Over the past few years, various transparency laws* have gone into effect that require hospitals and payers across the healthcare system to post their negotiated commercial prices, all as part of a larger effort to make medical costs less opaque. This long-awaited legislation is a historic step toward putting healthcare pricing in the hands of the consumer so they might make better-informed decisions in advance of care being provided.
Notably, these legislative advancements have triggered market opportunities for cost transparency and opened the door for the creation and development of new market solutions which support the consumer, which includes employers group health plans.
One such opportunity enables healthcare providers to evaluate their market share and, empowered with fact-based data, negotiate competitive pricing from a position of strength.
Another, as a result of innovation, lies in the development of real-time, personalized, cost-sharing tools with supporting data analytics. In aggregate, these developments in healthcare pricing, further underscored by employers’ additional ERISA healthcare fiduciary responsibilities, should bring a much-needed degree of cost and quality accountability and promote competition in the healthcare market.
How Health Systems Can Benefit
Health systems that embrace this transparency expansion can benefit by gaining insights into the actual commercial unit cost for medical procedures and services within and across any hospital in the United States. This data equips systems to identify their competitive market position while reducing expenses through pricing outliers, waste, inefficiency, unnecessarily high expenses and revenue leakage across their operations. Applying this strategically ensures that high-value systems can not only set competitive rates against their peers but also showcase their superb outcomes, quality scoring and lower costs to increase market share.
Unfortunately, access to transparency data alone is not actionable. These disparate data sources need to be aggregated, synthesized, and analyzed to validate and clarify pricing. This is because the hospital/payer machine-readable files are filled with gaps that prevent the emergence of intelligible insights. To fill these gaps, innovative tools need to utilize multiple sources of data to provide actionable value.
With these tools in hand, industry-wide value will present itself in four specific ways:
- First time insights into a previously unavailable commercial pricing structure.
- The involvement of innovative data analytics to bring those insights to action through ease-of-use management tools.
- The utilization of this data to effectively negotiate better contract pricing.
- The passing of price reductions to consumers without compromising the quality of care.
Healthcare transparency tools will also help identify internal operational inefficiencies by benchmarking departments and facilities against top-performing peers. Although integrating a new data set may at first seem cumbersome in an already complex system, this peer-level data can be used to identify causes of leakage and areas where expenses can be reduced anywhere from the individual facility level to the entire system. This can lead to better revenue cycle management and identifying other missed revenue opportunities. By addressing these and other internal shortcomings through benchmarking analysis in real-time, hospitals can increase overall efficiency without sacrificing patient care.
Employers are Taking Advantage
Health systems should recognize that they are not the only early adopters of these transparency tools. Employers are also taking advantage of the ability to identify variance in negotiated rates, billed charges, and allowed amounts between the hospitals and payers. Consequently, as greater insights emerge from these complex data sets, employers are responding proportionately with plan and network design changes.
One such employer is early adopter 32BJ, who identified and eliminated a high-priced hospital from their network. 32BJ were able to share the savings with their members and comprehensively address why they made the change. As there is growing, vocal, public support for transparency, such an action represents a shot across the bow for providers of overpriced, low-quality care.
New Fiduciary Obligations for Provider-Sponsored Health Plans
One of the new transparency laws, the Consolidated Appropriations Act of 2021 (CAA), imposes broader ERISA fiduciary responsibilities on employers. As health systems serve a dual role as care provider and employer, taking a data-driven approach to the CAA enables them to better meet their fiduciary duties to their own employee population.
ERISA, augmented under the CAA, mandates employer plan sponsors to adopt fiduciary oversight of their healthcare/health plan determination and selection process for their group health plans. This is much like existing 401(k) governance, which is decades ahead of healthcare and as a result provides some insightful consideration to developing an evaluation process into the future. To name a few additional items, consider:
- The establishment of a committee.
- The development of a value policy statement.
- Validation of network discounts and other cost-efficient criteria.
- Evaluation of high-quality providers within the network selected.
- Adherence to the new Mental Health Parity and Addiction Equity Act.
To comply, fiduciaries (which generally includes employers as plan sponsors) must implement oversight procedures and governance processes to demonstrate diligent efforts.
Other responsibilities already defined under ERISA include acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them, carrying out those duties with prudence, following the plan documents (unless inconsistent with ERISA), holding plan assets (if the plan has any) in trust, and paying only reasonable plan expenses.
Because the CAA compels health plan sponsors to assess the cost-effectiveness and quality of purchased services to inform procurement decisions, utilizing transparency tools can enable a rigorous analysis of service provider data to identify unreasonable charges and to benchmark costs against competitors. That, in turn, helps the employer plan sponsor comply with their ERISA fiduciary responsibilities.
Because this data analysis gap represents the most significant vulnerability for health plan fiduciaries, there is a tremendous value for early adopters of these tools.
The Competitive Edge
With price transparency tools, health systems can independently validate quantitative and qualitative data for medical procedures and services against a comprehensive competitor database, then identify inflated pricing compared to peers and negotiate fair rates. With benchmarking analytics, systems can continuously improve operations and financial performance. Ultimately, pricing transparency gives health systems the insights needed to thrive on their own merits in this new era. By acting now, progressive systems can gain an unbeatable competitive edge and get ahead of the healthcare transparency curve as it becomes the industry norm, facilitating a potential increase in patient volume, market share and revenue.
Click here to learn more about pricing transparency and how NFP’s proprietary healthcare price transparency tool, TPCompare, can help your team.
Written by Heidi Cottle, SVP, Cost Containment Strategies, NFP
*Transparency in Coverage (TiC); Hospitals Transparency Act; Consolidated Appropriations Act (CAA); Public Health Service Act.