eTech Insight – Transparent Pricing: Leveling the Playing Field

The Problem: Pricing Disparity for Common Medical Procedures Can Vary Widely

We have had several examples of pricing disparity for the same procedures publicly exposed over the last few years. Hip-replacement procedures from different hospitals in the same city can vary by tens of thousands of dollars. While the prosthetics for these procedures can drive pricing disparity, most healthcare organizations have selected one or two prosthetics for these procedures and have driven standardization of these procedures (i.e. evidence-based medicine). Orthopedic procedures are likely to be provided as bundled-cost services where the organization commits to a base price with identified quality and outcome goals.

Over the last few decades, healthcare organizations have negotiated service pricing with payers that protects their operating margins, without any consideration of the true cost of these services. These price negotiations with payers have been conducted under fee-for-service reimbursement. We can only imagine how much of the cost of healthcare is associated with fee-for-service pricing processes. That is why HHS and CMS are moving the Medicare population to fee-for-value reimbursements, which require providers to meet quality and outcome goals associated with their services based on Medicare pricing.

A 2016 report from the Robert Wood Johnson Foundation [1] stated, “Pricing transparency might have the single biggest effect in informing the public about health care costs and could support a more efficient health care delivery system in the United States.” As healthcare costs continue to rise, and patients assume more of the healthcare costs, the US is finding more support for a single payer system.

The Solution: HHS and CMS Issue Rulings Driving “Transparency in Coverage” 

New federal pricing transparency rules for providers and payers was issue by HHS and CMS on 11/15/19 [2]:

  • Calendar Year (CY) 2020 Outpatient Prospective Payment System (OPPS) & Ambulatory Surgical Center (ASC) Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule
  • Transparency in Coverage Proposed Rule

In response to the executive order, the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury (collectively, the Departments) are issuing a proposed rule, Transparency in Coverage, which would require most employer-based group health plans and health insurance issuers offering group and individual coverage to disclose price and cost-sharing information to participants, beneficiaries, and enrollees up front. With this information, patients would have accurate estimates of any out-of-pocket costs they must pay to meet their plan's deductible, co-pay, or co-insurance requirements. This would make previously unavailable price information accessible to patients and other stakeholders in a standardized way, allowing for easy comparisons.

The American Hospital Association, Association of American Medical Colleges, Federation of American Hospitals, and Children’s Hospital Association are suing HHS and CMS over these rules [3], which demonstrates the challenges the US faces to change the current fee-for-service reimbursement environment. I believe these lawsuits are frivolous and will fail. US citizens will demand transparency as they incur higher costs for their healthcare services. Failure of the providers and payers to move away from these egregious fee-for-service pricing procedures could drive the US to a single-payer system.

The Justification: Pricing Transparency Creates Informed Patients and Lower Healthcare Costs

Healthcare organizations who accommodate pricing transparency will be seen as trusted providers in their markets. The ability for patients to compare prices for procedures and their out-of-pocket expenses should encourage a higher level of market competition. Employers will begin to demand pricing transparency from providers to better control their self-insurance costs. Emerging payer models from companies like Haven that focus on employer healthcare costs may lead the way for the insurance industry to transform their pricing models.

Pricing transparency will drive competition among providers to lower costs. Otherwise, they won’t be in business. Organizations that don’t show pricing transparency will drive higher prices and lead their members down a path of failure. Consumers will demand transparency and will continue to drive healthcare transformation.

The Players: Healthcare Price-Comparison Solutions Will Be a Consumer Staple

The following are representative companies that have established healthcare price-comparison solutions or are introducing new solutions:

  • Castlight Health provides employees intuitive navigation of their company-provided healthcare services.
  • ClearCare providers a hospital solution for consumer-friendly pricing disclosures.
  • HealthSparq provides solutions for employers and payers.
  • Sapphire Digital also provides solutions for employers and payers.

Success Factors

  1. Price-transparency solutions must be enabled via portals and mobile devices with well-designed and intuitive applications to ensure consumer satisfaction.
  2. Providers should consider approaching large employers in their markets with price-transparency solutions to support their employees by controlling healthcare costs and allowing their employees to access high-quality services.
  3. Organizations must be aggressive with price-transparency strategies to drive consumer awareness and satisfaction that will improve the organization’s brand.

Summary

Healthcare organizations that do not take the new HHS/CMS rules of price transparency seriously will likely incur the ire of consumers and employers in their market. The transformation of healthcare reimbursements is underway and requires organizations to be aggressive in how they package and price their services. Eliminating the skulduggery of the current provider/payer pricing negotiations associated with fee-for-service reimbursements will drive true market competition that will then drive healthcare costs down into a defensible model. The current political environment is no longer treating healthcare as a third rail. The ability for the industry to deflect a single-payer system is predicated on the ability of healthcare organizations to deliver accessible and low-cost care with high-quality outcomes.

Digital solutions are emerging for providers to evaluate and acquire that will help facilitate a smooth transition for providing price transparency of their services. While many of these solutions are in early stages of development, evaluating them will provide insights into price-transparency interactions that will benefit organizations.

Photo cred: Adobe Stock, igorkol_ter