FINANCE: A Texas hospital lowers its prices and raises the level of debate
Texas hospital lowers prices, raises level of debate
Hospitals’ glacier-like movement toward joining the rest of the business world in actually telling customers how much they’ll have to pay for their services may have reached a milestone this past April in a small town in southeast Texas.
Cleveland (Texas) Regional Medical Center, which is about 40 miles north of Houston, took the unusual step of announcing in a news release that it had reduced costs for a large number of its services by 15% and was passing those savings along to its self-pay patients. The hospital announced it was cutting prices for the following divisions: cardiopulmonary, dietary, emergency and trauma, intensive care, labor and delivery, medical and surgical, obstetrics, operating room/ post anesthesia and respiratory. Fees associated with medical supplies also were cut.
Despite those changes, 55-bed Cleveland Regional, like most hospitals, is still far from what would be called a price-transparent operation. Cleveland Regional doesn’t have a price list it can give to patients or offer that information on its website. But the mere act of acknowledging their prices to the public and sharply reducing them as well are unusual steps, according to industry executives contacted for this story.
“I have never heard of anyone doing this,” say Les Stern, president of healthcare marketing consulting firm L. Stern and Associates, Northbrook, Ill., in reference to the hospital’s promotion of its price cuts. “Pricing just never really makes it into the conversation.”
Similarly, the depth of the cuts are considered to be noteworthy. “Large scale ... decreases, we haven’t really seen it,” says Jamie Cleverley, principal with Cleverley & Associates, a Worthington, Ohio-based hospital financial consulting firm.
But Cleveland Regional executives aren’t trying to change the world or turn the industry on its ear. “I don’t think anything we’re doing anything is revolutionary,” says Patrick Ayers, president of Cleveland Regional’s for-profit parent, New Directions Health Systems. “Every time you turn on the TV you hear about someone lowering their prices,” he says in reference to consumer goods and services other than healthcare.
The goal was to help out its self-pay patients and to perhaps collect a little more from those patients, who as a group typically don’t pay their hospital bills in full, Ayers says. He says that the industry in general has a less-than-positive attitude toward self-pay patients, and though he understands why that’s the case, he disagrees with it.
Inside the industry, self-pay patients are sometimes derogatorily referred to as no-pay patients, which is unfair, he says. Self-pay patients often are handed a huge bill and they’re overwhelmed, Ayers says. “These are real people facing health issues,” and the price cuts might help ease their burden while making it more likely they will pay a bigger share of their bills, he says. “We lowered the prices 15%. That is not going to make a huge difference, but it’s a start.”
Ayers says the idea to cut prices came from the hospital’s business staff and was an internally focused collaborative effort. Nonetheless, the change makes Cleveland Regional a part of two broader trends: the move to provide more disclosure about patients’ out-of-pocket costs, and efforts to give self-pay, uninsured patients a better deal than they have received historically.
The heightened transparency from providers is coming in part because of the growth of highdeductible health plans in which patients pay most, if not all, of the upfront costs of care until they meet a substantial deductible. That growth is producing increased price sensitivity for certain types of care, more so for non-acute-care services, says Dr. Andrew Ziskind, managing director with Huron Consulting Group. Diagnostic imaging is an area where price sensitivity is becoming more prominent, but for acute inpatient care it’s still rare, Ziskind says.
That doesn’t mean consumers don’t want the information, based on a poll conducted this year by what is now Truven Health Analytics and National Public Radio. The poll of about 3,000 Americans, conducted in the first two weeks of April, showed that 16.2% of respondents or respondent household members sought out pricing information before receiving healthcare services, up from 10.9% in a similar poll conducted in 2010.
“It appears as if there is a remarkable uptick in the role that price is playing in the decision-making process,” says Dr. Raymond Fabius, chief medical officer for Truven Health. Fabius says there are multiple drivers of this trend, including the greater availability of pricing information on the Internet and from health insurers.
The steady rise in consumer prices—espe-
cially for healthcare services, which typically outpace general inflation—is giving patients plenty of reason to become more price-conscious. Consumer healthcare prices, as measured by the Consumer Price Index, are 3.3% higher in the first seven months of this year.
For elective care, it does make sense to shop around, Fabius says. “We believe that transparency is one of the solutions to our healthcare crisis,” he says.
Hospitals, meanwhile, are working hard to cut expenses in anticipation of slower growth in reimbursement, tied in part to the elements of the Patient Protection and Affordable Care Act, but also because of the industry shift toward providing value-based care. And there are areas in a hospital’s operations that often create significant opportunities to cut costs, says Will King, senior adviser for HFS Consultants. Hospitals often can save money through more efficient staffing practices, and some pay too little attention to insurer contract negotiations, he says. Nevertheless, “a 15% reduction is a lot,” King says.
Ayers says it was a lot of little things that Cleveland Regional did to achieve the savings, such as institute a telemedicine program and convert to all-private rooms. Ayers says that patients had been turned off by Cleveland Regional’s room configuration in that many had two beds even though those beds were rarely used. They are reassured by the knowledge that they won’t be sharing the room with another patient, he says.
Ayers notes that the hospital was not trying to undercut the competition, because there are no other hospitals within a 30-mile radius, he says.
When New Directions purchased the hospital from for-profit Community Health Systems for $900,000 in October 2011, it was losing about $11 million a year. Now the hospital is about breaking even, Ayers says, and that’s without having to lay off staff, he adds.
Patients at Cleveland Regional are likely to appreciate the hospital passing along the savings, says Chad Mulvany, technical director of the Healthcare Financial Management Association’s healthcare financial practices team for regulatory and reimbursement issues. There likely will be little benefit in its reporting of community benefits to the Internal Revenue service, though the price-cutting can engender a lot of goodwill in the community, he says.
“I suspect we’re going to see a lot more of it,” Mulvany says.
The HFMA has been a backer of improved patient billing through its Patient-Friendly Billing project, and many hospitals have adjusted their rates for the uninsured and selfpay patients to levels that are more comparable to what Medicare or commercial insurers pay.
Cleveland Regional touted its price cut in a news release but that was the extent of its promotions, according to Ayers. While the announcement didn’t get a lot of media attention, Ayers says there was a positive response from the community.
Marketing expert Stern says that actually marketing the price cut to consumers would have been a bad idea, because raising the issue of pricing threatens to turn healthcare into a commodity. Hospitals are better off promoting their services and quality, he says.
But Ayers says he disagrees with the suggestion that healthcare cannot be considered a commodity.
“This is about trying to make life a little easier” for uninsured patients, he says. “People with health insurance have the luxury of not thinking of healthcare as a commodity.”
Cleveland (Texas) Regional has cut prices for self-pay patients by 15%. “That is not going to make a huge difference, but it’s a start,” says Patrick Ayers, president of the hospital’s parent company.