Price-sensitive patients are increasingly demanding information about the cost of services. As a result, they often opt for the lowest cost provider. And even when patients do receive services at higher costs, actual payment of obligations isn't guaranteed.
To avoid volumes and collections losses, pinpoint the services for which patients are most price-sensitive and unwilling to pay in full—then, respond to this new patient-consumer. In this white paper, we discuss tactics to maximize collections and protect your margins.
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The era of price transparency has arrived for hospitals and health systems; patients are increasingly showing signs of price sensitivity, demanding information about the cost of services and as a result, often opting for the lowest cost provider. Even in cases where patients receive services at a higher cost, actual payment rates of obligations vary.
To prevent volumes and collections losses in this price-sensitive era, providers must identify first, which services patients are most likely to shop around for; and second, how to respond to this new patient-consumer to maximize revenue capture.
This publication begins with a discussion on the current market before pinpointing the services for which patients are most price-sensitive and unwilling to pay in full. The concluding section offers tactics for smoothing financial transactions with patients to maximize the collection of obligations and protect provider margins.
Narrowing the focus on price-sensitive services
Strategies to retain price-sensitive patients
With the market for health care price transparency products an estimated $1.6B in 2014, patients clearly value knowledge on the price of services. Coupled with the release of hospital and physician charge data from CMS and a growing amount of legislation from states mandating quotes on request, it is apparent that the era of patient consumerism has arrived.
What do consumers want from primary care?
In some cases, patients are even indicating that price surpasses other factors when selecting a provider. Recent survey results show 55% of insured patients report paying more attention to their health care costs and 34% of patients believe keeping out-of-pocket insurance costs down is more important than retaining their doctors. With one-third of patients willing to entertain other options to reduce health care spending, our challenge is not whether to respond to these forces, but how to attract price-sensitive patients and thrive in a new era of transparency.
Three fundamental forces encouraging price sensitivity
Shifts in coverage are providing patients greater motivation to shop for lower prices, either through direct steerage programs where payers offer financial incentives for choosing the lower-cost provider, or through benefit plan designs that warrant price shopping. Since 2009, average deductibles for both in- and out-of-network services have more than doubled, a phenomenon experienced at even greater magnitude on public and private health insurance exchanges.
The importance of cost when selecting a provider grows significantly as patients assume more financial responsibility for their care. Patients who have high out-of-pocket maximums or are weighing the options of paying cash prices for care within their deductibles are more likely to request prices when searching for care. As shown in the graph below, patients with consumer-directed health plans (those with deductibles higher than $1,000 and health savings accounts) and high-deductible health plans (coverage with deductibles over $1,000 and no supplementary plan), are more likely to be concerned about costs than patients covered by traditional insurance.
Employers continue to empower their employees to make cost-conscious decisions in a variety of ways: investing in technology that provides pricing information and negotiating bundled payments with providers for certain procedures. We’ve also seen companies embracing reference pricing, which makes employees responsible for the cost of a procedure above a certain threshold.
The California Public Employees’ Retirement System instituted reference pricing in January 2011 and found significant shifts in market share and price reductions by high-price hospitals. As the graphics below display, market share for knee and hip replacement surgery shifted significantly to low-price hospitals, while high-price hospitals reduced prices to meet reference pricing goals.
In early May 2014, the Obama administration approved the use of reference pricing for payers too, including the caveat that any use must continue to provide patients with "meaningful access to medically appropriate, quality care." As final regulations are released, we expect reference pricing to become more common and as a result, for patients to question the value of procedures that exceed set thresholds.
Finally, a slowly economic recovering continues to present challenges to patients as they choose where to spend their money. While personal health spending is growing at a record pace in 2014, patients likely to be most price-sensitive are still weighing the option of forgoing care.
Expenditures for patients under 35 grew at a slower rate than any other age group in 2013, and cost continues to deter patients from seeking recommended care, with 33% of patients reporting using home remedies instead of seeking medical attention and 15% forgoing care when sick or injured because of cost. Providers need to win these patients not only based on affordability, but also based on the value that care offers over doing nothing.
Given these forces, two questions for providers emerge:
- Which services are patients most likely to compare prices and shop around for based on price?
- How does the strategy for attracting price-sensitive patients differ based upon the revenue opportunity from attracting price-sensitive patients in each service line?
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