5 keys to hospital pricing

Achieving both healthy margin and quality outcomes requires connecting pricing strategy with daily operational concerns.

Reducing variation of both process and pricing across disparate facilities for common services will result in sustainable delivery of the highest quality healthcare for the most patients. Building teamwork between clinicians and finance leaders, is the key to sustainable healthcare that satisfies industry stakeholders across the spectrum of providers, payers and patients.

There are several important laws in the making that will impact healthcare pricing.

President Obama's 2016 budget calls on Congress to legislate that, for costly common procedures, Medicare's payment be equal regardless of whether service is provided in a hospital-outpatient setting or a physician's office. The goal is to incentivize the most cost-effective ambulatory setting for healthcare procedures like colonoscopy, cardiac imaging and cancer care. This will require health systems' analysis and attention to payment strategy across care-settings.

The President's initiative is supported by a new advocacy group comprised of health insurers, primary care medical societies, nursing homes and patients. In a letter to Congress, the group said, "The Alliance for Site-Neutral Payment Reform has been created to address one such issue: disparities in payments between the same clinical patient services provided in different healthcare settings." The letter says that the alliance members seek, "...to decrease Medicare and commercial spending, ensure patients receive the right care in the right setting, lower taxpayers and beneficiary costs and increase patient access."
Also, the letter says that, "Hospitals and hospital-owned outpatient practices should be fully transparent about their billing policies to ensure patients fully understand their financial obligations and those of their health plan before care is delivered." This statement aligns with a March 17, 2015 bill, (which has passed the U.S. House, and is now with the U.S. Senate's Committee on Finance as I write this) which will require that hospitals explain to patients the implications of their outpatient status in terms of cost-sharing responsibility and skilled-nursing qualification while the patients are receiving outpatient care, after 24-hours and before 36-hours have passed.
Failure to ensure margin inhibits the ability to provide healthcare for the community. Without margin, mission can't succeed. Failure is not an option as the community needs healthcare.

For a competitive, human-size, healthcare pricing strategy that sustains patient-centered service quality and improves business performance, here are five key focal points.

Furnish patients with estimates before providing care. Hospitals and health systems must focus on effective price modeling and cost analysis, so that they can meet consumers' needs with a meaningful, effective, and an understandable pricing strategy. People need to plan to be able to pay their share. Charge-based estimates, which clearly communicate the services that are included, have shown effective in this.

Ensure the pricing structure is logical. A health system should monitor the financial impacts of an established price. Understand the relationship between charges and the cost of providing services, as well as mark-ups. Review payment impact on how pricing decisions are made, and the market competitiveness of pricing.

Make pricing visible and understandable. Organizations need to offer education to patients on the care components of the procedures that they will undergo and associated prices. Leaders need to be prepared to talk about their pricing and support their position with specific information on their organization's quality and outcomes. If your relative was in the hospital, consider how you would explain pricing to them so that you both are satisfied with the results.

Understand how much it costs the organization to provide services. Though challenging, it is time to identify the real costs the organization will incur in providing patient care. Establish teamwork between supply chain and revenue cycle teams to evaluate reimbursement strategies, payer contracts, and pricing. This can be accomplished by reviewing key data together, gathering leaders' input into improving performance, and then connecting the relevant systems and establishing processes for ongoing progress and data checks. Medicare and other payers pay fixed prices for services based on fee schedules; so the amount paid to healthcare providers is generally far less than what was charged. Charges are not an accurate portrayal of payment, and neither do charges reflect the cost of providing care today. This is one point where confusion is occurring for those outside of the healthcare industry who are trying to understand healthcare charging and pricing. Charges are the reference point for documenting care and breaking out portions of care.

Establish a proactive process to maintain margin. Hospital and health system leaders need to proactively review prices in order to isolate and resolve any potential margin issues before risk to revenue or compliance occur. Specifically, focus on key service lines, leveraging people trained to identify margin and compliance risks by payer and by service line. Educate staffs on issues in order to prevent charge capture violations.

Because price modeling is complex and time consuming, many facilities lack the resources to develop their own processes. As a result, hospitals often apply "across the board" price changes, which don't ensure prices are aligned with their market or costs; or they hire consultants to make recommendations only on a periodic basis. Yet, the financial aspect of patient care requires ongoing attention and a consistent means of ensuring optimal pricing in order for hospitals to be competitive today. Mindful pricing sustains the delivery of quality care that helps communities thrive.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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