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Price transparency will cause market disruption for physicians, patients and insurers

Blog
Article

The medical payments space will undergo significant change. Here’s what it could mean for health care providers.

hands of medical doctor with money: © Kurhan - stock.adobe.com

© Kurhan - stock.adobe.com

Price transparency is the newest initiative and likely catalyst that will trigger large scale change to the traditional U.S. health care payment process. Where have we come from and where are we going with U.S. health care’s notoriously complex revenue cycle function? To put it simply, most health care providers and patients don’t even know what the doctor should be paid for treating the patient. That may soon change.

Various initiatives that are underway will eventually force a transformation of the U.S. health care revenue cycle process. A convoluted payment system that is fragmented by the existence of numerous insurance organizations, each with their own unique rules and reimbursement rates, has resulted in a challenging environment that is not sustainable in the long run. Despite paying more than double what other countries pay for health care, Americans suffer from considerably worse health outcomes, and have no guarantee of access or service. The Iron Triangle of American health care is collapsing, as patients increasingly struggle to access care that is ultimately both expensive and less effective.

Meade Monger
© CenturyGoal

Meade Monger
© CenturyGoal

The traditional fee-for-service (FFS) payment model causes far too much administrative burnout for clinicians, and FFS reimbursement rates are not keeping pace with inflationary trends such as escalating staffing and supply chain costs that are pushing health systems to make a move to alternative payment models. Clinician burnout rates are at all-time highs, margins are tightening for health care providers, and there are increasingly higher cost sharing for patients. All this has led to initiatives underway such as value-based care (VBC) that come with new payment models. But these efforts have not resulted in much change or improvements.

Price transparency, an increasingly popular policy solution, seems poised to cause disruption.

Price transparency regulations generally require hospitals and insurers to publicly post the cost of various services. The theory behind the policy is that by freely making the prices for care available in advance of treatment, patients can choose for themselves the best provider, and in doing so, force the free market to rein in what have become exorbitant health care costs.

Despite federal regulations being enacted in 2021 that require hospitals to publicly post their charges for various services plus health insurers having to do the same not long after that, compliance and standardization of data have been spotty. But a handful of states have passed their own versions, while more strict legislation around price transparency is gaining momentum in Washington, D.C.

Certainly, the benefits of price transparency to patients are obvious. Interacting with the U.S. health care system can be “black box”, and patients are rarely – if ever – aware of how much a single doctor’s visit will cost them. An emergency room visit with just minutes of doctor facetime can end up costing thousands of dollars.

But behind this variance is actually a complex series of negotiations happening between providers and insurers. Insurers agree to different rates with different doctors for thousands of different patient treatment procedures, explaining how a broken arm can cost patients thousands of dollars more based on which doctor they see.

It’s a nightmarish headache for doctors that’s causing burnout and frustration — not to mention costing billions of dollars in overhead. The U.S. spends more than $4 trillion every year on health care, and a full $1 trillion of that goes towards health care administration costs. The claims process for doctors is incredibly difficult, with shockingly high payment denial rates. According to recent studies, for every bill a doctor submits, they only get paid 88% of the time.

Many health care providers don’t even realize the amount that they are underpaid because of the opaque system they’re forced to operate in, taking what they can get from health insurance payers. It has been a struggle for health care providers to stay on top of what they should be paid for their services in comparison to what they actually do get paid. But emerging data and tools in the price transparency era will change that.

With price transparency, both providers and patients can negotiate the system with more confidence and more information. Health care providers will see where they are underpaid compared to their peers and will push for higher prices. Patients are now having to share more of the payments and will start to see the costs in advance of treatment through price transparency, which will cause them to be more selective, disrupting the traditional system.

Quality of care is also becoming more transparent, as doctor review websites grow in popularity, and officially assigned ratings (like Star Ratings from the U.S. Centers for Medicare & Medicaid Services) provide insight into things like mortality, safety of care, and readmission rates.

It seems likely we’ll see insurers more aggressively promote value-based care and capitation models and alternative payment systems as they seek to reduce potential cost liabilities in the face of increased scrutiny. In value-based care systems, doctors are incentivized based on the quality of care they provide. Instead of rewarding doctors for treating the sick – as exists in the current fee-based system – doctors are rewarded for keeping patients out of emergency rooms. Patients have improved access to their primary care provider, who is looking to treat smaller maladies in the hopes of preventing more catastrophic illnesses down the line. For insurers, value-based care keeps costs lower, while providers are able to work in a more efficient system.

The more rapid shift from FFS to VBC, more price transparency, and increased patient cost sharing are all driving towards a reform of the U.S. health care business environment that will include much more consumer involvement, with a Yelp-like ratings system that creates unprecedented visibility and increases consumer savviness. Ultimately, payment models will adjust to foster financial stability and minimize administrative burnout.

The survivors of the new health care market environment will be those health care providers that understand their costs of care and payment terms that will be necessary under VBC-based payment models that will cover their costs. These providers will be joined by new market entrants that come on the scene with more efficient high-quality operating models.

With price transparency, the market is set to be disrupted. Qualitative care is coming.

Meade Monger is the founder and CEO of Century Goal, a dynamic company that combines operations technology accounting and economic analysis to improve healthcare operations and financial performance.

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