Price Change – What are Other Hospitals Doing?

It’s no secret that industry leaders are continually tasked to do more with less.  Economic pressures, regulatory changes, technological advancements, transparency initiatives, and payer negotiations continue challenging leaders as the healthcare industry transforms.

Financial goals frequently drive a hospital’s health and long term viability.  As part of the budget cycle, many hospitals identify revenue goals in terms of either an overall percent change or a gross or net dollar change.  Here at Cleverley + Associates, we are often asked what levels of overall price change are being observed.  Here are some of the things we’ve found.

Overall Rate Change– The Hospital Charge Index® (“HCI”), developed by Cleverley + Associates, incorporates two metrics:Medicare Charge per Discharge and Medicare Charge per Visit.  Both hospital specific metrics are adjusted  for case complexity and wage index differences based upon US median values for both measures.  The resulting inpatient and outpatient indices are then weighted by the percent of gross all-payer revenue to arrive at the overall HCI.  The result is the most objective overall charge comparison available and can be calculated for all hospitals serving Medicare patients. The value for the US median is approximately 100, so a higher index score indicates a higher relative charge position.  For example: if Hospital A has a HCI of 120, then they are priced 20% higher than the US median adjusting for case mix and cost of living differences.

A study of changes to the HCI for 3,200 plus hospitals during the years 2014 to 2016 show median inpatient prices increased 3% and median outpatient prices increased 5%. Further examination shows half of all providers implemented price changes +/- 1.5% from the US median.  The remaining providers shifted prices as much as +/- 6% from the US median.  The median target rate of increase is 4% based on the hospitals for which we help develop pricing strategies.

Patient Type Rate Change– Further examination of annual gross rate change into inpatient and outpatient components yields interesting results:

Outpatient charge growth has exceeded inpatient charge growth in the two yearstudy period which may indicate shifting prices to outpatient areas that often have a higher incidence of percent of charge payment.  However, this trend may be ending as hospitals begin to compete for many outpatient services with free standing providers who often have significantly lower prices.  Many of our clients have established dual inpatient and outpatient procedures to enable them to offer lower prices for highly competitive procedures.

In an earlier study that that we conducted from 2011 to 2014 we found no significant differences between inpatient and outpatient rates of change.

Further analysis of outpatient pricing trends reveals a correlation between pricing changes and operating margins.  For the median provider in the lower charge growth quartile, the operating margin deteriorated 2.5%.  The median provider in the higher charge growth quartile experienced no change in operating margin from 2014 to 2016.  Though the lowest and highest quartiles have median operating margin shifts that are more extreme at (25.7%) and 21.5%, respectively, the relationship between pricing and operating margins does appear to exist.  As pricing increases, operating margins appear to increase as well.

Remember – Short-term strategies fuel long-term success.  Each year presents a fresh opportunity to gradually improve your pricing position both from a competitive and defensible standpoint.  What steps will you take this year?


By Janessa Welch

Strategic Consultant


Where Should Hospitals Focus Transparency Efforts


In our work with hospitals around the country, we have found that many hospitals are struggling to identify what services are most subject to price transparency concerns. Some are taking a broad-brush approach and reduce all charge codes to the level of free-standing entities. This approach is usually not the most effective methodology because it does not focus on the critical procedures where transparency is a major concern.

We decided to identify what procedures hospitals should be most concerned about when they face significant price competition from free-standing outpatient centers. If a hospital can compete with free-standing entities on price for those critical procedures, they should enhance their competitive position without sacrificing revenue in areas where price transparency is not a patient selection factor. Our study resulted in our latest price comparison report, the Transparency Fifty™.

To develop the Transparency Fifty™ we used two data sets. The first data set was the 2016 Medicare HOPPS data file which we used to identify high volume hospital outpatient procedures grouped in four categories that are similar to four major free-standing entities – labs, imaging, therapies, and surgeries. We reviewed the data using both total charges and total volumes by CPT/HCPCS procedure code but decided to use total charges as the best indicator of areas of concern for hospitals, although the top charge and top volume procedures frequently overlapped.

The second data set used came from the 2015 Medicare Physician/Supplier Procedure Summary file. We used this data set to identify high volume procedures performed in free-standing laboratories, imaging centers, therapy centers and ambulatory surgical centers. We then ranked each free-standing group’s procedures by CPT/HCPCS code from highest volume nationally to lowest. The final step was a comparison of the high volume hospital outpatient procedures with high volume free standing procedures to identify procedures that were on both lists.

So what services were included in the top fifty procedures from our study?

Laboratory tests (17 Procedures)

Seventeen procedures were selected that all ranked in the top 30 for free-standing labs and the top 25 for lab procedures performed in hospitals. Topping the list were comprehensive metabolic panel (CPT 80053) and complete blood count with white blood cell differential (CPT 85025). Not surprisingly, routine venipuncture, urinalysis and blood glucose test also appear as top procedures.

Imaging procedures (18 Procedures)

Imaging is the area where we experience the most hospital client requests to assess the revenue impact of setting hospital prices to free-standing centers. Eighteen procedures were selected including 6 MRIs, 2 CTs, 1 PET scan, 2 chest x-rays, diagnostic mammogram, 5 echography/ultrasound procedures and a bone density x-ray.

Surgical procedures (6 Procedures)

Six surgical procedures were selected including four endoscopy procedures, cataract surgery and an epidural injection of the spine.

Therapy services (6 Procedures)

Six procedures were selected including PT evaluation, therapeutic activities and therapeutic exercises.

Other procedures (3 Procedures)

Two sleep study procedures and an electrocardiography holter monitoring procedure ranked high for services performed by entities categorized as free-standing imaging centers.

We believe the Transparency Fifty™ report is a good starting point for those hospitals that are concerned about price transparency for services that are frequently performed in free-standing centers and that are easily shoppable by ambulatory patients. This new report allows hospitals to benchmark against peer hospital prices and the state averages for free-standing centers in their state.

Changes to address price transparency and competition may not happen quickly, but hospitals need to stay ahead of the curve as payers and patient patterns adjust in this cost-conscious industry. We hope that the Transparency Fifty™ report is a tool that will be used to help hospitals successfully navigate in the age of price transparency.

To learn more give us a call or learn more about our reports here.


By Scott Houk, CPA

Director – Consulting Services

11 Metrics Reveal the Best Strategies For Cutting Outpatient Prices

Health systems must decide which hospitals should be targeted and how quickly price reductions can be implemented. These systems are beginning to establish strategic pricing directives that deal explicitly with outpatient pricing at their individual hospitals. These systems have two critical decisions: which hospitals should be targeted and how quickly price reductions can be implemented.

In our new white paper, which appeared in the Spring issue of HFMA Strategic Financial Planning, Bill Cleverley describes how hospitals can respond to increasing pressure to lower prices for “shoppable” services.

To download the white paper click here: Best Strategies For Cutting Outpatient Prices.

To see all our recent research and white papers click here.

New Book Suggests Actual Hospital Inflation Well Below CPI Numbers


The 2017 State of the Hospital Industry published by Cleverley and Associates shows a dramatic difference between the Bureau of Labor Statistics reported values for hospital cost inflation when compared to actual payments received by hospitals when all payers, including government are included.

During the period 2010 to 2015, the BLS reported average annual inflation rates for hospital outpatient services of 4.44% and 4.89% for hospital inpatient services.  Data for all short term acute care hospitals in the US during the same period averaged 1.2% using the Net Patient Revenue per Equivalent DischargeTM.  Other key findings showed that average 5-year hospital inflation rates increased the greatest in Texas (2.4%) and were the lowest in South Dakota (-2.0%).  The Austin MSA had the highest increase (3.9%) while Jacksonville had the lowest value (-2.1%).  Investor Owned hospitals had higher rates of inflation than Voluntary non-profit hospitals (1.5% compared to 1.0%).

The 2017 State of the Hospital Industry is an annual study that presents a concise yet revealing statistical analysis of the US hospital industry. More than 80 key performance metrics are presented across a three-year period providing an insightful review of the financial performance of one the largest sectors of the US economy. It’s a great reference source for those involved in hospital finance. The publication also presents the annual Community Value Index® Leadership Awards. The Community Value Index® (CVI) was developed by Cleverley & Associates to provide a measure of the value that a hospital provides to its community by examining ten measures in four key performance areas. A complete list of the highest ranked hospitals is also provided.

Written by William O. Cleverley, Ph.D., a noted expert in healthcare finance, the State of the Hospital Industry reports selected measures of hospital financial performance and discusses the critical factors that lie behind them.  The publication focuses on the US acute-care hospital industry over a three-year period (2013-2015).

To read more, or order the book, you can click here!


5 Ways to Choose a Peer For Your Hospital

Comparative Benchmarking is crucial to any business. Comparative reference points give you a place to start measuring your success, as well as goals to reach for in the future. You can compare your hospital’s success against your own past, of course, but that won’t tell you if you’re getting left behind by your competition. Benchmarking helps answer important questions like how am I doing in my industry, and am I keeping up with my competitors?

To set your benchmarking you must first choose a peer or peers, which can be difficult. Of course, no one can really compare to your facility, but we can get as close as possible.



The best place to start is your neighbors. Even if the hospitals around you are a different size or have a different specialty, you still compete with them for services. You’ll likely compete with them more as federal and state legislatures expand pricing transparency. If a patient investigates prices, they’re most likely to start locally.

If your peer is struggling in the same areas, you may not need to make cuts to remain competitive. On the other hand, you may discover a competitive edge. You may also want to widen your search to state or regional competitors.


National Average

If your numbers line up closely to your local competitors, you may miss growth potential. Sometimes it’s best to step back and analyze how the country is growing and changing.


By Bed Size

You can also look at different parameters nationally. Although these hospitals are governed by different legislation and population health, their comparable size means they will have similar resource management issues. There is a lot you can learn by comparing their data with your own.


Net Patient Revenue

This metric is used to assess relative payment levels for both inpatient and outpatient hospitals. You can evaluate average payment per patient encounter, allowing you to analyze data in greater detail. This metric can give you a more accurate measurement to compare your hospital with others. We talk more about Net Patient Revenue here.


A Combination

All of these measurements can help you choose a peer, but taking several into consideration can help you choose an accurate peer. Of course, our consultants can also guide you to the most accurate comparison.