Sparrow Health’s process for analyzing and setting service line pricing helps the health system remain competitive and boosts transparency with patients.

In mid-2014, Sparrow Health System started taking a closer look at its pricing for certain service lines. The hospital wanted to ensure it was competitive versus other market players. Plus, it wanted to be more open with patients about the costs of different procedures.

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“As patient payment responsibility grows, individuals are becoming more savvy consumers, shopping around for services like radiology, laboratory, and outpatient rehabilitation,” says Frank Kania, manager, revenue integrity for Sparrow Health System in Lansing, Mich. “We started seeing an increasing number of patient calls for pricing information, and we realized we needed to not only be more transparent but also double check that we were in line with our competitors.”

More Privately Insured Adults Have Deductibles, and They Have Grown in Size
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Leveraging Technology to Make an Informed Decision

To get a sense of the competitive market, Sparrow Health began using a software tool to compare prices on seven different service lines—emergency department; radiology; endoscopy; laboratory; and physical, occupational, and speech therapy. The tool uses the most recent MedPar data, offering direct comparisons by CPT code for nearby hospitals.

“While there is only one other hospital in our immediate service area, it is not unusual for patients to seek treatment in some of the larger, neighboring cities—Grand Rapids, for example—so we make sure we analyze prices across a wide geographic range,” says Kania. “We review specific CPT codes on a regular basis—especially if we start experiencing an uptick in patient calls about those particular services. We confirm our prices are comparable, and if they are not, we consider adjusting them accordingly.”

Weighing the Ramifications

Before committing to a price adjustment, Kania and other revenue cycle leaders double check that there won’t be any negative effects as a result of the change. “Nearly 90 percent of our reimbursement is fixed fee, so in most cases making a price adjustment does not alter our net revenue,” says Kania. “We strive to make price adjustments revenue neutral. In some markets, a hospital may have to lower prices in spite of net revenue impact. If we were in that situation, we would fully quantify the downstream implications, and senior leadership would then decide whether to lower prices in spite of potential consequences.”

Related Sidebar: 10 Steps for Healthcare Service Pricing Review

Being More Open with Patients

As mentioned before, Sparrow Health wanted to increase price transparency with patients. To this end, the hospital began posting pricing data on its website, sharing information on Sparrow’s standard charges before insurance contract discounts, Medicare/Medicaid payment, average commercial payment, and average uninsured payment.

“This way people can clearly see what we would charge for a particular service versus what we actually get paid from private and public insurers as well as from those individuals without insurance,” comments Kania. “Our goal is to create an understanding with patients that our prices are not actually what we get paid, helping illustrate the narrow margins in which we operate. Plus, by disclosing this detail, we allow patients to do some cost comparisons and also estimate their out-of-pocket responsibilities for certain services.”

Related Sidebar: Don’t Forget the Fine Print

Since Sparrow Health started reviewing and posting its prices more frequently, the organization has received fewer telephone inquiries from patients. “This is helpful, because now staff don’t have to rush around trying to pull together appropriate and accurate pricing information, which can be time consuming and disruptive to their other work,” says Kania. “Everything on the website is current, so even if staff receive a call asking for pricing, they can refer individuals to the website and walk them through the details over the phone. Not only has this reduced staff work in generating estimates, it has helped us provide better customer service because we can point patients to consistent answers more quickly.”

No Longer Optional

While some organizations have been hesitant to delve too much into pricing reviews, having a proactive approach is the wave of the future. “If you are not doing this yet, you should be because the market is only going to become more competitive and patients more savvy,” says Kania. “Having a process in place for systematically reviewing prices for key service lines, making pricing decisions, and posting information on the website is essential to ensure you remain nimble during this time of intense market change.”

Additional Resources

Improving Price Transparency

Best Practices for Patient Financial Communications

Kathleen B. Vega is a freelance healthcare writer and editor who contributes regularly to HFMA Forums.

Interviewed for this article: Frank Kania is manager, revenue integrity, Sparrow Health System, Lansing, Mich., and is a member of HFMA’s Eastern Michigan Chapter.

Publication Date: Tuesday, December 01, 2015