Ensuring charge integrity is one of the most vital aspects of managing a health system’s revenue cycle. Developing a defensible pricing strategy goes a long way in helping a healthcare system ensure its pricing is defendable to payors and patients and also protects the organization’s net patient revenue.
MedAssets defines a defensible pricing strategy as the amount of money that a provider charges a patient or payor for a specific service, procedure, supply, device or pharmaceutical. This amount is charged consistently to all patients regardless of the patient’s payment method. A defensible price is rational, consistent and can be explained and defended to all patients and payors.
Transparency and Consumerism Drive Defensible Pricing
The drive towards transparency in healthcare has led providers to drastically change the way they operate. Payors, private and public, compare reimbursement rates nationally, regionally and locally to ensure consistency across the board. Patients are seeking the best value for their healthcare dollars and choosing providers with the best reputations for high-quality care at the best price using new online tools that bring healthcare market prices into full public view. This new dedication to pricing visibility has led healthcare providers to develop defensible pricing strategies and methodologies in order to protect the health system’s net patient revenue, compete for patients in a crowded healthcare market and provide meaningful healthcare cost data that improves patient satisfaction.
More and more hospitals are developing defensible pricing strategies based on increasing bad debt, more legislation that makes pricing transparency a priority for consumer protection and patients with higher co-pays and deductibles who must pay for more of their healthcare out of their own pockets. Also, as many employers shift their healthcare benefits to consumer driven healthcare plans and healthcare savings accounts, more patients now actively manage their own healthcare dollars and want to know and decide how every dollar is spent.
Important Aspects in Establishing a Defensible Pricing Model
When a health system decides to establish its own defensible pricing model, the most important thing is to establish the correct methodology and apply it consistently. This includes looking at consistent formulaic pricing for procedures, supplies, pharmacy and complex services. A health system should also use a consistent approach across the board by looking at direct and fully-allocated costs, market benchmarks, reimbursement schedules and consumer value. Finally, the health system should determine the best way to model a proposed pricing strategy. This allows them to measure the impact of pricing changes and better forecast of how changes could affect the organization’s revenue.
Challenges to Establishing a Defensible Pricing Model
Changing the methodology for charges at a health system is not an easy or fast process, especially if an organization contains several facilities that operate somewhat independently. Challenges to establishing a model can include internal resistance, lack of accurate chargemaster data, lack of consistent chargemaster data and lack of market information which can be used to establish benchmarks for local and regional pricing models. Healthcare IT tools and expertise are available that help overcome these obstacles.
Tools for Building a Defensible Pricing Model
Comparative Rate Modeling – By using market-specific pricing benchmarks, a health system can maintain competitiveness and improve net patient revenue and ensure compliance with Justice Department guidelines.
Defensible Price Modeling—Tools are available that help a hospital or health system establish its defensible price model through market research and modeling that determines how price changes can impact net patient revenue. Benchmarks that cover 100 percent of the chargemaster allow a provider to accurately measure itself against local and regional competitors and ensure pricing consistency at the line item level. These tools also model against payor contracts to ensure compliance with contracted rates.
Market Price Modeling—With a market price modeling tool, a health system can analyze pricing decisions all the way to the line item level to determine the impact of a price change on net revenue. These tools allows for comparison against regional benchmarks for highly visible, non-coded areas including room rates, operating room time, pharmaceuticals and supplies. This is in addition to a complete approach through review of the entire chargemaster and pricing benchmarks against OPPS limited data sets and proprietary payor pricing benchmarks. Finally, this tool can quantify the effect of price changes on gross and net revenue down to the department level.
Pricing Management—With pricing management tools, a health system can establish and maintain its defensible pricing model while improving net patient revenue and making its billing more patient-friendly. Included is an ASP tool that provides real-time monitoring and maintenance of chargemaster pricing that enables modeling to see the impact of pricing changes before they are made. These tools are also great for IDNs because they allow for separate pricing at individual facilities. These tools also help a health system comply with its own established pricing policies and apply them consistently.
Billing and Coding Tools—Coding problems can lead to missed revenue opportunities and inaccurate bills. Health systems can avoid coding problems by using intuitive tools that simplify billing and coding management and update regularly with the most current data from CPT®/HCPCS codes, ICD-9, modifier information, coding guidelines, NCCI edits and reimbursement information as well as information published in Medicare Manuals, Medicare Bulletins, National Coverage Decisions, Local Coverage Decisions, Program Transmittals, CMS Rules and OIG publications.
Chargemaster Management—All health systems rely on their chargemasters as the foundation for all revenue. Intuitive tools are available that ensure optimal revenue integrity by using the most accurate and complete coding, compliance and best practice charging information, making the daily management of chargemasters at a single hospital or a multi-facility IDN easy. With these tools, a health system can identify potential coding and compliance issues within the chargemaster and use benchmarks, including current regional proprietary data, to compare the system’s chargemaster against other competitors in the region. These tools also allow for custom pricing depending on the organization’s pricing strategy.
Patient Satisfaction and Pricing Transparency Go Hand-in-Hand with Defensible Pricing
In today’s healthcare marketplace, patients are informed decision-makers due to high deductible plans and consumer-driven healthcare plans. In many cases, they want to know their true out-of-pocket cost before care is administered. Many tools are available that provide upfront estimates on care to patients and allow them to see their portion of expenses and make decisions accordingly, increasing patient satisfaction, decreasing A/R days and collections and reducing bad debt.
Insurance Verification—tools used to quickly and easily verify insurance coverage for patients prior to admission, speeding the admission process, providing ease-of-mind for patients and ensuring financial payment to the healthcare provider.
Patient Bill Estimator—used by healthcare systems to provide upfront estimates to patients on their portion of expenses. These tools generate estimates quickly based on data from managed care contracts and reduce denials and billing errors while decreasing A/R days and bad debt.
Point-of-Service Collections—these tools work along with a patient bill estimator and help a healthcare system collect all patient-owed fees upfront, if applicable. Fees such as co-pays need to be collected upfront, and payment arrangements can be made with patients to ease their minds and improve the financial standing of the healthcare system.
Medicaid Eligibility and Charity Screening—these tools pre-screen patients for charity funding and government insurance programs such as Medicaid quickly and easily, improving patient satisfaction and the health system’s cash flow by reducing bad debt and collection expenses.
Patient Access Workflow Management—these tools help manage the entire patient access process by speeding admissions, improving patient satisfaction and increasing workflow. With staff management tools and real-time dashboards, a hospital or health system can use this tool to monitor and meet their transparency goals.