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Price transparency full of challenges for health systems, consultants say

Hospitals face pressures to raise prices as consumers watch costs closely.

Scott A. Schwab, senior manager at Ernst & Young, speaking at the Healthcare Financial Management Association’s 2015 Annual Institute. (photo by Henry Powderly)Scott A. Schwab, senior manager at Ernst & Young, speaking at the Healthcare Financial Management Association’s 2015 Annual Institute. (photo by Henry Powderly)

ORLANDO -- Though Steven Brill’s essay “The Bitter Pill” has spurred demand for healthcare price transparency, competition and the complexities of value-based payment has made that a much harder goal than thought.

“In a world where pricing should become less important, it’s actually becoming more important,” said Scott A. Schwab, senior manager at Ernst & Young, speaking at the Healthcare Financial Management Association’s 2015 Annual Institute. While value-based payments by nature make it harder to pin down fees for services, patients carrying a greater degree of the cost demand price transparency.

On the other hand, health systems face an even harder time turning profits as reimbursement rates fall, and value-based payments go up or down depending on the quality of the care and compliance with government initiatives. To close that gap, hospitals often have to raise prices.

“Somehow you have to make a margin, You have to generate revenue, especially today,” said James P. King, a partner at Ernst & Young.

That’s where it gets tricky, especially given pressures to drop prices to compete with new competitors like Theranos, a diagnostic testing company that has disrupted the market by pricing its test below what Medicare pays for them, often costing a patient just a few dollars.

[Also: Live staff reports from the HFMA 2015 ANI]

According to Schwab and King, hospital leaders often stand in the way of price reductions over concerns that the revenue loss will cut into margins. At the same time, the lack of market data on competitor prices can make it difficult to smartly adjust prices.

In Wisconsin, price transparency laws have made it easier for Froedtert Health, a 781-bed health system that pulled in $1.6 billion in revenue in 2014. According to Jon Neikirk, executive director of revenue cycle for the system, Froedtert has achieved close to full price transparency. It publishes price changes in the local media, participates in Wisconsin’s PricePoint, a state tool that publishes healthcare prices, and is developing its own price estimate tool and patient portal.

But it's by analyzing competitor prices that allows the system to not only drop prices, but sometimes raise them to levels that still sit below its competitors. Ultimately, the system evaluates which services to treat more like a commodity, aggressively pricing to beat competitors, and which to price higher on the grounds that Froedtert is providing a premier service.

Froedtert also budgets a 5 percent annual revenue increase across its hospitals, which factors in any price adjustments.

But according to Schwab and King, systems like Froedtert are well ahead of other health systems when it comes to price transparency. Many are focusing on optimizing revenue, but haven’t made the investment in the technology and data needed to become transparent.

Twitter: @HenryPowderly