5 ways executives should prepare for pricing transparency from KPMG

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Pricing transparency is becoming increasingly important as patients take on more responsibility for their healthcare costs.

More than 17 states have implemented or proposed databases that make prices public for common inpatient and outpatient procedures and several health plans have tools to encourage their members to price shop for care, according to KPMG. The same data is also used by health plans to negotiate contracts with physicians, hospitals and other providers.

With this trend, healthcare providers are feeling the impact of pricing transparency in their patient volumes as patients start to comparison shop.

A paper that Patrick Spoletini and Rathish Moorthy, both from KPMG, wrote about pricing transparency in healthcare provides some steps for providers to follow to address this change in the market and to help hospitals and other care givers protect their revenue in this new environment of greater transparency. 

Here are five steps from KPMG.

1. Reassess charges and contract rates. The paper's authors said providers should go beyond the traditional exercise of annual strategic pricing to take a more holistic view of their overall pricing strategy that includes a wider set of considerations and variables. "Providers will want to identify real trends and changes in their volumes over time, looking at thousands of procedures over a number of years," the authors wrote. "They should also be looking at past and predicted demographic trends in the catchment area to understand how this is influencing current and future volumes."

2. Assess the comparative pricing and claims paid data. This would be done within the provider's catchment area to assess where the market price sits. The paper's authors said their experience suggests that the relationship between stated charges and actual claims paid is "often tenuous at best," so they urge providers to focus on claims paid information, which they believe delivers a more realistic view of the actual costs and prices across various types of facilities and procedures.

3. Become familiar with their state's existing pricing transparency rules. KPMG said providers should not only familiarize themselves with their state's existing pricing transparency rules, but also with any proposed legislation, to understand how pricing transparency is evolving in their particular markets. "Some states have moved slower to legislate databases, so some executives may have a few years before the impacts of pricing transparency fully hit," the paper's authors wrote. "These organizations would be

well served studying the rules in other states (particularly adjacent states) to get ahead of any future legislation in their own markets."

4. Look at information available to patients. Doing this, KPMG said, will help providers assess how they are portrayed in the market. The paper's authors note that some databases focus on specific cost and price data but offer little information about the quality of care or recovery times. This means a hospital with exceptional quality and above-market prices will appear unfavorably against a competing facility with low costs but poor outcomes. Therefore, providers need to understand how they are being positioned through the databases so they can appropriately respond to — or defend —higher than average prices, KPMG said.

5. Integrate pricing transparency into the strategic pricing framework. KPMG notes that strategic pricing can no longer be conducted in a vacuum, and providers should also be aware of how their charge description masters and contract rates will compare in the eyes of patients and health plans. "The alternative is no alternative at all given falling volumes, pricing pressures from health plans, lower revenues, and growing competition from lower-cost providers. It is essential for those that want to grow their revenues, retain their patients, and enhance their reputations in their markets to start thinking about pricing transparency," the paper's authors wrote.

 

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