If a patient called your practice for a personalized cost estimate, would you be able to provide one?

The need for increased cost transparency is becoming a higher priority for several reasons. The average health plan deductible has increased by about 65 percent over the past 5 years, prompting patients to ask how much they will personally owe for a procedure or service. The Centers for Medicare & Medicaid Services estimates that, over the last decade, consumers’ out-of-pocket medical expenses rose from $146 billion to $249 billion and may reach $441 billion by 2016.

The growth of the health savings accounts, flexible spending accounts, and high-deductible health plans (defined by the Internal Revenue Service as having an annual deductible of $1,200 for individuals or $2,400 for families) is turning more health consumers into savvy shoppers. In some states, legislation now requires physicians and clinics to provide patients with good faith estimates of services to be rendered, a trend that is expected to grow.

But how to deliver this information accurately and efficiently to patients is challenging. If done well, providing cost transparency not only responds to legislative and market forces, but also improves cash flow while fostering a better relationship with patients.

The current state of practices
When asked for price estimates, most medical practices are unable to respond, largely due to the variety and complexity of specific health plan benefits and contracts. As reported in the March 2011 issue of AAOS Now, a “secret shopper” survey found that 11 of 45 orthopaedic practices were unable to provide any type of price estimate for a procedure, and those that did frequently delivered a wide estimate. (See “How do patients see your practice?” AAOS Now, March 2011.)

A recent Government Accountability Office (GAO) report found similar results, with only 11 percent of hospitals being able to provide a tailored price estimate for a hypothetical knee surgery procedure. Results for physician offices in the same study were only slightly better, with 22 percent of practices able to provide a tailored price estimate for a diabetes screening.

Many practices that can provide patients with cost estimates base them on the gross charges for a procedure, akin to a full-price “rack rate” at a hotel. This method accounted for about 30 percent of responses in the GAO report. Although this is a reasonable guestimate of patient responsibility for uninsured patients paying the entire bill out of pocket, it falls short of the insurance- and procedure-specific information patients seek.

Practices that have the most success providing patient liability estimations tend to be those such as a family practice that has a simpler fee structure. The contract management modules built into practice management billing systems can often support these more straightforward visit types, assuming that staff update information as insurance contracts change.

For specialties like orthopaedics, however, determining the patient’s liability requires a significantly more detailed analysis. The tools available to deliver this information precisely and quickly are largely unavailable through existing practice management systems.

New options for providing pricing
New options are emerging, however, including practice management systems that use web-based platforms to deliver a practice’s insurance contracts, prices, and patient benefits to front-line staff so they can provide accurate cost estimates to patients. Whichever method a practice uses, the following three principles are key:

Go beyond the standard price list. For a quote to be useful to patients, it needs to factor in their specific insurance plan.

Support planning for episodes of care. Many services encompass multiple charges and visits; looking at the full episode will benefit the patient’s planning and ability to pay for their expenses.

Keep it simple. Staff members who need access to this information include busy front-line receptionists and nurses, who should be able to retrieve accurate estimates quickly.

Benefits of improved price transparency
Although the key drivers of improved price transparency tend to be market or legislative forces, the benefits of improving practice transparency are measurable and far-reaching. Providing sophisticated answers to pricing questions upfront can create a better customer service experience and contribute to an enhanced community image, improved patient retention, new patient recruitment, and reduced post-service billing collections. In a specialty like orthopaedics, where patients may seek alternatives for a particular service, this capability can differentiate a practice from others in the local market.

A clear process to estimate patient liability can support efficient time-of-service collections. This directly improves the practice’s bottom line by reducing bad debt write-offs and post-service collection efforts. In major metropolitan markets last year, insurance companies increased patient responsibility for bills by more than 10 percent. Based on industry estimates, more than half of all bad debt write-offs originate from patients who are insured, indicating that more bad debts are preventable through point-of-service collections than are often assumed.

An analysis of six healthcare provider groups that implemented patient liability estimation functionality in environments where it did not previously exist found that successful implementation can yield a doubling of collections from patients prior to or on the day of service. This results from the ability to quickly generate precise estimates and thus the confidence to ask for the balance in full at the time of service. The same analysis showed that orthopaedic groups can experience increased income of $10,000 per physician or more annually simply by improving their patient liability estimation capabilities. In such a case the likely return on investment in software would approach 10:1.

Finally, as more patients introduce price discussions into care decisions, physicians who have access to accurate cost data can help facilitate a more complete discussion regarding the array of choices available to patients.

Mike Albainy is a founder of MD Clarity (www.mdclarity.com), a Minneapolis-based company that provides a simple, web-based solution to enable physician practice price transparency.

Thomas J. Grogan, MD, chairs the AAOS Practice Management Committee.