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March 29, 2018

Our take: How to respond to Azar's price transparency 'wake-up call'

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    Read Advisory Board's take on this story.

    Increasing price transparency in health care is a top priority on HHS Secretary Alex Azar's agenda—but it's unclear how he intends to drive the change forward and whether greater transparency would actually lower the cost of health care, Harris Meyer reports for Modern Healthcare.

    About Azar's forceful—but vague—call for price transparency

    As HHS secretary, Azar has listed price transparency as part of his "four shifts" agenda that he says will drive the United States toward providing less costly and more value-based care.

    Azar emphasized the subject at a meeting with the Federation of American Hospitals earlier this month. Azar said, "Especially if we want to move to a system where we put patients more in charge of their own health care dollars, providers and insurers have to become more transparent about their pricing." And Azar added that if change "doesn't happen, we (at HHS) have plenty of levers to pull that would help drive this change."

    Azar at the meeting shared a personal experience of trying to hunt down the price of a stress echocardiogram. He was first told the list price at a hospital was $5,500. Later, he learned that his insurer's negotiated price at the hospital was $3,500. Finally, after a struggle, he learned he would pay just $550 if he had the test done in a doctor's office. 

    "Now, there I was, the former deputy secretary of [HHS], and that is the kind of effort it took to find out how much I would owe for a procedure," Azar said. "That is simply wrong." Azar continued, "I believe you ought to have the right to know what a health care service will cost—and what it will really cost—before you get that service. … We'll work with you to make it happen—and lay out more powerful incentives if it doesn't."

    However, Azar has yet to provide specifics on how he wants to increase price transparency, Meyer reports. Federation of American Hospitals CEO Chip Kahn said of Azar's comments, "It was just an outline and clearly wasn't even in a formative stage."

    What can HHS actually do to drive transparency?

    Despite the lack of details, transparency advocates are heartened by Azar's outspoken commitment to the issue, Meyer reports.

    Suzanne Delbanco, executive director of Catalyst for Payment Reform, said, "I certainly believe that the HHS secretary putting energy behind the movement toward greater transparency will make a difference."

    Delbanco and other experts have offered proposals for how HHS could improve price transparency. For example, according to Meyers:

    • HHS could make it easier for states and private organizations to incorporate Medicare payment information into their transparency tools;
    • CMS could require Medicare hospitals to disclose costs upfront and take steps to protect patients from unexpected out-of-network bills;
    • CMS could publish cost and outcome results for provider bundles; and
    • CMS could require health plans on the Affordable Care Act exchanges to provide pre-service estimates of out-of-pocket costs.

    Some advocates, though, question whether the federal government is the right entity to drive transparency efforts. Joe Fifer, CEO of the Healthcare Financial Management Association, said, "It's hard to come up with a federal solution that applies to 50 states when health care looks so different everywhere."

    Hurdles and skepticism

    Meanwhile, others have questioned whether price transparency really will bring down health care costs, Meyer reports. According to a Health Care Cost Institute report, less than 7% of U.S. health care spending was for a "shoppable" service—that is, one that can be scheduled in advance in a competitive market.

    Niall Brennan, president of the Health Care Cost Institute, called transparency "a necessary but not sufficient component" of cost reduction. "Consumers are the weakest actors in the health care ecosystem," Brennan said. "Every actor needs to work together to reduce costs."

    For their part, some providers are taking steps to offer pre-service estimates, Meyer reports. Geisinger Health System offers an online estimator for its Geisinger Health Plan. However, the calculator doesn't provide estimates for people outside of the plan.

    Karen Murphy, Geisinger's chief innovation officer, said, "The idea of sharing our pricing structure with patients makes perfect sense." She added, "But will price transparency in and of itself completely bend the cost curve? Probably not" (Meyer, Modern Healthcare, 3/19).

    Advisory Board's take

    Zachary Hafner

    Zachary Hafner, National Partner, Consulting

    If health care product and service suppliers weren't aware that the tide is shifting on this issue, Azar's speech—and his threat of using "powerful incentives" to foster price transparency if needed—should be a wake-up call. Being able to accurately quote prices to consumers may go from being a "nice-to-have" feature to a "need-to-have" business imperative in the near-term for providers, payers, pharmaceutical manufacturers, and other health care suppliers.

    For these stakeholders, who have long operated in a B2B (business-to-business) model with complex pricing and payment structures, the vision Azar has for price transparency becoming the norm would represent more than a policy change. It would be a paradigm shift to a B2C (business-to-consumer) marketplace—in which the consumer has far more information and control over consumption decisions. It's easy to understand why this may make these stakeholders nervous: Today, the prices for health care products and services are negotiated, which means the price changes based on who is buying—a very different model from consumer retail. This makes it difficult to provide straightforward answers about prices in the way Azar suggests.

    What a pricing strategy entails

    Given the Secretary's comments, health care suppliers need to think hard about how to embrace price transparency as a path to winning consumers in a new B2C marketplace. This goes beyond being able to quote prices; it involves re-thinking pricing strategy entirely, beginning with a deep understanding of consumer preferences and shopping behavior.

    The right move won't be to cut prices be lowest cost in a transparent marketplace; that only erodes profitability and—ultimately—sustainability. Instead, a supplier should develop a strategic pricing model that optimizes trade-offs to deliver on key growth, market position, and profitability objectives. This requires a deep understanding of who the customers are and how they perceive value associated with various health care products and services. This calculus includes the price, but also factors such as brand/reputation, accessibility, quality, consistency, service experience, and the like. This kind of thinking is new to health care, although it has been widely used in other industry sectors for quite some time. These insights into customers are knowable, but require some homework.

    At the same time, health care product and service suppliers must also do a better job of owning their narratives—that is, their messaging to the market regarding value proposition and the rationale behind key pricing decisions. By expressing these narratives in ways that matter to the customer and tying them in to broader consumer strategies and initiatives, it becomes possible to structure strategic pricing approaches that support key growth objectives in strong, financially sustainable ways.

    Next, learn how to separate fact from fiction in a price-sensitive market


    Advisory Board research found that a four-hospital system can see swings in revenue of $16M to $40M due to its price transparency strategy—or lack thereof. Download our white paper to separate fact from fiction and help your organization prepare for the rise of consumerism.

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