Revealing health prices: Obstacles and opportunities

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Summary: Why would health care providers want to publicize prices? Of course, you could also ask why they wouldn’t — why we have made a system that keeps patients in the dark about prices until that dreaded bill comes. When we were featured in a Wall Street Journal article by Melinda Beck about providers accepting cash payments that are lower than their chargemaster (or sticker) prices, the comment stream featured a thoughtful reader named Bill Willis. Willis and I struck up a conversation. He is a retired health care consultant and a former hospital executive with a perspective on the marketplace that we don’t often hear. So I asked him to write about the topic. We have seen a lot of providers starting to list prices, but it’s still the exception, not the rule. Willis starts by saying “It may be difficult in some cases, impossible in some, but doable in others to convince providers to disclose their pricing.”

 


By Bill Willis
Guest opinion

It may be difficult in some cases, impossible in some, but doable in others to convince providers to disclose their pricing.  Engaging the provider executives and in particular the CFO will be essential. But more and more patients have high-deductible plans and the providers will need to learn how to deal with this new reality. Overcoming the inertia will require some creative alternatives.  I’ll focus my thoughts on non-emergent outpatient cases from the hospitals, freestanding outpatient units and physician offices.

From my experience I believe those providers will ask themselves at least the following questions before making a decision to disclose pricing. After each question, I have written my thoughts.

Are there regulations or existing agreements that would prevent disclosure?  The providers historically shied away from offering a cash price less than the gross pricing due to an old Medicare rule of charging all patients the same.  Medicare is of course, discounted from gross charges and as alluded to in an article by the Wall Street Journal, some relief has been given with the ACA.

Also, more and more providers are discovering that patients are demanding a cash price due to higher and higher deductibles.  Some providers may have managed care agreements that have a “favored nations” clause which means that if the provider gives another managed care company an agreement with a lower price, they are required by agreement to give that same price to the managed care company with the favored nations clause.  Even without a “favored nations” clause, many managed care companies may demand the lower cash price offered to individuals. I don’t think offering a cash price to an individual would invoke that clause but it may be a concern. Even if the patient has insurance, they are not required to use it and simply be a private, cash patient. According to the terms of the agreement demanding favored nations, this may or may not apply.

How difficult will it be to disclose pricing?  Only cash prices or all? Focusing on only cash pricing would be much simpler and more easily achieved. Many hospitals may not be prepared or know what they want for a cash price so anything to assist them, such as listing Medicare prices as a starting point (Medicare rates plus 10% etc.) may help.

Will it increase the net revenue per encounter?  Many providers make a big profit margin on outpatient services, specifically in the imaging area. They will not want to do anything to reduce that reimbursement if they don’t have to.  However, offering a cash price will certainly attract people paying out of pocket that the provider might lose to a competitor.  And in some cases, the provider may already be getting a lower reimbursement because they are in disadvantaged in a competitive environment with other providers.

Free-standing entities typically receive less reimbursement from payers than hospitals and may be more amenable to publishing cash prices.  Interestingly, I saw an ad in my local newspaper recently touting the lower prices at a freestanding surgery center.  They have not published the pricing yet, but they could use their lower reimbursement position from managed care agreements to attract more patients. Those type of entities would be much more inclined to disclose pricing and in fact if they could get a waiver from the managed care companies, with which they have agreements, publishing all prices could be result in more volume.

Will it increase the volume of encounters either directly or indirectly? Again, in a competitive market, entities may be scrambling for profitable volume.  I would say that any entity that does disclose pricing will have an immediate advantage over providers not disclosing prices because patients will know before the encounter what they will have to pay.  There is great value in just knowing what the cost will be.

Hospitals in particular, have been reluctant to disclose pricing upfront and in all honesty due to difficulty and the knowledge that in the past, there was no compelling reason to do so. The rise of the high-deductible plans may change that.

Would a prudent buyer of health services simply accept on good faith that a provider will charge him a reasonable amount without knowing that amount upfront? What other products are services are purchased in that manner? Again, I believe the free standing centers would be more amenable to disclosure but more and more high-deductible-covered patients will demand better information from all providers.  Easy and broad access to those prices is a key component to assist patients, and I believe ClearHealthCosts has an excellent platform to achieve this.

Will it reduce the cost of the encounters?  This is an interesting area of consideration.  Hospitals in particular struggle to get the patient portion paid upfront.  Part of the problem is the provider knowing what the patient portion will be.  A cash price would eliminate that problem.

Hospitals spend a lot of money trying to collect the patient portion, sometimes successfully, many times not so.  Also, primary care physicians have a large administrative cost in relation to the reimbursement per case.  This is due to the cost of filing the insurance, responding to information requests from the insurance company, collecting from the patient, etc.  Primary care physicians, as compared to specialists, have a lower reimbursement per encounter ,which amplifies their administrative cost problem. Primary care physicians in particular, may be open to disclosing prices.  Especially the physician groups needing more business or in a competitive environment. Already, urgent -are centers are having excellent demand for their approach of pricing disclosure along with convenience.

Will it increase customer/patient satisfaction?  I think this is a big area for all providers to consider.  The more patients that have high-deductible plans, the more the patients will want cash prices.  Failure to disclose them or to underestimate the patient’s portion upfront area is a real concern for the providers.

Will complying competitors be able to erode our market share if we do not disclose pricing?  In a market, if one provider does disclose prices, it will put a lot of pressure on other providers to disclose prices.  If a patient knows the price upfront without having to expend much effort (such as looking at the ClearHealthCosts website), the more likely they will choose that competitor.  Also, if satisfaction ratings are included, that will give the patient even more useful information.

Engage employers, not providers

All of the above are engaging the providers directly.  Another approach might be to engage an employer with a self funded health benefit plan (meaning they pay for each claim themselves).

I have read of one situation in the country where the employer gives incentives to use the most cost-effective provider that also meets a quality standard.  An insurance consultant like AON would need to engage with an employer to provide incentives in the plan if they use the most cost effective provider.  In that situation the employer group would provide the pricing agreement amounts they have with the area providers to Clear Health Costs or directly to individuals.  That would work around the providers to force them to in a situation that the costs are disclosed and it will encourage them to offer lower prices to the employer.  If successful other employers would follow suit. Providers could prevent that and assume the leading position by being proactive in their disclosure of their prices.

Additionally, would it not benefit the providers if they dealt with individuals rather than through a managed care organization?

In essence, the insurers have given up on managing the outpatient costs by pushing the risk to the individuals through high-deductible plans. Haven’t the insurers simply ceased insuring a lot of services through high-deductible plans? Exactly what is the incentive for the hospitals to give the managed care companies a discounted price for services that will be shopped and selected by individuals?

The results so far by ClearHealthCosts have shown that in a lot of cases, the individual would be substantially better off negotiating a cash price with providers. When an individual like myself buys a high-deductible insurance plan, what exactly am receiving in return for my premium? What about a hospital strategy to push the non-emergent outpatients to individual payers? Catastrophic coverage for sure. Better negotiated pricing for outpatient and other services? Not necessarily.

If the hospitals aggressively pursued the individuals with high-deductible plans, wouldn’t that dilute the leverage of managed care companies? For my colleagues and friends providing health care, wouldn’t it really be better to deal directly with the individuals? Isn’t an individual using your services and paying a cash price the ultimate measure of customer satisfaction rather than a survey by Gallup?

A lot of people in health care, including myself, came from the age when hospitals were really almost exclusively emergent and inpatient care. No more. The non-emergent outpatient business is significant. Is it not now the time for change in the approach of providing care for those patients? I think so.

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Bill Willis, a retired health care consultant, has over 35 years experience in health care including positions at Baylor Health Care System from 1983-2001 of Controller, Divisional CFO, CFO of the Baylor flagship hospital, and Vice President of Supply Chain for the entire Baylor system. He also was Vice President of Finance for Hillcrest Health System from 2004-2011 with responsibilities of Managed Care, Treasury, Budgeting, Cost Accounting, and other operational areas. His email is bwillis@williskenny.com