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Steps toward transparency
Health organizations need to be open with consumers about pricing

By Joseph Fifer
Posted: June 15, 2013 - 12:01 am ET

From industry media to your hometown newspaper, news about the push for transparency in healthcare pricing is hard to miss these days. What is important to understand is that this emphasis on transparency is here to stay. The next step—indeed, the only step—for healthcare organizations is to embrace this new environment.

The Healthcare Financial Management Association has been beating the drum on transparency for years. Our Patient Friendly Billing project and other HFMA resources have helped all healthcare stakeholders—hospitals, physicians, payers, employers, governments and consumers—to understand and address the barriers that stand between the current system and positive patient financial interactions, tackling issues ranging from rational pricing to providing estimates of patient payment responsibility to communicating about financial assistance.

Despite these efforts, an ugly fact remains. Americans overwhelmingly view healthcare pricing as confusing, convoluted and even secretive. When patients call healthcare organizations to inquire about the price of a procedure, providers are often unable or unwilling to provide that information. What has created this situation? It is a number of factors, from government regulations to antitrust legislation to institutional cultures.

The overwhelming majority of healthcare professionals are good, rational actors who are simply doing their best to function in a system that has become absurd. Today, nearly half of hospital revenue comes from Medicare, Medicaid and other government programs, yet the majority of providers lose money on these patients. Hospitals also often lose money in the course of providing vital services that communities demand, such as burn units and inpatient psychiatric units. As in other business environments, shortfalls such as these must result in price adjustments elsewhere. In the case of healthcare, the goal is simply to achieve a modest margin—enough to ensure an organization has the financial health to make the investments necessary for high-quality care.

Hospitals are also hampered by complex payment structures. Larger organizations might be dealing with up to 100 payers at a time, each one with its own contracting and payment arrangements. In every case, it is up to the organization providing the healthcare to adjust to these systems. Not to mention the complexity of the Medicare and Medicaid payment methodologies.

Further, as employers increasingly are encouraging employees to take part in high-deductible health plans, consumers and their advocates are beginning to ask serious questions about the costs of care, and to shop for the best possible value they can find. The advent of health insurance exchanges under the Patient Protection and Affordable Care Act will further this trend. These consumers are confused by the current environment, in which healthcare organizations are frequently unable to forecast what a procedure might cost or the patient's financial responsibility for that cost.

It is time to move toward a pricing system that is fair, sensible and open.

As we saw with last month's release of CMS pricing information, there is a tremendous appetite to know what medical procedures cost. Healthcare financial leaders need to act now to prepare their organizations for the transparency demands that are at our doorstep. Only by embracing this concept will meaningful price transparency—including the data now being sought—be possible. To lead this effort, the HFMA is forming a task force with consumer, employer, payer, physician, government and hospital representation to develop guidelines for meaningful presentation of price. This is part of a larger effort HFMA is launching to promote fair financial practices, which will include best practices for patient financial interactions and medical debt resolution.

Achieving meaningful transparency will require taking solid steps, some large and some small. At a high level, organizations need to develop a well-defined, rational and competitive price structure. This needs to be updated, amended and redesigned when changes to the market or institutional changes make it appropriate. The important thing is to get development underway.

Healthcare organizations will also need to develop formal policies for providing these estimates to patients, and will have to be clear about what they do and do not cover. Hospitals may want to adopt pricing strategies that make discounts available for patients of limited means, while at the same time undertaking potentially difficult negotiations with insurers to remove contractual impediments to rational pricing.

Finally, healthcare organizations must educate their communities about what they do and how they do it. Organizations should not be shy about emphasizing the valuable services they provide to the community, around the clock, and often at an operating loss. It is not enough to be open only about prices. Being open about what it takes to operate a healthcare facility and keep it in the black will help consumers to understand the costs associated with care.

There also could be unseen benefits. For example, by getting consumers to think more about what they are spending for care, they might decide to take their own steps to prevent chronic or preventable conditions, adopting healthier lifestyles.

It is time to reduce the barriers to transparency as a first step toward a system that is rational and sensible. While this step will involve considerable challenges, the resulting value to both healthcare organizations and consumers will be worth the effort.

Joseph Fifer is president and CEO of the Healthcare Financial Management Association.

Consumers and their advocates are beginning to ask serious questions about the costs of care.

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