In a last-ditch attempt to preserve their historic practice of charging whatever the market will bear, almost always after the fact, U.S. hospitals filed a lawsuit against the Trump administration over its proposed Transparency in Coverage rule.
The suit, brought by the American Hospital Association (AHA) trade group, isn’t surprising. Hospitals have long resisted efforts to align their prices with the value of the services they provide. Costs have not been connected to quality, and in a world of secret prices, no one can shop around for more affordable services. In the absence of meaningful data linking price to outcomes that matter, consumers have been forced to rely on marketing reputation and physician referrals.
WASHINGTON, DC – NOVEMBER 15: U.S. President Donald Trump delivers remarks on transparency in health … [+]
With industry consolidation and the acquisition of primary and specialty care practices by those growing healthcare systems, referrals may reflect pressure to keep things ‘in the family’ rather than what’s in the patient’s best interest. To the extent that reputation reflects hard data representing specific outcomes that matter, it’s a perfectly valid and reliable indicator of excellence. Unfortunately, the industry has relied on easier to measure proxies for quality (e.g. number of board-certified physicians in a given field, number of cases performed, etc.) and not quality outcomes themselves.
While the Transparency fight represents only a piece of the value equation — i.e. price — it’s an important component in the equation. In the absence of data to the contrary, the assumption is that all care is equal. So, the only ‘meaningful’ comparison is one based on costs. Thus, CMS’ foray into the price transparency space challenges existing business assumptions in very powerful ways.
The administration’s proposed rule would force hospitals to disclose the rates they’ve negotiated with insurers, bringing the era of “secret prices” to an end. It’s such a fundamental shift, it shouldn’t be a surprise that the AHA is going to extreme lengths to oppose it.
This rule was largely inspired by a plethora of surprise medical billing stories that investigative journalists have brought to Americans’ attention this year. It’s fathomable to believe some federal judge will rule for the hospitals in the short term, but longer term there is no way Congress or the states are going to agree that hospitals have a right to arbitrarily charge patients whatever they want, without first letting them know what those prices are. Ultimately, Congress will see the wisdom of connecting payment to outcomes. Even if they don’t dictate the rules (a good thing), forcing health systems to more broadly report outcomes will accelerate the move to value in very meaningful ways.
It’s natural to resist change, but if change is coming, then it becomes even more rational to start preparing.
The first thing hospitals must do is take a hard look at their cost structures and associated outcomes. In a world where payers, employers and patients are making clear-eyed judgments about which providers to choose, hospitals will find that investing in quality is a winner, while other major expense lines need to shrink and inefficient processes need to be shelved. Hospitals will have to do an audit of their traditional and emerging competitors to see how their prices and outcomes compare. Hospitals that can’t get within at least shouting range of their competitors will have no chance to compete.
Second, they will have to build their case for value. Well beyond setting the lowest possible price, that means providing high-caliber care delivery. Price transparency is the of-the-moment push, to be shortly followed by a push for greater transparency in comparative information about outcomes. CMS has already announced its intent to revamp its hospital star ratings methodology.
To gain payers’ trust and reap its financial dividends, hospitals will have to consider market conditions during price setting. In a provider-dominated market, competition to secure payer contracts will be steep. In this environment, the provider(s) of choice will be the one(s) with the highest-quality care at the lowest-cost. Those that go even further and provide payers and their beneficiaries with an easy-to-understand value story will surely be tomorrow’s winners.
Historically, in a payer-dominated market, providers have been able to get away with more aggressive pricing, so long as it’s been in line with what nearby providers have charged. However, that trend is rapidly being replaced with a new dynamic. Payers, from insurers to employers, are already willing to send their beneficiaries out of town if it means getting a bigger quality bang for their buck, even after factoring in travel costs. Walmart’s centers of excellence program sends employees to Mayo Clinic, and Amazon recently announced it will be sending its employees with cancer to California’s City of Hope.
This gives credence to my next point: While initially catering to payers and employers will be a necessary requirement once transparency becomes a non-negotiable, the next non-negotiable will be adopting a direct-to-consumer model.
Some providers have already had to adopt the consumer-centric approach, like those providing LASIK surgery and cosmetic dermatology. These clinical areas are outside the arena of insurance coverage, so providers have had to compete for patients! Where previously physicians and their hospitals haven’t had to care about cost because someone else – the employer and/or insurance company – was paying the patients’ bill, these procedures have forced providers to structure their reimbursement around the outcomes and associated value that patients value.
This is a fundamentally different way for providers to think about what they do and how – not to mention where, considering the growing popularity of site-neutral payments – they do it. Nevertheless, it’s a mindset shift that providers will need to make.
In the last year, healthcare gained quite a few new faces from tech, and as those innovators dive deeper into this historically entrenched space, hospitals will have to account for these new competitors. They will have to think of patients not just as people with medical conditions only they can fix, but as customers to whom they are selling a product and for whom choices usually exist.
A lawsuit is not a long-term solution, it’s a last-resort tactic the AHA is using to fight a losing battle. A true solution is crafting and executing on a plan like that laid out above — one that presents a viable, much-needed alternative to the way providers currently do business and sets them up for decades of success in the newer, better direction we are moving.