Recently, a federal judge upheld the Centers for Medicare and Medicaid Services' final rule for hospital price transparency, and the implementation date is rapidly approaching on January 1, 2021. Yet many hospitals have not yet begun preparations to align with the new requirements.
There are reasons for that, including the COVID-19 pandemic and the hope that the court would rule in their favor. But now, with only a few short months left, the time has come to consider what the new guidelines require and to work towards a smooth transition.
The final rule, issued in November 2019, requires hospitals, other healthcare providers and insurance companies to disclose their cash and negotiated contract prices to patients in an easy-to-access format, in an attempt to clarify confusing bills that illuminate little about the actual out-of-pocket costs patients are required to pay.
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For some of these hospitals, it may be the first time they've considered the rationale for their pricing. Implementing a new system can be burdensome, but in this case it also represents a potential opportunity for administrators to re-evaluate their pricing methodologies, and better align pricing with both costs and their desired financial outcomes.
According to Caroline Znaniec, managing director in CohnReznick's healthcare practice, there's still some hope among hospitals that CMS will delay the requirements or give more time to comply with requests. But to date it doesn't appear that's going to happen, and so the time has come for hospitals to consider their first steps toward implementation.
"Knowing it's inevitable, you need to understand it's not a simple process of just pulling down the chargemaster files and other different files related to usage or pricing," said Znaniec. "There's a fair amount of analytics and other considerations that need to be taken to really meet the objectives of the final transparency rule itself.
"In going through the process of a standard charge file for example, and lining up charges to the payer contracts, there's going to be a lot of questions for hospitals -- where their pricing methodology has really lost touch with any relation to reference pricing as it may be for the Medicare or Medicaid rate, for example. … Pricing now doesn't make sense, because every year the price increased 5% over that price year-to-year. You've lost touch with what your reference price was."
THE PRICE OF NONCOMPLIANCE
From a data perspective, hospitals need to identify where they can simplify their pricing strategy, which will give them some insight into where they fit in the market.
Due in part to the difficulty in complying, there remains a lot of negative sentiment around the rule, but Znaniec contends that hospitals can turn it into a positive by ensuring they're compliant with their payer contracts and building stronger bonds with the community.
Either way, noncompliance is likely to result in penalties, and even a kind of public shaming on CMS' website -- a kind of scarlet letter for hospitals, as it were. Because of the greater need and expense, the lift is going to be heavier for smaller organizations than for larger facilities and health systems.
The smaller players, said Znaniec, "feel like they're going to have to lower their prices to hit net revenue. That's not necessarily the case. Taking the level of detail to what CMS wants will be the first time for many, and they may see they're charging below contract. There are plenty of opportunities to see if you're underpriced and if it doesn't make sense. A rational pricing approach considers the market, the costs, the reference price and their peers … to see where you fit in comparison to what's out there."
That's not to say there won't be issues. Certain cross-sections of hospitals may have the same geography and payer mix, and similar contract terms, but CEOs in urban settings may look to competitors to see what they're getting reimbursed and discover they're being reimbursed at a much lower rate, even though they feel they're on the same level of their peers. That will create parity issues, and since smaller organizations tend to have percentage-based contracts, some may consolidate to get better rates from payers.
PREPARING FOR THE INEVITABLE
Despite these issues, things will change on January 1, and hospitals should be developing their pricing strategies -- by region and then by organization. That will come down to location size and capability, and will entail a lot of talk about, for instance, ramping up services. Healthcare organizations will be tasked with determining what they're good at and working to get their market share more aligned with those strengths, and dealing with the pricing competitiveness related to that. It boils down to looking at both the market and the actual costs.
It's a challenge that's unique to the industry, said Znaniec.
"Large, very well-known hospitals don't necessarily know the cost to provide care," she said. "They're still going through the process of evaluating across the counter to break it down. You look at other markets, and they know what their costs are and what their profits are going to be. Healthcare just hasn't been managed that way, and that's something that needs to be taken into consideration."
Hospitals will be tasked with crafting strategies for how much to charge for items that align with that reference pricing model. Medicare has algorithms and methodologies related to things like cost, charges, demographics and cost of living, meaning they've essentially done a lot of the work for hospitals. Some, but not all, CFOs may be comfortable using Medicare as a base because it relates to their specific costs and the services they provide, but this will differ by organization.
"One of the approaches I don't like for pricing -- and hospitals have gotten the idea from consultants -- is they look at pricing in comparison to their peers," said Znaniec. "And it takes me back to what your parents say: If everyone jumped off a bridge, would you jump too? Same thing here. Charges don't relate to reimbursement necessarily. Following someone else's charging methodology doesn't necessarily net you any more."
Ultimately, the first and most important step will be to simply understand the requirements.
"There are a lot of myths out there," she said. "Make sure you know what's required and not required."