Historically, hospitals and health systems have been reluctant to disclose their prices to patients before providing care. They certainly never disclosed their prices publicly for all the world – and competitors – to see. That is, until the U.S. government mandated new price transparency rules that took effect on January 1, 2021.
The opportunity hospitals and health systems fail to realize, is they can use price transparency to their advantage as more patients comparison-shop for care. With public pricing , hospitals and health systems can build the ultimate shopping experience as a powerful patient engagement and loyalty tactic. Enhancing the patient’s experience through transparent pricing will be the future of competitive market differentiation.
When it comes to applying price transparency across healthcare, or any business, there comes a handful of challenges you may face.
Legacy cultures and attitudesHospitals and health systems attract patients by virtue of patients’ health insurance, location or reputation. Today, patients have more resources to make informed decisions about where to receive medical care. Patients are ready-made to be customers.
Many patients likely see the new price transparency rules as yet another unfunded government mandate, rather than an opportunity to become more customer focused. If so, they may follow the letter of the law through minimal compliance, versus following the spirit of the law with maximum service.
No price without knowing the cost
Most hospitals and health systems don’t have an established price for a service simply because they don’t have a process for knowing what a service costs them to provide, due to practising cost-center accounting. Cost-center accounting adds fixed overhead costs to a service that can be simple and cheap, or complex and expensive. As a result, cost-center accounting can inflate or underestimate the price of a service.
Disconnected and disparate IT systems
Another reason most hospitals and health systems don’t know the true cost of a service is the lack of internal interoperability within a single provider organization.
To know the actual cost of a service, a hospital or health system must be able to pull in all unique costs that go into producing that service. This contrasts from the usual system of allocating prorated overhead expenses to the cost upon which you would calculate a price.
We’re talking about pulling in payroll, supply-chain, medical supply, contracted labor and service, equipment cost, contracted labor and service data and other costs unique to that service.
How do you overcome the price transparency challenges?
The challenges may seem daunting, but there are solutions to evolve the patient experience.
Hospitals and health systems must make a cultural shift, and change starts at the top: all C-suite executives, especially the CFO, must be all in on price transparency. That means embracing price transparency as an opportunity, not a threat.
Operationally, that means education and training frontline staff on the benefits of price transparency for customers. Staff will need to know how to give accurate price information to customers on demand, how to obtain price information on demand and how to use various technologies that support price transparency.
Mandatory activity-based accounting
In terms of processes, hospitals and health systems need to replace cost-center accounting with activity-based accounting, training their people accordingly.
Activity-based accounting works by assigning costs to a service that are unique to other similar services, including, for example, the cost of any out-of-network clinician, or outsourced or contract labor. It’s simply a more accurate way to determine what a service actually costs to produce. After a hospital or health system knows a service’s true cost, it can set a fair and competitive price for that service.
For consumers, hospitals and health systems must have intuitive, easy-to-use interfaces that enable customers to comparison shop for price and quality information, mirroring their online retail shopping experience. An embedded self-scheduling tool that allows patients to select the day and time that they want an appointment with a provider is a perfect example of improving the customer experience.
Integrating customer relations management (CRM) systems with the price and quality shopping interfaces, while protecting their privacy and security of health information, would lead to engaged patients and customer loyalty. The patient experience is now a market differentiator.
Provider-facing internal capabilities
Activity-based accounting requires the integration of separate IT systems that house personnel costs, contract labor costs, medical equipment and supply costs, clinical data, financial data, facility expenses and more. Hospitals and health systems must be able to weave all that information into a single, cloud-data platform.
Is it time to make the leap?
The transition to a consumer-friendly organization from a traditional provider organization can be challenging from a people, process and technology standpoint. Embracing price transparency, along with taking advantage of healthcare data, can help hospitals and health systems make that leap into the competitive healthcare market.