The CMS January 1 deadline has passed and price transparency is here to stay. Now is the time for hospital leaders to ask what’s next and start adapting to an environment where patients are making their decisions like consumers. This means it’s time to give financial management tools to understand profitability and margin insight into the costs of the choices that patients are making.
As an example, let’s take what’s happening in California, where a rise in COVID cases has shut down elective surgeries again. Once it’s time to ramp operations back up and patients begin choosing between one hospital and another based on price, hospitals will need to decide which service lines to invest in and expand as they find their way back to sustainable financial positions. Hospital health will depend on choices like identifying loss leaders and comparing individual physician profitability for elements like supply use and average length of stay.
Here’s an example of what that can look like in a decision support tool.
Reports like this allow hospital leadership to look at costs to build insights into profitability — informing the post-price transparency decisions that support long-term financial health.
Post-price transparency decision-making requires a new way of looking at things and that new perspective starts with sophisticated cost accounting. This is because it’s impossible to keep up in a competitive, business-oriented way without granular insight into your costs, identifying cost drivers, and building solid technical estimates.
Without sophisticated cost accounting (the kind built on reliable data), hospitals won’t be able to keep up in the competitive world that comes after price transparency becomes a norm.
The Growing Importance of Cost Accounting for Hospitals
When was the last time your cost accounting practices had a good review? The kind that answers critical questions such as:
- Can we accurately describe our approach to cost accounting and how it informs our response to patient price-comparison habits?
- Is our approach sophisticated enough to support the changes that will come as pricing weighs more heavily in patient decision-making?
- Can it easily evolve to meet our needs in the future as patient expectations, government requirements, and competition increases?
- Is our cost accounting built on reliable data?
Many hospitals can’t answer these questions in a positive way and that’s ok. The journey to applying effective cost accounting methodologies is a process, and one that’s gotten attention in healthcare for quite a few years now.
Take, for example, this 2016 manuscript published in the Journal of Health Care Finance. It discusses literature on the costs and benefits of different cost accounting methods, suggesting that, at the time, hospitals hadn’t widely adopted sophisticated methods because 1) the cost to do so was too high and 2) the benefits were low.
But things have changed. Cost accounting methods are much more easily accessible thanks to advances in hospital decision support, with flexible alternatives available even for hospitals that are just stepping into the practice. What’s possibly most interesting about the manuscript though, is that 5 years ago, it made a prediction…
“…changes in insurance benefit design are creating incentives for patients to compare hospital prices. If these changes continue, hospitals’ patient volumes and revenues may increasingly be dictated by the decisions of individual patients shopping for low-cost services and as a result, providers could see increasing pressure to set prices at levels that reflect the costs of providing care.”
Today, in 2021, this prediction has come true.
CMS Is Pushing Patients to Push You
Much of that shift comes thanks to CMS.
While patients are facing increased pressure from rising out-of-pocket costs, CMS is actively encouraging their evolution — evolution into healthcare consumers who reward transparent pricing with their business. This is most apparent on the Consumer-focused Hospital Transparency page. Take a look at how it sets expectations.
“We believe consumers should be able to know, long before they open a medical bill, roughly how much a hospital will charge for items and services it provides.”
“Learn before receiving care what the potential hospital charges for your care will be. You can also review Care Compare to see the information about the quality of care at over 4,000 Medicare-certified hospitals.”
“When hospitals share their prices online, consumers are given the power of price comparison. Use this information to shop for the hospital that works best for you.”
The January 1 deadline was just the beginning. (CMS is auditing hospitals as we speak.) Price transparency is a new standard in your relationship with your patients.
What if Our Cost Accounting Isn’t Up to Speed?
If you’re meeting the bare minimum CMS requirements, in the short term, you’ll likely be fine. The issue is down the road, when the need arises to push the most profitable services lines to the front or potentially scale back loss leaders. Will your leadership be able to move forward with confidence, focusing in on your most profitable lines, or will they be left navigating an outdated status quo where decisions are made based on market share and volume?
We’ve been in healthcare since before EHRs were common, so we know what it’s like to help you navigate waves of healthcare change. You can learn more about our most advanced cost accounting here, and our cost accounting solution for community hospitals here.
And if you’d like to see how any of it can fit into your post-price transparency plans, set up a personalized demo today.