Becker's Hospital Review

STRATEGY AND INNOVATION 22 Doing More With Less: Strategies for Competing on Price, Quality and Both at the Same Time By Ayla Ellison W ith the shi from fee-for-service medicine, hospi- tals and health systems across the nation are asked to perform a highwire act — to compete on price and improve the quality of care while facing reimbursement cuts. U.S. hospitals have absorbed more than $144 billion of new cuts since 2010, including Medicaid disproportionate share hos- pital cuts under the Middle Class Tax Relief and Job Creation Act, the offset for two-midnight policy included in the final in- patient prospective payment system rule for fiscal year 2014, and MS-DRG coding cuts included in the Medicare Access and CHIP Reauthorization Act, the American Taxpayer Relief Act and CMS regulations, according to the American Hospital Association. Hospitals also face underpayments. Combined underpay- ments to hospitals for both Medicare and Medicaid were $51 billion in 2013, with a shortfall of $37.9 billion and $13.2 billion, respectively, according to the AHA. For Medicare, hospitals re- ceived payment of only 88 cents for every dollar they spent caring for patients in 2013. On top of the cuts and shortfalls, hospitals also face penal- ties under Medicare quality improvement programs, including the Hospital Readmissions Reduction Program, the Value-Based Purchasing Program and the Hospital-Acquired Condition Re- duction Program. e financial strain caused by these cuts and penalties can be significant, and those pressures are amplified when hospitals and health systems undertake initiatives to compete on price, quality or both simultaneously. ere are health systems that are successfully taking on the two, however, achieving this feat is no easy undertaking. The push to compete on price While hospitals look for strategies to lessen the pain of shrinking reimbursement rates, they face another dilemma — naming a price and competing on it. Patients are increasingly involved in their medical care for a number of rea- sons, including the growing popularity of high-deductible health plans. In 2014, about 37 percent of those under age 65 with private health insurance coverage were enrolled in a high-deductible plan with deductibles of at least $1,250 for single coverage and $2,500 for family coverage, according to a report from the National Center for Health Statis- tics. at's up from 34 percent in 2013 and 31 percent in 2012. e growth in high-deductible health plans — along with employers directly contracting with healthcare providers and private insurance exchanges — places downward price pressure on hospitals. ese factors have also caused a major push for more price transparency, which has created several challenges for hospitals. Embracing the challenge One challenge is getting accurate information to patients ear- ly on. Consumers need to know out-of-pocket costs to properly compare. Yet many times patients only have access to a hospital's gross charges, which are inconsequential, according to Kelly Ar- duino, a partner in Wipfli's healthcare practice. "e gross gets adjusted to a contract or negotiated fee that can oen be half the price. Looking at the price of a knee surgery for $10,000 at the hospital vs. $6,500 at an outpatient surgery center would be more comparable if the consumer could under- stand what the out-of-pocket costs would be for each," says Ms. Arduino. e simple solution to this problem is telling patients their out-of-pocket costs up front, but that requires an individual anal- ysis of every patient. e ability to predict and customize the ex- pected cost given a patient's health plan and other complicating medical issues is one of the biggest challenges hospitals face as they try to compete on price, says Ms. Arduino. is is a test that Naperville, Ill.-based Edward-Elmhurst Healthcare Senior Vice President and CFO Vince Pryor took head on. His system equipped patients with firm numbers about their out-of-pocket costs. To do this, Edward-Elmhurst Health- care must delve into each patient's information, including the details of his or her insurance plan. "We've taken on the role of financial counselor," says Mr. Pryor. Although about two to three times more patients are con- tacting Edward-Elmhurst Healthcare this year with questions How are hospitals performing the quintessential highwire act?

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