September 8, 2017

How hospitals are boosting price transparency—and 4 ways you can do better

Daily Briefing

Editor's note: This popular story from the Daily Briefing's archives was republished on March 5, 2019.

Read Advisory Board's take on this story.

Spurred by controversies such as the EpiPen price debate and the shift toward alternative payment models, the health care industry is experimenting with new ways to improve pricing transparency, Maria Castellucci and Shelby Livingston writes for Modern Healthcare.

Infographic: What patients want along their financial journey

How hospitals are trying to increase transparency

For instance, Baylor Scott & White Health over the last five years has called patients—and reached out to ED and walk-in patients—to give a cost estimate on most high-cost health care services, even if the patient hasn't requested an estimate. Further, patients are encouraged to use the health system's cost-estimator calculator, which factors in the system's contracted rates and the patient's insurance information to provide a more personalized sum.

Sarah Knodel, VP of revenue cycle at Baylor, said the health system adopted the transparency efforts not just to improve patient experience, but also to curb the uncompensated care rates. "Our goal is to start to inform the patient as soon as possible about how much they're going to owe and to set the expectation that we are going to try to collect on that estimated amount due," Knodel said.

Separately, Kevin Brennan, CFO at Geisinger Health System, said the health system also calls patients to provide cost estimates after they have scheduled care. Further, in 2006, Geisinger established its My Estimate tool, which enables patients to calculate their out-of-pocket costs for around 300 services. The tool can also factor in patients' insurance benefits and—for more common services—it also includes care quality information.

As Brennan put it, "We are trying to be helpful but, selfishly, we are also trying to collect bills sooner."

Leslie Schreiber, consulting director at Advisory Board, echoed Knodel and Brennan's sentiments. "People are much more likely to pay their bills at the end of the day if they are equipped with an accurate price estimate upfront," she said. In fact, according to Livingston, Baylor Scott & White increase its point-of-service payment collections at its North Texas facilities by 60 percent since the system started calling patients to provide cost estimates.

Insurers also are seeking to boost transparency—but consumers aren't always interested

Insurers also are seeking to provide better transparency to their beneficiaries, Modern Healthcare reports. Almost all of the major health plans provide a cost-estimator tool for common health care services, and 85 percent of self-insured employers do the same for their workers, according to Modern Healthcare.

But research indicates that few consumers use the tools. Priority Health, which launched a cost-estimator tool for members in 2015, has found that only 10 percent of members used the calculator. Meanwhile, Craig Hankins—VP of digital resources for UnitedHealthcare, which offers its own estimator—acknowledged that "a lot of people aren't aware of these tools."

Overall, according to Catalyst for Payment Reform, just 2 percent of consumers use insurers' cost-estimator tools.

How will increased transparency affect cost?

According to Modern Healthcare, even as stakeholders laud increased transparency as generally beneficial, many have expressed concerns that transparency alone will not solve the rising cost of health care.  

For instance, while a 2014 study in JAMA found that Castlight's price tool garnered significant savings for consumers seeking imaging services, there was little cost savings for clinician visits or lab results. Moreover, a 2016 study in JAMA found that providing employees a cost calculator did not reduce health care spending.

Moreover, pricing transparency can actually backfire if consumers wind up preferring higher-cost care. Anna Sinaiko, an assistant professor of health economics and policy at the Harvard School of Public Health, explained, "In the absence of quality information, we might think more expensive care is better quality."

The problem is exacerbated by the difficulty in standardizing quality measures. As Andrew Ryan, an associate professor of health management and policy at the University of Michigan, put it, "It just remains really hard to measure quality in a meaningful way."

But the potential limitations of transparency on health care costs doesn't mean the industry should stop trying to boost transparency, stakeholders said. De Brantes pointed out that "transparency creates transparency."

He added, "It shines a light on prices and gives information to people that they otherwise wouldn't have. It doesn't mean that they are all of a sudden going to make vastly different decisions, but there's a better shot at more people making value-based decisions if they have access to pricing information at the right time, at the right place" (Castellucci/Livingston, Modern Healthcare, 9/2).

Advisory Board's take: The four steps to building a consumer-centric pricing strategy

Leslie Schreiber, Managing Director

Our research shows that 56 percent of Americans now seek out pricing information before getting care for certain "shoppable procedures," including imaging, orthopedics, lab work, and even some same-day surgeries.

Their behavior has a huge potential to impact your revenue: A four-hospital system can see swings in revenue of $16 million to $40 million due to its consumer pricing strategy.

But getting your consumer pricing strategy "right" is no easy feat. We typically advise a four-step approach:

  1. Decide where to play: Roughly one-third of patient spending is "shoppable." The key is determining which of your procedures fall into this category.

  2. Understand consumer and referral behavior: Determine answers to the  critical questions about your patients and referring providers. Are your patients shopping? Of the people who are, what are they thinking about, what criteria are they using, and what tradeoffs are they making?

  3. Benchmark key charges and rates: It's critical to understand where you stand in your market: Are you a price leader or the low-cost option?

  4. Assess transparency as a service: Patients want to feel that you are their advocate by helping them navigate the financial element of their experience.  Where are you exceeding or missing your patients’ expectations?

What patients want along their financial journey

Follow the patient financial journey, from pre-care through billing and collections. Learn a patient's questions and fears that arise at each step, and what tools and support your revenue cycle program must proactively provide.

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