In a sweeping effort to empower patients, hospitals are now required by the federal government to post their standard service costs online. This new price transparency rule seeks to provide the public with a more traditional consumer experience, unveiling more information for patients to consider when making critical healthcare decisions. The question is, will this information be useful to consumers, and will hospitals embrace this challenge?

Proposed in 2018 by the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers the Medicare and Medicaid programs, the new rule seeks to divulge service costs that healthcare providers have historically kept a closely guarded secret—and perhaps for good reason.

Hospitals have long argued that their standard pricing information is irrelevant to consumers, as standard pricing is not typically charged or collected. Additionally, determining what charges will be involved with a specific procedure is complicated, and merely listing the standard charges may not be useful to the consumer. However, despite intense pushback and justified skepticism from hospitals, increased price transparency could lead to some very appealing opportunities.

What’s Changed?

As of January 1, 2019, hospitals must publicly share a machine-readable version of their billable services (commonly referred to as a “chargemaster”) on their website. The list must cover the price of every procedure, test, supply, drug, room charge, and other services offered by the hospital—and it must be updated as needed, or at least annually.

Building on this effort, in June 2019, President Trump signed an Executive Order proposing that negotiated charges between hospitals and commercial insurers also become public. This proposed addition has been met with considerable resistance from critics claiming that too much price transparency could subsequently harm competition in the industry and that these rates are considered “trade secrets” for healthcare organizations.

Despite the resistance from hospitals across the country, starting on January 1, 2021, each hospital operating in the United States will be required to provide “clear, accessible pricing information online” in two different ways: (1) the previously mentioned machine-readable file and (2)a display of “shoppable” services in a consumer-friendly format.

This new pricing structure naturally begs the question, “what is shoppable?” Per CMS’ definition, shoppable services are commonplace and ones that a patient can schedule in advance. Further, each hospital—effective January 1, 2021—will need to publish the pricing for at least 300 of these services online, with plain-language descriptions and grouped with their ancillary services. That’s not all; a hospital must also provide any discounted cash price (if applicable), payer-specific negotiated charges, and minimum and maximum negotiated charges (with payers deidentified) for these same shoppable services.

Opportunities for Providers

To combat pricing variances (and perceived differences in value), forward-thinking hospital executives have found ways to go above and beyond CMS’s requirements. For example, many hospitals have begun creating and implementing methods for patients to receive personalized cost estimates based on their unique circumstances, such as cost estimators via online portals, call centers, and mobile apps. These tools integrate existing cost statistics with real-time patient data to give the patient a more accurate prediction of their ultimate cost while generating a more positive overall experience.

Hospitals can also use these new rules as an opportunity to engage their patient population and provide supplemental education and communication, a powerful tool for relationship-building and increasing brand loyalty. For example, hospitals should benchmark their online chargemasters with direct competitors and use this information to provide patients with more data and insight into the industry’s cost metrics and the differences between a hospital and its competitors. As a bonus, this process will also provide the hospital with supplemental documentation to better answer inquiries and defend costs with a statistically-backed rationale.

In 2021, after the implementation of the new rules, negotiations between a hospital and its insurance payers should dramatically change. This change will occur given that information related to pricing, cash discounts, and, most importantly, minimum and maximum negotiated rates will be available to all parties for both the negotiating hospital and all other peer/competitor hospitals. In some situations, this could be detrimental to negotiations with insurance payers since many hospitals will find that they now have a distinct advantage in the negotiations by understanding payment differences between their facilities and their competitors.

The process of complying with transparency requirements and monitoring/benchmarking the competition will inherently require hospitals to analyze large swaths of data. As a result, hospitals have the unique opportunity to improve their own shop by scrutinizing everything from cost performance and budget to strategic objectives and program costs. This data-driven approach opens the door for more insight into how to manage the budget and expenses while adjusting things like staffing and output costs to improve the hospital’s overall financial performance. Hospitals can use this more granular level of available information as a roadmap for improving processes and ultimately creating a more cost-effective operation.

The Bottom Line

Increased price transparency will undoubtedly spur more patient speculation (and confusion, at least initially), research, and potential price competition across the industry. While this is only the beginning of the government’s transparency initiative, it’s essential that hospitals not only implement the rule thoughtfully but also seize the opportunity to create a more future-ready, successful enterprise.

If you are interested in learning more about cost transparency and how it may affect you, please contact your CRI healthcare advisor for more information.