3 questions for hospital leaders to answer before CMS price transparency

In November 2019, CMS finalized a rule that will require hospitals to disclose the prices of "shoppable services" and the rates they negotiate with insurers beginning in 2021.

Shoppable services are nonemergency services that are scheduled in advance, including flu shots, blood tests and hip replacements. CMS specified 70 services that hospitals must publicly post the standard charges for, including payer-specific negotiated rates. Hospitals can decide the other 230 services they want to list.

Along with listing shoppable services, hospitals will be required to disclose the standard charges for supplies, facility fees and professional charges for employed physicians and other practitioners. For all these services, hospitals must list the discounted cash price, payer-specific negotiated charges and the highest and lowest amount that would be charged for a service. 

During a Jan. 20 webinar presented by Becker's Hospital Review and sponsored by IBM Watson Health, Betsy Block, consulting lead at IBM Watson Health, and Jim Haulihan, associate partner at IBM Watson Health, discussed how hospitals and health systems should prepare for price transparency requirements.

While the American Hospital Association and other industry groups have issued legal challenges to the CMS rule, a majority of hospitals have begun strategically planning for mandated price transparency because of the potential impact the rule could have on revenues.

"Studies have shown that 43 percent of healthcare spending, or nearly $36 billion, by commercially insured individuals was for shoppable services," Ms. Block said, referencing numbers compiled by the Health Care Cost Institute. "So, in other words, 90 percent of the highest spending outpatient categories are shoppable."

Hospital leaders across the country have different views on the potential future of the price transparency rule. While some are already preparing for the rule, others don't think it will go into effect, according to Ms. Block. And some hospitals, mainly those in noncompetitive markets, are considering accepting the penalty (up to $300 a day) rather than disclosing their negotiated rates in order to prevent any revenue loss.

While some argue the potential effect of the price transparency rule will be minimal, results from an IBM Watson Health survey suggest otherwise. The survey found that consumers are motivated to shop around for healthcare depending on the price. Approximately 27 percent of Millennials reported they would switch facilities for a $100 to $150 savings on lab tests with a $200 out of pocket cost. Additionally, 25 percent of Generation X consumers said they would switch hospitals.

During the webinar, Ms. Block and Mr. Haulihan detailed three questions hospital leaders should answer before the arrival of price transparency next year.

3 questions to answer before 2021 price transparency

1. How do your rates compare? Hospitals can't close their blinders and only evaluate their own reimbursement rates. Instead, hospitals should conduct studies to review how their reimbursement by payer compares to the market mean for all 300 shoppable services.

2. What is the demand for shoppable services in your market? Along with knowing how rates compare, hospitals must have a solid understanding of the market volumes for each shoppable service. Then hospital executives should analyze the project growth rate for the services and any demographics of likely shoppers within the market.

"Also understand traditional and nontraditional competitors," Mr. Haulihan said. "We're seeing growth of these nontraditional, private equity-backed competitors for a service, such as imaging, pop up in a lot of markets at a very low price point. Knowing your market also means knowing your consumers."

3. Can you scale? It's important for hospitals to understand any opportunities to scale services and reimbursement rates. Additionally, leaders should consider any efficiencies or inefficiencies that these services provide.  

Conclusion

Whether hospital executives believe the price transparency rule will go into effect, they should prepare for the possible influence it could have on revenue. Consumers are driving major changes in the healthcare landscape, such as price transparency, and if hospitals want to have loyal patients, they have to meet their demands.  

To view the webinar, click here.
For additional content on this topic, click here.

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