defensible, patient-friendly, market-aligned and strategic ... · + grow your margin spring 2020. 2...

Defensible, Patient-Friendly, Market-Aligned and Strategic Pricing: Deliver on Transparency + Grow Your Margin

Spring 2020

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The ChallengeThe second pricing transparency law, the Hospital Outpatient Prospective Payment System (“OPPS”) Price Transparency final rule, is set to take effect January 1, 2021. The message is clear: the government wants the public to be able to access, understand, and compare prices among healthcare providers.

This new requirement falls to already stretched finance teams who, in the wake of COVID-19, are hard at work reforecasting, planning for cost reductions and, in some cases, figuring out how to remain financially solvent. Unfortunately, this requirement is not going anywhere, and now it’s up to healthcare providers and insurers to make this a reality.

The rules are straightforward, albeit hotly debated and even challenged in court. Healthcare providers must:

Make prices (charges) for services available online – and understandable – for shoppable services.

Make prices (charges) available for all services, supplies, and drugs online in a “machine readable” format.

Make negotiated rates and cash prices available as well.

The American Hospital Association (AHA), the Federation of American Hospitals (FAH), several other hospital groups, and three individual hospitals have now filed a lawsuit to stop this rule. The requirement to publish prices will remain in place.

In step with the rule, health insurers must:

Publish their contracted rates.

Give consumers instant, online access to an estimate of out-of-pocket costs.

Provide members with paper copies of their cost sharing estimages on request.

Similar to the healthcare provider provisions for publishing negotiated rates, this, too, is tied up in courts and may not take effect on January 1, 2021. Payers are instead shifting the focus so that patients can easily access and understand their out-of-pocket payments.

That said, pricing transparency for healthcare providers is here to stay. And with that, healthcare providers face increasing risk of negative publicity, difficult questions, and even decreasing volume as of result of more traditional pricing strategies – or non-strategies – becoming more

Hospital groups

who filed a lawsuit

in an attempt to

stop the rule include

the Association of

American Medical

Colleges (AAMC), the

Children's Hospital

Association (CHA),

and the Federation of

American Hospitals

(FAH), and three

individual hospitals.

Those who have

simply increased

prices 3-6% annually

without much

thoughtful attention

are at risk of negative

public perception.

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accessible.

Both providers who have been highly strategic with pricing (meaning they have carefully shifted prices among services and geographies to maximize payment) and those who have simply increased prices 3-6% annually without much thoughtful attention are at risk of negative public perception. Trying to explain either position to a public that has become well-versed in hospital pricing missteps is a losing bet.

Over the past year, since pricing transparency has become law, the instances of negative publicity have sky-rocketed. From head-line grabbing local and national articles about extraordinarily high prices to email blasts and clickbait listing the highest (and lowest) prices for comparable services, the media has a target set on healthcare providers.

The risk is real. The media is exposing a corner of healthcare that providers have long dismissed as mostly inconsequential. Given the majority of case-rate contracts, the perception has been that few dollars could be realistically gained through pricing, so many providers haven’t dedicated the bandwidth to really focus on it.

Therefore, many providers have let pricing just be.

Nonetheless, most providers have prices that, when made public, would be confusing, embarrassing, and would probably cause patients to view the health system negatively.

To avoid these outcomes in the face of transparency laws, a detailed pricing analysis, a thoughtful strategy, and trusted financial impact modeling are all a must.

But that sounds really hard, especially given how most providers have tackled pricing in the past!

Gathering data, building Excel spreadsheets, bringing in consultants, getting senior leader buy-in, and using iterative modeling – again and again – is the typical way most health systems do pricing.

Completing this type of manual analysis each year is complex and time consuming. But to do it throughout the year and in response to competitive forces changing, payer dynamics shifting, and health systems adding new services requires near full-time attention.

Using consultants every year is a common but expensive alternative, and it doesn’t allow for interim analysis and modeling. Some organizations have full-time staff dedicated to this process. (Others hire consultants.) Others do it once a year with rudimentary methodologies. With tens of thousands of charges, getting it right – and ready for the public – is nearly impossible.

The good news… Strata Decision Technology can help!

Some do across-the-board, flat-rate

increases.

Some price services to benefit from higher

reimbursement.

Some try to balance pricing of shoppable

verses “under the radar” services.

With tens of

thousands of

charges, getting it

right – and ready for

the public – is nearly

impossible.

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Final Rule- Section 2718(e) of the Public Health Service Act

U.S. HOSPITAL REQUIREMENTS

Each hospital must make public a yearly list of the hospital’s standard charges for items and services provided by the hospital, including for diagnosis-related groups

• CMS has defined “standard charges” to include gross charges, discounted cash prices, payer-specific negotiated charges, de-identified minimum negotiated charges, and de-identified maximum negotiated charges.

• CMS has defined “items and services” to mean all items and services, including individual items and services as well as service packages, that could be provided by a hospital to a patient in connection with an inpatient admission or outpatient department visit for which the hospital has established a standard charge.

Each hospital must make public their standard charges in two ways:

• Comprehensive Machine-Readable File: Hospitals will be required to make public all hospital standard charges (including the gross charges, payer-specific negotiated charges, the amount the hospital is willing to accept in cash from a patient, and the minimum and maximum negotiated charges) for all items and services on the Internet in a single data file that can be read by other computer systems.

• The file must include additional information such as common billing or accounting codes used by the hospital (such as Healthcare Common Procedure Coding System (HCPCS) codes) and a description of the item or service to provide common elements for consumers to compare standard charges from hospital to hospital.

• Display of Shoppable Services in a Consumer-Friendly Manner: Hospitals will be required to make public payer-specific negotiated charges, the cash prices, and the min/max negotiated charges for 300 common shoppable services in a manner that is consumer-friendly and update the information at least annually.

• Shoppable services are services that can be scheduled by a healthcare consumer in advance such as x-rays, outpatient visits, imaging and laboratory tests or bundled services like a cesarean delivery, including pre- and post-delivery care.

• To be consumer-friendly, the file must contain information made public, in a prominent location online that is easily accessible, without barriers, and it must also be searchable. Item and service descriptions must be in “plain language” and the shoppable service charges must be displayed and grouped with charges for any ancillary services the hospital customarily provides with the primary shoppable service.

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The Path Forward with the Most Advanced Strategic Pricing Tool on the Market By combining accurate cost data – yes, cost data - with purpose-built pricing algorithms, comparative market data, detailed payer contract terms, and insight into care/cost/patient population variation across the continuum, Strata helps providers easily identify opportunities for making pricing more strategic and defensible. It’s defensible because it is linked to the underlying cost to provide the service – not just prior year pricing.

Enabling users to accurately and effortlessly model the impact on reimbursement by payer - using actual contracted payer terms - ensures that pricing decisions are informed decisions.

With advanced modeling capabilities, organizations no longer need full-time resources dedicated to pricing, nor to hire consultants to do annual reviews. Existing Decision Support or Revenue Integrity teams can become adept at pricing and revenue modeling. Meanwhile, the health system reduces the risk of negative publicity related to pricing and displays an increased responsiveness to calls for transparency.

Strategic Pricing Factors

$

1000

800

600

400

200

0Your current

pricingMarket pricing

Your cost Payer Reimbursement

Financial Impact

Strategic pricing

With advanced

modeling

capabilities,

organizations no

longer need full-time

resources dedicated

to pricing, nor to hire

consultants to do

annual reviews.

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Transparency Requirements and Consumerism: Defensible, Market-Aligned and Accessible Must Come FirstWhen making prices accessible to the public, several major risks are top of mind to executives:

1 Are my prices defensible?

Think: “if asked, how would we explain how we arrived at that price?”

As consumers, news agencies, and CMS continue to drive the demand for price transparency, healthcare providers will need to deliver that information… and to be able to explain it in patient-friendly terms.

2 Will my pricing pull patients in or drive them away? How do I compare to my market?

Think: “if a patient compares our prices for shoppable services to other providers, will patients still come to my health system? Will volume in my ‘front-door’ services that drive downstream volume and revenue decline?”

Price shopping is on the rise for services that patients view as commodities, such as imaging and labs. With the help of better tools, consumers are looking at elective procedures as well, price shopping more and more for their hip replacements, GI procedures, and deliveries.

Hospitals and hospital-based services often have higher prices that result in out-of-pocket costs that are 3 to 10 times higher than freestanding entities. Point is, price competitively on shoppable services. Keep your front door wide open.

If you are the market leader with strong brand loyalty for certain services, such as orthopedics or oncology, set prices to reflect higher quality and better outcomes. Even consider showing quality and outcomes right beside your pricing!

Additionally, price differently based on geography and patient demographics. This is important. With health systems growing rapidly through M&A, many have multiple chargemasters. Ensuring that less affluent community hospitals have lower prices than high end, tertiary care centers will reduce a significant PR risk.

3 Is my pricing accessible and easy for patients to understand or is it confusing?

Think: “As consumers are price shopping (and hopefully quality and outcomes shopping, too), has my health system made the data easy to find, easy to understand, and easy help

Hospitals and

hospital-based

services often have

higher prices that

result in out-of-

pocket costs that are

3 to 10 times higher

than freestanding

entities.

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them make a decision?”

Healthcare pricing and payment is confusing, period. It is becoming increasingly important to apply a “user experience” lens to make the information truly simple and helpful. Without this, your call centers will undoubtedly see increasing volume of calls asking for information that they expect to get online. Or, a more pessimistic view: patients will go to providers where they can know what to expect for their out-of-pocket payments before showing up for their visits.

4 Will defensible, patient-friendly, and market aligned pricing take away all opportunity to increase net revenue through pricing strategies?

No! in fact, it may actually increase revenue in the short term! Read on…

It is becoming

increasingly

important to apply

a “user experience”

lens to make the

information truly

simple and helpful.

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Defensible, Patient-Friendly, Market-Aligned AND Strategic Pricing? Yes, Really!Once health systems start looking at their charge description masters (CDMs), comparing pricing to costs and pricing to actual payer terms, the revenue opportunities become clear.

For years, many providers have realized a few basic points of margin each year through pricing. Whether increasing prices so percent-of-charge payers pay a little more each year or balancing increases among services to squeak out a few dollars, pricing strategically has been an important strategy to maintain – or even grow – net revenue for some providers.

With the need to have defensible, patient-friendly, market-sensitive pricing, providers are questioning if the days of being able to use pricing to a lever to maintain top line is possible.

YES – is the answer.

Defensible Pricing means that the price for services is linked by a consistent methodology to the underlying cost to provide the service.

In addition to having defensible pricing, pricing should also be strategic.

Simply put, Strategic Pricing means that prices are thoughtfully and mathematically generated to optimize net revenue and grow volume. Both are equally important today, when top line revenue is under pressure.

Improve margin

Pricing is still a lever to increase reimbursement and improve margin. A surprising number of organizations continue to have percent of charge contracts, fee schedules, and carve outs. When charges are increased, the amount paid for services also increases. Often, payers have requirements that overall charges cannot increase more than a defined percent annually. Yet even within those constraints, pricing can increase net revenue.

At a more basic level, if charges are below a payer’s fee schedule, including CMS, the payer pays the charge, not the full reimbursement. Organizations often realize millions in additional reimbursement by conducting a robust pricing analysis and modifying prices to be at least the fee schedule reimbursement.

Grow market share

Pricing is increasingly important to maintain or grow market share. Based on market factors, competitive position, and organization characteristics, providers can use pricing to grow volume. Providers need to price competitively in their coverage area. This often means providers need varied pricing strategies among services. Others want to offer competitive bundles of care to commercial payers and employers. Still others want to price in such a way that their payer reimbursement is not impacted, but patients have lower out of pocket costs.

Defensible Pricing

means that the

price for services is

linked by a consistent

methodology to the

underlying cost to

provide the service.

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Sensitive to margin

Finally, pricing decisions should be informed, meaning pricing should not be changed without understanding the impact it will have on payer reimbursement, patient out-of-pocket expense, and the bottom line. This requires modeling the net revenue and margin impact of changes to pricing. In the age of paper-thin margins that are constantly at risk, the modeling must use actual payer contract terms – not broad-brush assumptions.

Multiple pricing strategies are needed to meet the demands of the market AND grow the volume and revenue of the health system. Layering in multiple scenarios is a must-have. Without a sophisticated modeling tool, this is nearly impossible.

Multiple pricing

strategies are needed

to meet the demands

of the market AND

grow the volume and

revenue of the health

system.

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It Can Be Done! Defensible, Strategic, Informed, On-Demand PricingIn order to create defensible, strategic, and informed pricing decisions AND have on-demand scenario analysis, healthcare providers should be considering the following actions:

Use automation and algorithms to deploy strategic and well-defined pricing methodologies across the health system, to identify opportunities to price more strategically.

Bundle services and provide a set price for select payers and employers for services that have predictably strong clinical outcomes and low variation in care.

Vary prices based on geography, market demographics, competition, service intensity, consumer demand, and payer requirements.

Model the proposed impact on net revenue by payer and on margin before making changes in the charge master.

Understand what information patients want when they ask for or look up pricing. Are patients really seeking access to the charge master? Likely not. Do they want to know approximately what their out of pocket payment will be based on their insurance coverage? Most likely.

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4

5

6

2

Incorporate true cost into your pricing by defining a consistent methodology to link prices to the underlying cost to provide a service. The more accurate the cost data, the more defensible the pricing.

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Revenue Optimizing Opportunities

Charge to Fee Schedule Mismatch

Identify charges that are lower than CMS reimbursement and other payor fee schedules. Adjust prices to at least match the fee schedule. This will ensure that revenue is not lost through under pricing.

Charge to Cost Mismatch (price is lower)

Identify charges that are lower than the cost to provide the service. Using a well-defined mark-up methodology, adjust the prices to generate your target margin. Model the impact on reimbursement and payer thresholds. ...

Charge to Cost Mismatch (price is much higher than cost)

Identify charges that are significantly higher than the cost to provide the service. Use a well-defined methodology to adjust the prices downward to fall in line with set thresholds. Model the impact on reimbursement and payer limits.

Geographic + Commodity Pricing

Determine which services are regularly shopped by consumers and which locations may have more price sensitive patients. Modify prices to reflect micro-market needs and model the impact on reimbursement, out of pocket payments, and margin.

Competitive Landscape Pricing

Identify services and locations where the organization has a market-leading position or is highly competitive. Use market data to compare prices to competitors. Build pricing strategies for services that reflect market position, clinical eminence, and volume growth plans.

Bundled Pricing

For services with a leading market position, predictably strong clinical outcomes and low variation in care, consider bundling services and offering them to payers and employers for a set price. Model the impact on volume and profitability.

Using a well-

defined mark-up

methodology,

adjust the prices to

generate your target

margin.

Modify prices to

reflect micro-market

needs and model

the impact on

reimbursement, out

of pocket payments,

and margin.

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Conclusion: Providers Need Defensible, Strategic, Informed, On-Demand PricingIn In response to the government’s call for increased price transparency, healthcare providers across the U.S. are really only starting to dig into their pricing. But with increased interest by the media and patients, the risk of negative public perception and decreasing volumes is real now more than ever.

Today, patients are price shopping for healthcare services, and to make their decision, they want access to additional information, like out-of-pocket expense, quality, volume, and satisfaction. Apply a “user experience” lens, to provide them with an easy, helpful way to navigate your pricing information. Ultimately, think about it this way: this information will lead consumers to decide to come to your facility, or to visit another.

Providers that make pricing transparent, accessible, and above all helpful to their patients will win. But this isn’t only for the benefit of increased transparency and patient satisfaction.

Defensible and strategic pricing is a lever for improving margin and growing market share.

To meet the demands of the market and grow volume, you will need multiple, competitive pricing strategies and a sophisticated modeling tool that will help you know the impact that changing (especially reducing) prices will have before you do it. Arm your team with the tools they need to keep your health system front-of-mind for quality, affordable care and in the black.

Today, patients are price shopping for healthcare services, and to make their decision, they want access to additional information, like out-of-pocket expense, quality, volume, and satisfaction.

About StrataJazz® Strategic Pricing

Known as the “gold standard” among healthcare providers for understanding cost and margins, StrataJazz® enables providers to strategically and proactively shape their reimbursement environment through nimble pricing, data-driven contract negotiations, astute underpayment management, bundle building and performance tracking.

Building on the Best in KLAS StrataJazz platform, the StrataJazz Strategic Pricing module allows organizations to easily integrate decision support data to model and model the outcome of proposed changes to prices, contracts, and volume on net revenue and margin.

To learn more about StrataJazz Strategic Pricing, please email us at XXX.

defensible, patient-friendly, market-aligned and strategic ... · + grow your margin spring 2020. 2...

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