Hospital develops package prices to lure cash-paying patients

Nearly a decade ago, leaders at Pomerene Memorial Hospital in Millersburg, Ohio, realized they needed to do things differently to better serve the large Amish and Anabaptist community in their county.

The Amish and other Anabaptists, including Mennonites, do not carry commercial health insurance; they prefer to pay for healthcare and other goods and services in cash, and they are famously thrifty shoppers. They wanted one all-inclusive price for tests, procedures and episodes of care, rather than a lengthy list of itemized charges that didn't even include professional fees.

So, over the years, Pomerene's administrators, physicians and staff painstakingly costed out dozens of services, from diagnostic tests to elective surgical procedures. Over the last two years, they tackled the hardest type of service for which to calculate input costs—inpatient care.

Now the 55-bed hospital, about 60 miles south of Cleveland, offers more than 300 services with guaranteed package prices—including all types of inpatient care episodes—to the Amish and any other self-paying patients. That has drawn Amish and other Anabaptist patients from around the country seeking care.

Outside of Medicare, bundled pricing is rare-to-nonexistent among full-service U.S. hospitals, most of which say they don't know their actual costs for providing care and therefore can't offer such prices.

Pomerene's initiative is particularly noteworthy at a time when the CMS is being criticized for its recent requirement that hospitals publish thousands of their itemized chargemaster prices. Experts say that measure falls far short of making prices transparent and useful to consumers.

Some physician-owned specialty hospitals and outpatient surgery centers, such as the Surgery Center of Oklahoma, also offer all-inclusive package prices, and they often post those prices online. But they don't offer fixed prices for unplanned inpatient stays because the costs are hard to predict, said Meg Freedman, executive director of the Free Market Medical Association, which offers an online search of its members' prices.

To get a package price, patients must pay before they leave the hospital. Pomerene doesn't offer package prices to patients paying through health plans, which generally won't play by those rules.

“We assume a certain level of risk with this financial arrangement,” said Jason Justus, the hospital's chief financial officer. “But it's about saying what we'll do and doing what we say. That builds a great deal of trust in the community.”

For competitive reasons, the hospital does not publicly post its package prices, disclosing them only to prospective patients.

“I think they should post those prices publicly, so we can compare them to chargemaster prices,” said Jeanne Pinder, founder of Clear Health Costs, which has an online database of hospital and clinic prices. “You can't be a little bit pregnant or transparent.”

But Pomerene CEO Tony Snyder said the Amish wouldn't come to his hospital if they didn't think the prices were fair. “They are shrewd business folks, they are price sensitive, and they will shop,” he said. “They don't expect you to lose money, but they don't want to be paying exorbitant margins.”

Nearly a quarter of Pomerene's patient revenue now comes from bundled-service packages, with 3,387 packages provided last year, double the total from 2013, Justus said. The most recently developed bundled packages are ear, nose and throat procedures. The hospital posted $33 million in net patient revenue in 2017, according to data in Modern Healthcare Metrics.

For each package price, Pomerene's administrators worked with physicians and multidisciplinary staff to analyze the care process flow, calculate length of case and length of stay, understand all the inputs, including supplies, equipment and medications, and crunch the numbers. Figuring out the price for inpatient stays took nine months.

The bundled prices typically include tests and procedures, pre-hospital physician care, professional fees, facility fees and ancillary costs. They exclude most post-acute services such as skilled-nursing facilities. The price is guaranteed even if the service takes more time and resources than anticipated, though the deal is off if the patient comes in ahead of the scheduled time through the emergency department.

When the hospital rolled out guaranteed inpatient prices in mid-2017, “We were holding our breath,” Justus said. “We were optimistic it would work, and we were pleasantly surprised when it did.”

The fixed-price program has had the added benefit of pushing physicians and staff to think about effective ways to shorten patient stays. For instance, after Pomerene created a special 24-hour package for obstetrical deliveries, within 18 months nearly 80% of childbirth cases flipped to the 24-hour model; before that the typical stay was two to four days.

Since Pomerene started its package-pricing initiative, it's seen other hospitals serving Amish and Anabaptist communities around the country develop similar programs to compete for these patients, Justus said. Some sent staff to Pomerene to learn how package pricing is done. Now the market has become so competitive that Pomerene no longer shares its methods.

Freedman, of the Free Market Medical Association, said a growing number of self-insured employers outside the Amish community are steering their workers to providers offering bundled cash prices, though commercial insurers remain resistant. Prices for procedures like joint replacements and gallbladder removals at centers offering bundled prices can be 55% to 85% lower than insured-allowed charges.

Members of growing nontraditional healthcare financing arrangements like health-sharing ministries also are attracted to providers with package prices.

“There are a lot of employers making these deals,” Freedman said. “The price is so much less, they know the price ahead of time, the provider is paid almost immediately, and the patient has no out-of-pocket.”

Justus said developing package pricing has involved a lot of work but it's been worth it. “We knew we were doing the right thing for the right reason for the right community,” he said. “It's fortunate it's worked out for us.”