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Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 Sensitivity around profitability isn't likely to change in the years to come, says Mr. Maganti. More cities, counties and states may exert more regulatory scrutiny toward nonprofit hospitals and even implement additional rules for tax-exemption in the face of growing federal deficits, shrinking tax revenues and shaky economic conditions. Such has been the case for healthcare giant University of Pittsburgh Medical Center. Earlier this year, the city of Pittsburgh and Mayor Luke Ravenstahl sued UPMC, claiming the system does not meet the conditions of a purely public charity and contesting the system's exemption from city payroll taxes. It may be an antiquated mindset for the public to chastise nonprofit hospitals for their profitability, as this could hurt their financial sustainability in the long-run and affect access to and quality of care. This is especially true in a time when hospitals are having a harder time staying in the black — Moody's recently issued another negative annual outlook for nonprofit hospitals in 2013, just as it has each year since 2008. Mr. Maganti says "profitability" needs to be integrated into healthcare's vocabulary — but without the negative stigma it carries today. "Hospitals might have hefty goals and aspirations to serve the community at large, but if they don't make enough profits, they cannot replace obsolete and aging infrastructure or equipment or provide new services," he says. "In healthcare we have this 'no margin, no mission' mantra, and I think it is much more true now than before." In healthcare, pricing transparency is no easy task A sandwich at a restaurant with three Michelin stars may cost $16, whereas a sandwich at the nearest fast food eatery would cost $4, but consumers are able to make sense of this price difference. They can look at the names of the places on a website — a fine-dining establishment and a casual chain restaurant — and expect some discrepancy in pricing. The $16 sandwich is justified for the refined dining experience that goes with it, along with the high-quality ingredients and remarkable culinary expertise from the kitchen. Although nearly all restaurants post menu prices, few hospitals are expected to do the same. In healthcare, prices do not necessary reflect the quality of the product or service, either. One hospital may have a higher price to treat a case of lung disease, but that does not necessarily reflect a more satisfactory hospital stay, higherquality care or more proficient medical expertise. This is why, despite a recent influx of information on hospital prices, critics have questioned whether journalists' exposés, CMS' data dumps, lawmakers' mandates and other resources on hospital costs are really helpful. Do these numbers add value to the public's understanding of healthcare costs? An especially pronounced fear is that chargemaster figures will confuse consumers, who may mistakenly believe hospitals are collecting the full price tag amount without factoring in payer reimbursement, charity care and uncompensated care. In February, investigative journalist Steven Brill wrote a 36-page piece for TIME that ultimately asked why hospital bills are so high. The article criticized hospitals' chargemasters, saying prices were not consistent with other hospitals and did not appear to be based on anything objective, such as cost. In May, for the first time ever, CMS released hospital chargemaster data to the public for the 100 most common Medicare inpatient diagnostic-related groups. It did the same in June for outpatient DRGs, providing 2011 data on hospital-specific charges for the 30 most common ambulatory payment classifications under Medicare's outpatient prospective payment system. Lawmakers are on the case for price transparency, too. In June, Arizona Gov. Jan Brewer (R) signed legislation that requires large hospitals to post prices for their 50 most common inpatient and outpatient services. And there are also a few hospitals that aren't waiting for a law to mandate price-sharing. Instead, they are forging ahead and using price transparency as a competitive advantage. Some healthcare experts say hospitals operate in a context that makes pricing less methodized and more difficult to explain to consumers. There are even discrepancies within the healthcare industry, as pricing algorithms differ among settings. Urgent care centers have smaller overhead costs than hospitals, but consumers may not be cognizant of this when they look at data listing only a facility name and price. Hospitals face a significant amount of government regulation, and there are also other idiosyncrasies — such as physicians delivering care in a hospital but not necessarily being employed by the organization, or third-party payers covering a portion of costs — that complicate pricing. Hospitals face a challenge in how they will communicate these variables to consumers and explain differences in one hospital price from another. Within the hospital, financial teams and clinical teams are worlds apart Healthcare is a business at heart, but finances have not been an integral part of medical training. Rather, just the opposite — there is a considerable amount of tension between finance and medicine. Physicians are not trained to consider how much it costs to take care of a patient. This is an oddity compared to other industries, in which finances and operations are explicitly linked. Providers of goods and services are aware of the prices, or at least the price range, for their product, services or labor. 9 Physicians take the Hippocratic Oath upon committing to medicine, promising to practice ethically and do no harm. This principle has been relevant for more than 2,500 years, but an emerging group of physicians and academics are voicing support for an addition to the oath: Do no financial harm. "Finance and clinicians operate mostly in silos," says Mr. Maganti. "Clinicians provide medical care and finance bills for those services and collect from payers." This process worked in the fee-forservice world, but bundled payments, accountable care organizations and other reimbursement models are changing the traditional relationship between healthcare's clinical and financial components. There is less flexibility now. Physicians who provide unlimited care without factoring its cost or reimbursement will ultimately jeopardize the financial success of their organizations. Many physicians may feel conflicted in this new environment, as they are expected to factor cost of care into clinical decision-making, but the bigger picture is much greater. "Healthcare cannot survive if providers deliver unlimited care irrespective of what it costs, because reimbursement will begin to be fixed," says Mr. Maganti. He says a balance needs to be struck between the best care a physician can provide and reimbursement from payers. Like mom and pop shops, independent hospitals are becoming rarities The days of independent bookstores seem to be numbered, and the same could be said for independent community hospitals. Consolidation has a different feel to it for hospitals, due to the personal nature of physician-patient relationships and hospitals' prominence in their communities as employers, and in the case of nonprofits, charitable organizations. Mergers between oil companies, like that of Exxon-Mobil, or radio providers, such as Sirius/XM, are inherently different from those between hospitals. To many consumers, oil and radio waves weren't necessarily localized to begin with. Patients may be more concerned when a hospital that has been in the community for 50-plus years yields its independence and merges under a larger chain, in which decision-makers hundreds of miles away begin to influence hospital operations. But for some independent community hospitals, there is no other choice. Data by Irving Levin & Associates shows that 2012 brought 92 hospital merger or acquisition deals, and more major blockbusters are slated to close by the end of 2013. A few years ago, the typical hospital transaction may have involved a larger system acquiring a single hospital or smaller chains of community hospitals. There is a new brand of hospital merger today, however, as large, established health systems consolidate to form new statewide or regional networks.