getting ahead on price transparency a playbook for healthcare finance leaders

The movement toward transparency in pricing is gaining steam in the healthcare sector.

This trend is evidenced in the actions of government at the national and state levels. In 2011, the Centers for Medicare & Medicaid Services (CMS) began publishing hospital-specific charges from Medicare data, and states like Massachusetts are leading the way in advocating for hospital transparency and enacting legislation."

Evidence also can be seen industrywide with the development of consumer-focused websites, such as www.guroo.com, and other resources aimed at promoting price transparency, including HFMA's Understanding Healthcare Prices: A Consumer Guide, issued in early 2015 (hfma.org/consumerguide).

This trend is being driven in large part by the shift in the financial burden for health care from employers and large health plans to individual consumers. As individuals become more aware of how their insurance choices-e.g., in terms of deductibles or coverage caps-affect their out-of-pocket expenses, they have an increased interest in knowing what they can expect to pay for their health care, both routinely and in catastrophic circumstances. To make such estimates, consumers need access to the same business intelligence that resides in the databases of insurance companies and healthcare providers. The challenge for providers is to assist consumers in obtaining this access appropriately.

A New Focus

Payers have always been cost-conscious, and with consumers beginning to follow suit, what remains is for healthcare providers to catch up. The challenge for providers will be not only to make pricing transparent to patients, but also to ensure that pricing is justifiable and reflects the value of the care patients receive.

Consider, for example, that many physicians began practicing in the era of defensive medicine, when ordering more (or more expensive) tests was considered prudent. The arrangement of liability reinforced this trend: Over-ordering was a problem for managed care, but a physician faced personal liability only in the event of a test that was not ordered but should have been. That era is ending with the industiy's shift to value-based care, where the emphasis is on quality and cost-effectiveness, with an increased focus on efficiency. A primary aim of value-based care is to lower the cost of care-a benefit that also will ultimately be reflected in price.

However, efficiency does not mean simply cost cutting. In some scenarios, the risk of missing a diagnosis outweighs the extra cost for a test, for instance, placing cost cutting at odds with best practices. Patient care must remain paramount, and that imperative has a bearing on price.

In other words, analyzing and determining prices should not simply be an exercise in zeroing in on and eradicating waste; it also presents an opportunity for providers to define value. In short, setting prices and delivering value are considerations that go hand in hand.

The Role of the Finance Leader

Senior finance leaders have an important role to play in implementing and promoting healthcare price transparency. And to fulfill that role, they will need to perform in-depth analyses of cost and outcomes data to ensure their organizations can provide consumers with the detailed and justifiable pricing information they need.

Key concerns for finance leaders will be to identify the practical steps and data analytics tools needed to develop accurate pricing information and to find ways to share that information with patients that are in keeping with organizational interests.

Providers are presented with the opportunity to define value because there is no national grid dictating what should be included in a "price." One of the issues in providing price transparency, therefore, is deciding what should be included as a cost. Bundled bills make this determination more difficult.

To effectively identify the components of cost, finance leaders require analytics and a consistent framework for analysis. In simple terms, finance leaders should champion investment in the analytics capability needed to analyze their organizations' claims data internally rather than rely on their payers' analytical capabilities for this purpose.

Having access to an interactive dashboard that can visualize the tracking of costs and outcomes across a patient population, a disease state, or a treatment pathway is perhaps the most critical analytical functionality, because it allows for advanced queries that take into account bare cost data alongside more intricate considerations such as complications, necessary retesting, and patient status at the outset.

Such a dashboard can enable a finance leader to analyze cost totals and cost breakdowns for a particular type of surgery performed by different surgeons in different locations, and compare those costs with the national average. Such cost breakdowns provide a basis for asking critical cost/quality-related questions, such as the following:

* Do surgeries that cost less than the national average tend to have outcomes that are worse than surgeries for which costs exceed the national average?

* What ancillary costs are noted in the statewide claims, and can any of them be avoided?

* Which outsourced services exhibit the greatest variation in cost, state by state, and how might this information be used to negotiate better partnerships with the various outsourced service providers?

Dashboards also can be useful in fine-tuning prices for elective services that tend to have relatively uniform outcomes, such as joint replacement of the hip or knee. Here, finance leaders may want to investigate the time to recovery of function, complication rate, or incidence of postoperative infections to understand any unexpected differences among surgeons or facilities. Questions to consider might include whether differences in outcomes align with differences in surgical skill, choice of prostheses, or costs of various components (e.g., the surgeon's fee, the prosthesis).

In sum, finance leaders have a critical role to play in helping guide executive decisions that will both improve care and make the hospital more appealing to consumers, from the standpoint of both pricing and value, and they can provide that guidance only if they have access to detailed cost breakdowns and comparison information-and the ability to interact with those data.

Recommendations

The price transparency imperative highlights accountability and accentuates the difference between a tightly managed, well-run facility with excellent contracts and one that has become loose in its business practices, particularly in terms of unjustified third-party costs. As price transparency becomes the norm, finance leaders will be called upon to apply the core principles of cost accounting to all areas of service.

Three steps will be critical for finance leaders in fulfilling this role.

Know how your organization's data compare with the data of other organizations in your market and community. If your physician costs are the same but your facility fees are higher, why? What value can a patient expect to gain from that cost differential?

Work with employers, patients, and others in your community to understand what each group values most. Are they price-sensitive above all else? Do they forgo services because they cannot afford them? Do they believe you are committed to improving wellness?

Look to synergies that may exist in the formation of regional networks. This consideration applies to both clinical and administrative staffing. If two physicians perform the same procedure with the same outcome, but one performs it in half the time at half the cost, should they be paid the same? Now that there is greater bundling of total costs, how will the team plan to manage such discrepancies in efficiency going forward?

Good analytics are crucial. But so, too, is an understanding that value -based purchasing and consumer price sensitivity are here to stay. Price transparency will be an effective strategy only if leaders take all the steps necessary to realize its potential for improving value and reducing waste Let the journey begin.

a. The 189th General Court of The Commonwealth of Massachusetts, Session Law, Acts, Chapter 224, An Act Improving the Quality of Health Care and Reducing Costs Through Increased Transparency, Efficiency and Innovation.

David Whitehouse, MD, is CMO head of digital health transformation, UST Global - Healthcare, New York ([email protected]).