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The Price of Success

September 1, 2008
by Brian Albright
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To stand out in the evolving healthcare world, hospitals need to get their pricing in order

Mike Nugent

Mike Nugent

Getting a price estimate from a hospital can be a challenge for patients; gathering comparative information from multiple providers is even more daunting. So in April, Alliance Community Hospital, a 204-bed, non-profit facility in Alliance, Ohio, put out a call to community members to help gather comparative pricing data for area hospitals. As an incentive, Alliance offered $100 for each unique explanation of benefits (EOB) document, and corresponding bills (for MRI and CT scans, inpatient stays, etc.) that area residents submitted to its billing department.

“We think this a good way to start, at a grass-roots level, to try and change the healthcare system for the better,” says Alliance CEO Stan Jonas, who notes that his facility is generally the lower cost provider. “We need to educate people, and make it simple for them to shop and compare.”

An increasing number of Americans have been forced to take a harder look at their healthcare costs. There are an estimated 47 million uninsured people in the United States, and another 25 million are considered underinsured. And with more patients subscribing to high-deductible insurance plans, consumers expect hospitals to provide them with accurate and easily accessible price information.

“Hospitals are facing a potent cocktail of the risk of public scrutiny of their pricing practices, increasing inquiries, complaints from patients, and price-based competition from non-hospital providers,” says Michael Nugent, director at Chicago-based Navigant Consulting.

The Bush administration has also called for greater price and quality transparency in the industry, and many states have either established voluntary transparency programs, or require by law that hospitals make price information available.

However, this is where common healthcare industry practices and consumer expectations begin to diverge. Call a mechanic and ask for an estimate, and you can usually get a fairly accurate one in a few minutes over the phone. Call up a hospital and ask for an estimate on a colonoscopy or a knee replacement, and not only will you likely spend a lot of time on hold, but the price provided could vary widely from the actual bill.

Hospitals have a hard time calculating prices in advance because of the complexities of their services, the intricacies of Medicare and Medicaid reimbursement, payer discounts, and other factors. But part of the problem is internal.

“Hospitals aren't organized to price effectively,” Nugent says. “They take a silhouette approach to pricing. The managed care department is totally separate from the charge description master (CDM) 99 percent of the time. Most hospitals also don't have cost data. That's a strategic challenge.”

In fact, before a facility can present truly useful price information to consumers, management should reevaluate pricing practices from the ground up to simplify structure and find ways to adjust prices without impacting revenue.

The price is wrong

It's unclear exactly how much price shopping is going on in the healthcare industry. Most patients still select their providers based on a mix of comfort level, geography, and cost. “Patients still go where their physicians practice,” says Rick Gundling, vice president of the Healthcare Financial Management Association (HFMA), which has launched the Patient Friendly Billing project to promote clearer financial communications with patients. “We're hearing more anecdotally about patients price shopping for care.”

But many patients want to know what their financial commitment will be, as far in advance as possible. Most hospitals provide prices from their CDM, but these numbers, while easy to obtain, are useless to patients.

What patients really want to know is what their out-of-pocket costs will be. While there are many factors that can make those numbers hard to come by, hospitals should be able to give a reasonable estimate for many common procedures in advance, provided they have established a rational pricing structure, and designated a specific department to deal with inquiries.

Geisinger Health System, an integrated health system in Danville, Pa., is probably the farthest ahead on the transparency issue. Geisinger has established a preservice program called ‘MyVisit’ with a dedicated staff to handle financial clearance for the bulk of scheduled outpatients.

William Telleen

William Telleen

Geisinger verifies insurance-benefit levels and calculates out-of-pocket estimates in advance of admission. Patients can get price estimates in person, over the phone, and through the company's Web site. As a fully integrated system, Geisinger is able to provide complete estimates (including physician services) for most procedures.

“We firmly believe that an informed consumer is the best consumer you can have,” says Barbara Tapscott, vice president of revenue cycle operations at Geisinger.

Behind the scenes, Geisinger revamped its pricing structure by taking cost and market prices into account, and uses packaged financial software to keep its costs, prices and revenues in line.