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January 21, 2008

Price Check
By Elizabeth S. Roop
For The Record
Vol. 20 No. 2 P. 18

In today’s healthcare environment, more patients are requesting cost estimates before selecting a hospital. By automating that process, facilities could gain an upper hand on the competition.

Heeding the call for greater transparency in response to the rise in high-deductible and consumer-driven health plans, a growing number of hospitals are implementing or refining systems and processes to support the increased patient demand for price estimates.

Given the number of unknowns that can impact the final price for services provided, it can be tricky to achieve a suitable level of accuracy, but those hospitals making the effort have discovered that providing estimates increases patient trust and satisfaction.

“There is always angst if someone asks how much something costs and you can’t provide an estimate. People in the corporate world don’t understand why it’s a problem [for hospitals],” says Richard L. Gundling, CMA, vice president of the Healthcare Financial Management Association (HFMA). “To have a system in place to give up-front pricing goes a long way toward communicating with the patient and establishing a greater trust in the community and with decision makers. If you can’t give at least a range, people think you’re hiding something or you’re not running your operations as efficiently as you can.”

The Push for Transparency
Through its Patient Friendly Billing Project, the HFMA has been a vocal advocate of greater transparency and overall reform of the healthcare pricing structure through the establishment of a pricing system that does the following:

• is simple to administer and communicate;

• establishes a framework that is rational and defensible in relation to objective benchmarks;

• creates accountability by empowering consumers to make price comparisons;

• allows for full coverage of financial requirements related to providing care and other community benefits; and

• provides stability and predictability in the administrative process.

In “Reconstructing Hospital Pricing Systems: A Call to Action for Hospital Financial Leaders,” the HFMA notes that a driving force behind the call for price transparency is the rise of consumerism. Higher deductibles and copayments, as well as the growing popularity of consumer-driven plans such as health savings accounts (HSAs), are forcing consumers to take on more of the financial burden.

This has prompted many hospitals to make their prices public, a strategy that includes posting price and quality information on the Web. Others are cooperating with state hospital association initiatives to consolidate pricing information into a single location. Even Medicare is publishing payment information on the most common procedures.

Legislation is also ratcheting up the pressure for increased transparency. Currently, more than 30 states require hospitals to report pricing information, and six have voluntary reporting systems in place. The American Hospital Association supports legislation that would require insurers to provide more information on out-of-pocket expenses and require the Agency for Healthcare Research and Quality to conduct a study on what consumers want to know about pricing.

The ultimate goal is to arm patients with enough information about cost and quality so they can open a dialogue with their providers to determine the best care options.

“It starts the conversation,” says Gundling. “I don’t know that a lot of people will necessarily price shop; I don’t see that happening much now. But a lot of people want a certain idea of … their out-of-pocket costs.”

Effective Systems Required
The trick, particularly for hospitals, is to provide an estimate that accounts for as many variables as possible and presents them in a meaningful, defensible, and comparable way. There is no “industry standard” for compiling price information, and the process for doing so varies from facility to facility. However, price information should ultimately be able to withstand scrutiny and be easily compared across providers.

“Getting the functions up and going and having a centralized pricing area is all part of it. The marketplace is moving that way anyway,” says Gundling. “But hospitals have traditionally operated in a wholesale environment where most of their customers were the government and large insurance companies, so the systems are set up for that. But now, with consumers, it’s more of a retail environment. It’s a whole new paradigm.”

Tim Weakley, product marketing manager at Craneware, Inc., agrees that the key to keeping up with the demand for transparency in an evolving healthcare market is having the right systems in place to efficiently develop accurate, defensible price estimates. The problem is that many hospitals don’t realize that their existing processes are not adequate for handling the high demand for estimates and accountability that the growth in consumerism may generate.

“If you talk to [hospitals] now, most of them do not have a process in place to do this,” Weakley says. “They may think they do, whether they’re referencing handwritten notes or spreadsheets of common procedures, or printing out reports from the business office and manually going through them one by one when a patient calls. But that is not a streamlined process or an efficient way to handle estimates, especially as transparency and defensible pricing emerges and becomes more of a priority to hospitals and consumers.”

Craneware’s answer is the Patient Charge Estimator, a software tool that provides estimates for inpatient and outpatient procedures based on a hospital’s historical claims data, chargemaster files, and negotiated third-party contracts. The information can also be filtered by procedural descriptions, CPT and HCPCS codes, ICD-9-CM procedure and diagnostic codes, diagnosis-related groups, etc.

With each estimate, a customized letter is created that can be sent directly to the requester electronically or by fax or mail. Estimates are also saved within Patient Charge Estimator’s database, allowing the hospital to analyze market trends and behaviors and compare estimates with final charges.

A Better Way
University Hospital in Augusta, Ga., deployed the Patient Charge Estimator after it noticed a significant upswing in calls from consumers facing the prospect of significant out-of-pocket costs. In the past, estimates were based on historical data compiled annually in a spreadsheet. When a patient called with a procedure code or description, someone would search the document for the data needed to provide an estimate. It was a time-consuming process that could not account for extraneous charges.

“It’s easy to find a procedure code, but sometimes there are supplies, pharmaceuticals, and other procedures that go along with the main procedure. If we were quoting based only on a procedure code, a lot of times those other items were left off,” says Brian Patterson, RN, chargemaster coordinator in University’s revenue management department.

With the automated system in place, estimates are now generated in minutes and are more accurate and complete than those created with the manual system. University’s current estimating process “empowers the patient to prepare financially for a procedure,” says Patterson. “It speeds up our workflow because the estimate can be done fairly quickly. It is also a satisfier because if we have provided an estimate and the patient responds as all other patients did to the treatment or procedure with no additional treatment needed, the estimate is fairly accurate and shows that we are credible in what we do.”

The story at Mercy Medical Center in Cedar Rapids, Iowa, is similar. In the past, when a prospective patient would call for an estimate, the counselor would contact the appropriate department to obtain the requested information or go to medical records to research the information necessary to provide a price range. According to Mercy Medical reimbursement specialist Kara Arnold-Arons, the biggest problems with that largely manual system were time, accuracy, and standardization. With demand for estimates on the rise, the facility knew it needed a better, more efficient process for generating and tracking estimates.

Mercy Medical also implemented the Patient Charge Estimator, which allows the hospital’s financial counselors to rapidly respond to estimate requests and provide more accurate pricing information. It has also become an important analytical and pricing tool for Arnold-Arons.

“I can go back and see what patient counselors are quoting out vs. what is actually getting billed,” she says. “I run into situations where new procedures are occurring, and I can go back into the claims database and see what procedures have been done that are like those to defensively set a price going forward to make sure we are recovering our cost. It ultimately gets back to overall productivity because we are not reinventing an estimate that we’ve already done. If it’s in our system, anyone in the network can use that estimate again.”

Communication and Clarity
Despite the improvements both these facilities have seen as a result of automating the process, there are still too many variables that affect the final cost of care to consider any estimate binding. A significant issue is the fragmented nature of the healthcare payment system. For example, while the hospital can provide an estimate for its own charges, separate charges may also be levied for care and services provided by nonaffiliated clinicians. Differences between estimated and actual charges can also crop up when the quote provided does not include additional charges beyond the procedure itself.

“If you’re just quoting out the procedure and not the room charges and other procedures, it may not be an accurate representation of the full, true charges,” says Arnold-Arons.

Variances also occur when the patient’s care requires more than the norm for the procedure in question, which is possibly the most significant issue at University Hospital.

“While we can give a ballpark figure, patients respond differently to treatment. These estimates are being given without medical knowledge or information other than the procedure in question,” says Patterson. “Sometimes, the patients feel like we should be able to honor an estimate like a mechanic honors an oil change. We can’t because patients respond differently. That’s the biggest challenge in estimating.”

In “Reconstructing Hospital Pricing Systems,” the HFMA agrees that the need to adjust treatment to address unique patient needs or the degree of clinical difficulty is a complicating factor when quoting estimates. For example, while it may be easy to provide an estimate for a mammogram, the same cannot be said for a more complex procedure such as a mastectomy. Providing price range estimates is one way to deal with these kinds of discrepancies, although the best course of action is for a hospital to “establish a frank and ongoing dialogue with its community about pricing systems and the steps the provider is taking to make the situation better,” the report says.

The HFMA also recommends that communication initiatives surrounding pricing should focus on the following:

• cost differences in relation to nearby facilities;

• charity care policies and discounts for the uninsured and underinsured;

• how healthcare financing works;

• the “hidden tax” or cost shift that results from Medicare/Medicaid and self-pay shortfalls and its effects on hospital prices; and

• the different ways prices are reported and what can and cannot be learned from them.

That dialogue is something every hospital needs to have with patients if they want them to have any confidence in the estimates they are providing, says Arnold-Arons.

“We need to get our patients educated and understanding where [these charges] come from and how this price is defensible, how it is fair and reasonable,” she says. “It’s going to be a learning game for most organizations right now.”

Eventually, hospitals will have little choice but to implement systems to increase the speed and accuracy with which estimates can be generated and to educate their patients on the factors that affect the cost of care provided as well as how to balance cost with quality.

“That’s what consumerism is,” says Gundling. “Patients will stop and ask, ‘Are there other options for me?’ They will start having that conversation about cost and quality with their doctors, and price estimates are the best way we can communicate that. It’s like any other business that needs to put its customers’ interests first.”

— Elizabeth S. Roop is a Tampa, Fla.-based freelance writer specializing in healthcare and HIT.