes not the case.
  • There is concern about sharing contracted rates.
  • Depending on the types of payor contracts, rationalizing the chargemaster may negatively affect margin.
  • It is difficult to provide transparency for non-employed providers.
  • There is generally a lack of specific patient level cost data.

As a result of our pricing transparency calls, we created the below index of price transparency adoption.


Level 1 – Transparency Minimalists: These organizations followed the minimum requirements of their state and or CMS’s minimum requirements.

Level 2 – Early Stage Transparency: These organizations provide up-front pricing for elective procedures.

Level 3 – Transparency Shepherds: These organizations will provide out-of-pocket estimates when a subscriber calls. Generally, there is time required between when the request of the estimate is made to when it is received. The time frame ranges anywhere from two hours to a week. Additionally these organizations are using a rational pricing model.

Level 4 – Transparency Super Stars: These organizations have web-based tools and mobile applications to provide on-demand, out-of-pocket estimates when requested by a patient. The leading edge companies at this level will also put this estimate in the workflow of the provider to enable a discussion with the patient. These organizations are also using cost accounting to drive their pricing strategy and assisting with payor contracting negotiations.

Based on our interviews, most organizations were actively trying to move to Levels 2 and 3.

How RSM can help

RSM is currently assisting clients to evolve their pricing transparency strategies. Our professionals have experience providing the following services:

  • Design and implementation of rational pricing analytics
  • Establishing cost accounting strategies and tools
  • Establishing procedural cost methodologies
  • Assessing and evaluating market pricing information
  • Evaluating payor contracts for maximization opportunities

Building subscriber engagement

To drive value in your health system, leverage subscribers to your services platform. Your strategy should include how to engage with them as frequently as possible and how to build out value-added adjacent services so that stay engaged with your platform. You can then harness the data you obtain from the subscribers to provide personalized, on-demand services that are unique and differentiated. Transparency is just one part of building a platform mentality to attract the millennial cohort, the largest generation in the United States today.


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