CMS Releases Voluntary Sample Hospital Price Transparency Format Guidelines

On Monday, CMS announced the availability of a standardized machine-readable file format that hospitals can elect to use in complying with the price transparency final rule.  The sample formats, presented in .CSV and .JSON, are accompanied by a data dictionary.  CMS notes that the use of these sample formats are voluntary.  It’s also important to note that the samples contain fields that are not currently required under the hospital price transparency rule.  The data dictionary attempts to display fields that are required in the rule by listing a “Requirement” reference from the rule’s language.  One such field, “Contracting Method”, asks hospitals to “Select the value that most closely represents the contracting method for the payer-specific negotiated charge associated with the item or service.”  For information that doesn’t align with the allowed values, hospitals can use an “Other” type.  These additional fields in the sample formats were presumably created to enhance the utility of disclosed data.  The formats were created with input from a panel that was convened by a CMS contractor.

The link to the CMS voluntary sample file formats and data dictionary can be found here: https://www.cms.gov/hospital-price-transparency/resources

Cleverley + Associates already provides services for hospitals to comply with the machine readable and consumer shoppable disclosure requirements.  As an extension of those services, we will be creating a format option for clients to display under the new CMS voluntary sample format structure, if desired.  For more information on price transparency, please contact us!

What Are The Consequences of Poor Hospital Pricing Strategy?

Why is Hospital Pricing Strategy So Important?

In many hospital executive’s minds, there is little need for strategy in the establishment of hospital chargemaster prices.  This mentality can often create unfavorable outcomes that can affect the financial and strategic position of the hospital. Let’s review three common simplistic pricing strategies and the possible negative outcomes that might result from their implementation.

Across the Board

A very common pricing strategy employed in many hospitals is to simply increase prices on all items in the chargemaster by a fixed percentage, e.g., 5%.  On the surface, this seems like an efficient and equitable method for setting future hospital chargemaster prices.  Let’s use a specific example to illustrate some possible negative outcomes.  A lab test Assay of Glucose Quantity (CPT 82947) has a current CDM price of $58 which compares to their hospital peer average of $26 and a state independent lab price of $11.  Further increases in the price of this commonly used procedure would only exacerbate the current unfavorable price position.  With current price transparency disclosure, price visibility is much easier and likely to make local newspaper accounts. Another common negative outcome of across the board pricing may be significant levels of lost net revenue in areas where price sensitivity is not an issue.  For example, a level 5 Emergency Room visit (CPT 99285) is not often an encounter that is price sensitive but may have favorable revenue recovery.  This may be the result of either a lesser than provision being activated or the inclusion in an inpatient claim.

Price Reduction on All Shoppable Chargemaster Codes

Another common strategy employed by hospitals in this era of hospital transparency is the reduction of all or most so called “shoppable” procedures to their hospital peer average, or to prices in non-hospital settings such as independent imaging centers.  The logic employed here is very simple and goes something like this, “Since most of our payment is fixed and not based upon actual CDM prices, let’s go ahead and reduce these prices dramatically to improve both our competitiveness and also our public image”. Prices in all other areas are then increased to realize some overall targeted rate increase.  While this may seem very logical, it can often result in sizable amounts of lost revenue because of changes in lesser than claims or reduction in outlier claims.  To further complicate the analysis, these price reductions may not impact the overall charge for the entire encounter.  For example, a hospital may try to reduce it’s price for a Diagnostic Colonoscopy (CPT 45380) to a price that is more closely aligned with local Ambulatory Surgical Centers, but increases in other areas for supplies or anesthesia may more than compensate for the price reduction in the procedure code.

Maximize our Net Revenue Return

The last pricing strategy to be discussed is maximization of the net revenue from price increases.  While the prior two discussed strategies may not have recognized the impact on net revenue, this strategy focuses on the returns without recognizing the possible effect on other market factors.  To be sure, the dramatic increase in hospital costs, especially nursing, during the last two years has created enormous financial pressures to secure additional net revenues to offset the cost increases being experienced.  We have witnessed some actual price increases in excess of 100% purely to generate additional net revenue.   Increases in Nursery prices are often a target for some of these large increases because many existing managed care contracts have negotiated case rates which exceed the normal or expected charges for the encounter.  This then creates a lesser than situation where the hospital is paid less than the negotiated fee.  Increases of this magnitude occur in many other areas where sizable lesser than opportunities also exist and may seem like a good pricing strategy, but there are some serious consequences of this strategy.  For one, large increases will not usually go unnoticed, and the hospital may become the object of negative publicity.  Secondly, payers are almost certain to notice these extreme price swings and will quickly determine the underlying rationale.  The outcome will most likely trigger negative charge audits or the future removal of the contract provisions which created the opportunity.

Summary

Hospital pricing strategy is very important in today’s climate and simple solutions can and often do create unfavorable results.  The correct approach to hospital pricing strategy formulation is to identify all relevant financial and market factors and to relate those elements to the hospital’s overall mission statement. If you have questions or concerns about your current pricing strategy, we want to help. Contact us here!

 

 

What You Need To Know About The Federal Surprise-Billing No-Surprises Act

The No-Surprises Act, currently under consideration, would prohibit providers from balance-billing. It would also establish rates for payments from commercial health plans, based on the local market. There is a process (added on July 17) that includes a third-party arbitration process for resolving certain disagreements. 

The main focus of the bill, as with other recent surprise billing legislation attempts, the goal is to protect patients from large, surprise bills, especially from unexpected out-of-network care.

There are several important elements:

  • Health plans are required to treat out-of-network services as if they’re in-network in cost sharing cases, for deductibles, and out-of-pocket limits.
  • Out-of-network providers are prohibited from “balance billing” patients. Meaning, they cannot bill patients above the in-network cost-sharing limit.
  • Sets guidelines for determining how much health plans must pay to the out-of-network provider.

The act was co-authored by  Energy and Commerce Committee leaders Reps. Frank Pallone, D-N.J., and Greg Walden, R-Ore. It passed the Senate health committee on June 26th. The basic concept of the legislation, to protect patients by allowing them to settle out-of network payment disputes, is generally supported by hospital and physician groups.

Insurers, on the other hand, are generally in favor of arbitration and payment benchmarks. This may allow reimbursement for out-of-network care.

Reigning in surprise billing is clearly a focus of multiple legislative bodies. It will be interesting to see the changes that occur to the act over the next few months.  Understanding the scope of the at risk payment for providers and developing mitigation strategies may become important as we watch the legislation progress through Congress. 

Price Change, a Strategic Approach

Price Change, a Strategic Approach in Hospitals Start of Their Next Fiscal Year

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.

The CY20 OPPS Proposed Rule

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 audit with feedback.

Want to learn more? Check our webinar!

https://youtu.be/5ba-lJWvwlU