Price Change, a Strategic Approach

As many hospitals are nearing the start of their next fiscal year, we thought it would be interesting to look at pricing strategies selected by a significant national sample during the first half of 2019.

Hospitals may take one of two approaches when setting prices by following either an across-the-board (ATB) price change or a strategic approach. The ATB method assumes all prices in the chargemaster change by a constant percentage. For example, targeting a 5% overall price increase would be achieved through increasing each item code in the CDM by 5%. Alternatively, a strategic approach suggests impacting service line specific rate changes based on local market sensitivities and associated financial implications.

Through our strategic modeling approach here at Cleverley, related groups of services may decrease/increase/remain constant based on considerations such as competitive position, payer mix, and overall goals. The summary below highlights selected strategies and the estimated results of our large national sample.

STRATEGIC ASSUMPTIONS

Overall Rate Increase– The median overall rate increase selected was 5% which is also consistent with the average at 4.7%. We observed fairly consistent rates of change for outpatient and inpatient.

Rate Corridor Range and Competitive Constraint– Rate corridors indicate how much groups of related services are permitted to decrease/increase/remain constant. The median rate corridors selected were 0% to 14%, which means prices for services could be frozen or increase by as much as 14% (while as we learned above, still achieving an overall rate increase of 5% for the hospital).

Rate corridors may work together with a competitive constraint to improve pricing position relative to peers. On average, we see 5 peers in the constraint group. In general, this implies that hospitals are defining their market with an average of 5 peer hospitals.

Room Rates and Surgery Assumptions– The observed median routine room & observation rate increased 5%, while surgery related areas increased 6%.

Financial Implications– Please note that high charges do not necessarily correlate with high payment. Performing a scenario analysis can help hospital finance leaders better understand overall payment and net revenue impact prior to implementing changes.

Other Key Findings – During our review, we also look at service line specific rates of change. These vary significantly by hospital. Many hospitals are evaluating patient-sensitive services in light of transparency disclosure requirements. We welcome the opportunity to talk with you about your specific strategy.

A Response To The CY20 OPPS Proposed Rule (CMS-1717-P) For Increased Price & Payment Disclosures

COLUMBUS OH, SEPTEMBER 6 2019 – The CY20 OPPS Proposed Rule contains additional information and requirements regarding hospital price transparency. There are nine areas pertaining to the proposed requirements for hospitals to make public a list of their standard charges. Some of the areas represent further clarifications or definitions of terms outlined in the FY19 IPPS Final Rule and others are entirely new components. Among the most critical proposals are:

1.  Expanding the definition of “standard charges” to include payer-specific payment rates for all payers and for all items and services

2.  Expanding the definition of “items and services” to include professional fees and “service packages” (aggregations of services provided in connection with an inpatient or outpatient encounter)

3.  An additional “consumer friendly” disclosure of payer-specific payments for 300 “shoppable” services and associated ancillary services

4.  Actions that would address noncompliance, including imposing civil monetary penalties of up to $109,500 per year on noncompliant hospitals

Click here to read the full response where we outline these key proposals with feedback to consider when responding. The comment window ends on September 27, 2019.  Given the significant changes being proposed, we are highly encouraging hospitals to provide the CMS with feedback.

Want to learn more? Check our webinar!

How Hospitals Can Create Cost Advantage Where Product Differentiation is Not Present

A challenge exists in finding accurate comparative data for bundled-payment arrangements, such as total hip replacement.

Cost advantage is necessary when a business is perceived as providing the same products or services as its competitors. In the eyes of many major healthcare payers, hospital services are not perceived as differentiated and are viewed as equally substitutable. While some payers are beginning to introduce value propositions into their payment methodology, many of these plans are merely new ways to reduce payment levels to providers.

To read the full article, from HFM Magazine, click here.

New Executive Order on Improving Price and Quality Transparency

On June 24th, President Donald Trump signed an executive order intended to lower healthcare costs through improved price transparency. The focus of the order is to provide patients access to pricing information for scheduled services and the out-of-pocket costs they may incur. It aims to eliminate barriers to price and quality transparency, to increase the availability of meaningful price and quality information for patients and to enhance patients’ control over their own healthcare resources.

When does this happen?

  • Within 60 days the Secretary of Health and Human Services is to propose a regulation to require hospitals to publicly post standard charge information and negotiated rates for common or shoppable services in a consumer-friendly and machine-readable format
  • Within 90 days an advanced notice of proposed rulemaking shall be made available for comment on the proposal
  • Within 180 days a report is to be issued describing the manners in which the Federal Government or the private sector are impeding healthcare price and quality transparency for patients, and providing recommendations for eliminating these impediments in a way that promotes competition

How can Cleverley + Associates Help?

We’ve worked with providers to strategically develop their pricing strategy and make it accessible and understandable to the public for many years. 

We have extensive pricing databases and reports that summarize data by inpatient and outpatient cases and are able to identify the high-spending categories for both. We recently improved our Transparency Fifty report, that identifies comparative pricing for the top shoppable outpatient services by HCPCS code where hospitals and free-standing entities compete.

In addition, our MS-DRG profile report identifies the top inpatient services and our APC Charge profile report identifies the top outpatient visits grouped by a primary APC. 

We’ll keep you posted as additional information becomes available. You can also review our Transparency Continuum here. We’re beginning to see some of the patient expectations and requests we predicted.

While the exact nature of what will be required is yet to be determined, we are confident that Cleverley + Associates has the resources and experience that can help hospitals prepare for this next wave of price transparency. Give us a call at 888.779.5663 or email us here!

FY 2020 IPPS Proposed Rule: MSDRG Changes

Version 37 incorporates changes to our MSDRG list as well as associated relative weights.  From FY 2019 to FY 2020 two (2) MSDRGs are removed and two (2) MSDRGs have been created.

To what extent is Relative Weight changing from FY 2019 to FY 2020?

*Data Source: CMS, FY 2019 & 2020 Table 5
*Data Source: CMS, FY 2019 & 2020 Table 5

Based on the data presented, the clear majority of MSDRG relative weights are experiencing an increase or decrease less than 5% (56.1%.)  

What are the top 10 MSDRGs experiencing Relative Weight change?

 *Data Source: CMS, FY 2019 & 2020 Table 5

Why should hospitals be aware?

MSDRG relative weight (RW) is assigned to each MSDRG indicating a relative costliness or average resources required to care for cases assigned to that diagnosis related group compared to the average Medicare case costliness. MSDRG relative weights are recalibrated annually, intended to not affect overall payments.  However, MSDRG relative weight changes could mean significant payment differences based on a hospital’s unique mix of services and volumes.   

Case Hospital Example: Urban Ohio Hospital

In the case example below, we reviewed the top 5 MSDRGs for increase in payment and the top 5 MSDRGs for decreases in payment.  In this example, the volumes by MSDRG remain static, with the assumption volumes will remain the same or similar in subsequent years.  

OHIO Hospital: Top 5 MSDRG Increases in Payment FY 2019 to FY 20201

*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes

OHIO Hospital: Top 5 MSDRG Decreases in Payment FY 2019 to FY 20201

*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes
*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes

What is the Impact to my Hospital?

Assessing the impact to Prospective Payment Rule polices is essential is understanding future Medicare payments.  Identifying driving factors could assist the hospital in offering feedback to CMS and/or budgetary purposes at the facility and departmental levels.

Interested to comment to CMS on the IPPS Proposed Rule?

Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to http://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

CMS’s Acute Care Hospital Inpatient Prospective Payment System FACT SHEET:  https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/AcutePaymtSysfctsht.pdf