Health care price transparency: It's more than the chargemaster

Feb 17, 2020
Risk consulting Health care

With rising health care costs and evolving consumer-driven preferences, the need for a price transparency solution has become increasingly important for hospitals and health care providers. RSM’s Dan Vandenberghe, health care industry leader, sat down recently with Jim Sink, principal, to ask questions about this topic and to dig deeper on how organizations can address this developing issue.

What’s elevating the topic of health care price transparency?

It’s really about controlling cost for the consumer. There’s a healthy debate happening on how we can best do that. Some advocate that we need a more regulated model, a single payer system, perhaps. These advocates also argue that our current system is fragmented, and can deny access to the people with the greatest financial and medical need. Others suggest that regulation is a key part of the problem, and not the solution. Transparency advocates believe we need a less regulated model and greater transparency. The backdrop of all of this debate is that health care expenditures represent nearly 20% of the U.S. gross national product, and these expenditures are growing at nearly double the rate of the U.S. economy. Some health care economists consider transparency to be “the economic alternative” to a single payer model.

How will health care transparency affect cost?

Many health care economists suggest that price transparency is needed to restore free market forces in the industry, but it’s important to understand that transparency is bigger than the chargemaster, the list of billable items charged to patients or their insurance providers. Consumers need to understand value in terms of the out-of-pocket cost versus quality. Some are now suggesting that it’s presumptive to assume that consumers will always want the best quality, or the highest health tech solution. There may be times when the consumer may knowingly choose the less expensive care option. The problem that advocates are trying to solve is that consumers are believed to be lacking the key information they require to make informed health care buy decisions. Greater transparency is expected to put the appropriate level of information in the hands of the consumer, so the consumer can make better spend decisions, thereby placing greater pressure on health care providers to provide value at the desired level of cost versus quality.

What regulatory requirements are health care organizations facing related to price transparency?

Effective January 2018, Medicare required participating hospitals to post their chargemasters on their websites, although transparency advocates have argued this isn’t going far enough. Consumers don’t pay all the charges of a health care service. Charges are offset by insurance, for instance, so viewing the chargemaster isn’t quite getting at the determinant value. Consumers need to understand completely what they are getting for their money in advance of making spend decisions. Posting chargemasters is of little value to the value equation for most consumers.

However, it appears providers will soon be required to post actual payment rates, meaning what they actually get paid by health insurance companies for “shoppable” procedures. Recent studies suggest that some of the larger academic and major market health systems are paid two to three times more than smaller market, community hospitals with respect to Medicare rates. This means patients, either directly or indirectly, are unknowingly being charged more by some providers. Furthermore, hospital comparison data shared on suggests little measurable difference in quality scores between larger and smaller market hospitals. This information has been denied to consumers because of “protected” anti-competitive trade practices including anti-steering clauses, gag orders and most favored nation clauses.

What should health care organizations do to address price transparency?

First, organizations must understand that transparency is bigger and broader than the chargemaster. Job one for organizations should be to align and rationalize all charges, across all of the enterprise locations, and bring cost back into the equation. This can be challenging. It requires predictive net revenue modelling, managed care capability assessments and a structured methodology. However, results can be dramatic. We recently completed a successful project like this for a client that resulted in $8 million of increased net revenue.

Longer term, organizations should consider moving away from charge-based sensitivities—they should accept greater financial accountability and consider bundled payments as well as prospective and capitated payment arrangements. In addition, organizations should leverage technology to improve analytics and automation, to standardize clinical and financial operations, to improve outcomes and business decision-making, and to enhance patient experience. Patient consumers have indicated that part of their improved experience is related to their financial experience. This requires a more innovative, consumer oriented, revenue cycle strategy. Patients generally want to pay their bills if they can. To bridge that, organizations should be engaging consumers with a formal customer relationship strategy and tools that can aid in this effort with no-touch and one-touch relationship interfaces providing scheduling, preauthorization, financial clearance, cash collection, financing and more.

RSM contributors

  • Jim Sink
    Hospital and Health Systems Leader
  • Dan Vandenberghe

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