Some hospitals and health systems are starting to review and revise their prices to make themselves more attractive to individual consumers who increasingly experience sticker shock when they pay for services out of pocket under high-deductible health plans.
Part of that effort involves analyzing how much those services actually cost to deliver, something providers have rarely done before.
Some hospital leaders say they are scrutinizing chargemasters—the master price list that often serves as the basis for rate negotiations with insurers—to see how prices compare against the actual cost of delivering services and how they compare with other providers in the market. Others, such as Memorial Hermann Healthcare System in Houston and the University of Utah Health Care in Salt Lake City, say price revisions are planned, but first they need to get a better handle on actual costs.
These efforts are at least partly driven by the growing prevalence of high-deductible plans, which prod consumers to shop around for the best price. Prices for office visits, diagnostic imaging, obstetric ultrasounds, colonoscopies and physical therapy—services that consumers increasingly must pay for themselves—especially are coming under the microscope.
“As more consumers have to pay more things out of pocket, it rises in importance of things that health systems are looking at,” said Dana Gilbert, formerly the chief operating officer at Advocate Physician Partners and now chief of population health for Chicago-based Presence Health.
Systems also are comparing prices across their own hospitals for differences that can't be explained by underlying differences in cost. “If you're a patient at Advocate and you go to three different hospitals and you get the same service and the bill is different, you begin to wonder why,” Gilbert said.
Out-of-pocket prices for the same service can vary sharply between hospitals. For example, a patient's out-of-pocket price for the same MRI test with the same CPT code can vary from $64 to $476, depending on the state, according to the Health Care Cost Institute.
Hospital chargemasters have been widely criticized for irrational pricing. Yet hospitals and insurance companies continue to use those master price lists in some negotiations. Among health systems with credit ratings from Moody's Investors Service, the median share of revenue in 2014 from contracts based on chargemaster prices was nearly one-fifth.
Efforts to track and manage costs have accelerated under the Affordable Care Act. Some systems use performance improvement methodologies such as Lean and Six Sigma to streamline their clinical and business processes. Under the ACA, the CMS has expanded the use of new financial incentives for hospitals to control costs, and private insurers have followed. That trend has overlapped with growth of high deductibles and heightened the pressure for hospitals to more carefully manage costs.
And hospitals are feeling pressure as state policymakers, insurers and a growing number of price-transparency companies such as Castlight Health have established databases and mechanisms that make it easier for employers and consumers to shop and compare prices.
Florida Republican Gov. Rick Scott, a former hospital system CEO, recently proposed a state all-payer claims database to enable comparisons of hospital expenses and costs. Facilities whose price for a service exceeded the average would face penalties. A dozen other states have established all-payer claims databases, and five more states have databases in development.
Intermountain Healthcare, the Salt Lake City-based system with 22 hospitals, has analyzed prices and costs for some services to identify areas where prices may be too high. “The push has been for more transparency,” said Todd Craghead, vice president of revenue cycle for the system.