Neither a hard-earned reputation nor brand equity purchased with expensive advertising are enough to maintain consumer trust. Increasingly, for nonemergent care, consumers want to know how much a procedure will cost, and they want to compare providers' quality, safety and outcomes records. They want transparency, with essential information provided in a way that facilitates comparison shopping.

The challenges posed by the growing demand for transparency will require advance planning, new investments and new ways of conducting the business side of patient care.

Shoppers Demand Data

Although the ability to compare prices and outcomes is somewhat limited today, don't be fooled: Your data are already out there. Consumers can access key data points through HospitalCompare and HealthGrades, insurance companies' cost estimators, and apps like UnitedHealth's Health4Me. Castlight Health offers cost and quality information to self-insured employers so employees can make informed decisions about treatment options. Additionally, 14 states have passed transparency laws that will require individual hospitals to publish prices for common procedures. There also are all-payer claims databases, such as the one created by the state of Colorado, that are aimed at providing guidance to patients about the costs for common treatments in a way that encourages comparison among provider facilities.

The focus on transparency springs from the convergence of trends toward shifting the burden of costs and expanding the ability of consumers to make health care decisions. Three factors have driven these trends.

1. Plan designs expose consumers to more cost. Since consumer-directed, high-deductible plans first were introduced a decade ago, acceptance of high deductibles, health savings accounts and reference pricing have placed cost and outcomes considerations more squarely onto the shoulders of consumers. The number of HSAs grew from 1.3 million in 2006 to 11.8 million in 2013, according to the Employee Benefit Research Institute, and 18 percent of covered workers have a deductible of $3,000 or more, according to a survey by the Kaiser Family Foundation and the American Hospital Association's Health Research & Educational Trust. With ever-greater exposure to first-dollar costs, out-of-pocket expenses are hitting consumers in the wallet.

2. Better technology and tools. As more health care data are created, stored and shared in electronic form, websites and apps that share price, quality and other data have grown. However, data on outcomes are still lacking in most cases.

3. Pay-for-performance contracting. The Centers for Medicare & Medicaid Services has already announced 2014 and expected 2015 revenue penalties of up to 3 percent for thousands of facilities with poor performance. Health Affairs in October reported that there are more than 40 similar private-sector programs currently underway; these programs have been termed value-based, alternative quality, performance-based or value-based cost programs.

The hospital board should receive updates on how the organization is responding to these trends. These questions can help the board to avoid surprises and ascertain how its hospital or system is perceived.

  • Are the data about us easily accessible, understandable and fair?
  • Which tool or source do we recommend to patients?
  • Are there additional data, such as health outcomes, that we need to track and communicate ourselves?
  • Who in the organization is responsible for our approach to social media, and how are we managing reviews and ratings?
  • What cost data are available? How are consumers reacting to it?
  • For which procedures does our organization's quality appear worse, about the same or better?
  • For procedures in which our organization appears more expensive, are our quality data better, and are they displayed alongside the cost figures?
  • Which procedures or services are the most expensive and why?
  • Do we need to restructure internal costing or reimbursement to make comparisons on cost fairer and more balanced?

Transformative Impact

Hospitals and systems will need to have fundamental systems, processes and tools in place to compete. Importantly, we believe consumers are going to evaluate value, meaning the health outcomes they can expect for the cost of a given procedure or service, and comparison shop.

The tool set starts with cost accounting. Most hospitals and systems have set prices based in large part on the legacy of incremental changes to their chargemaster, not an accounting of the direct costs associated with procedures or even service lines. So, boards should encourage organizational leaders to invest in cost accounting, which tracks, analyzes and allocates cost to each service provided to a patient. Those who have been through the process say that it is similar to the conversion from paper records to electronic systems in terms of staff time and capital required.

Cost accounting opens the door to other questions. Once direct costs are accounted for, how will the organization account for and allocate indirect costs like administrative overhead, supplies or IT infrastructure — by number of patients served, by revenue generated or by usage of shared services? In facilities that are new to cost-accounting, cost centers and organizational charts often have to be reorganized along more rational lines.
 
Evidence-based care paths will be required. Managing variation in cost and quality is highly dependent on adherence to evidence-based medicine, being able to predict with as much certainty as medically possible exactly what treatments, services and drugs will be required for any given procedure as well as the outcomes.

Put price tags on episodes of care. Providers will need the ability to capture all direct costs associated with an episode of care, such as a bundled price or high-low ranges based on historical averages.

The communications skills of facility leaders will be tested. As providers adapt to the changing demands of transparency, both internal and external communication will become even more important. How will the executive team justify the costs of facility overhead? Will such disclosures internally result in division or acknowledgement? Likewise, how will the facility's leaders explain pricing to patients, families or the media?

Six Next Steps

To support cost and quality transparency, hospitals and systems should consider these six areas for investment and constant improvement.

1. Ensure that internal systems can provide robust data reporting and analytics. Hospitals have to strengthen data reporting and analytics by leaps and bounds to provide data efficiently for dozens of metrics to multiple requesting organizations. Importantly, there will be an advantage for those facilities whose systems can accommodate multiple calculation methodologies. It could be as simple as linking outcomes to cost for a specific procedure or service as a starting point. \

2. Adopt bundled pricing. Consumers seeking comparative cost and quality data for a specific procedure likely will favor comparison-shopping tools and facilities that simplify a procedure to a single price for a clear set of services and outcomes. Bundled pricing, at least for common procedures, is the only way to compare multiple facilities. These same dynamics will force acute care facilities to pay more attention to the treatment that takes place beyond discharge, as both bundled and reference pricing typically address the total cost of a procedure, including typical post-acute care like rehabilitation services

3. Start focusing on outcome measures. Hospitals will have to be able to generate both process and outcome measures. Many acute care facilities currently track process measures more than they measure outcomes. These are crucial for managing all the details of care protocols, but what patients value pertains to the recovery they experienced and the quality of life they received as a result of treatment. Leaders of acute care organizations will need to broaden their view of where their care ends.

4. Build internal capability to diagnose and remediate process and outcome issues. Cost-management is never done. Obviously, access to internal data is a prerequisite to remediation but, currently, many organizations seem to be operating as though data access is the end goal. After access, organizations need to build in capability using data to understand drivers of cost and quality variances. Beyond that objective, delivery organizations need to develop clear processes for turning diagnostic conclusions into action. In short, they need to become better at implementing change.

5. Start with what you do best, but don't ignore the rest. Hospitals have to start somewhere, so it is likely that successful organizations will start reporting performance for the procedures or service areas in which they perform well. Organizations that can demonstrate their positive performance with solid data across the broad range of procedures and services will have a clear advantage.

6. Assess implications for infrastructure development. Transparency in health care adds new emphasis to the term accountable care. It will elevate the importance of the chief quality officer. It will also put a premium on the ability of delivery organizations to translate data into information, and information into remedial action in a timely way. That has implications for new capabilities and organizational infrastructure that health care delivery generally has lacked. As it evolves, transparency will stimulate more improvement in the quality of care than all the "best hospital" awards ever given.

Trust and Trustees

Trustees' role in transparency is no different from their role in other issues. They guide executives toward overall organizational performance and success, help to sustain public and partner trust during major changes to facility operations and policies, and ensure commitment to the facility's mission and sustainability.

To do so, boards must ensure that they obtain all relevant facts about the organization's performance and not specially selected nuggets of success. Trustees should review the data being collected by public agencies for later release. At a minimum, the board should see a summary of the latest data being presented to the public, the trend for financial and quality measures, and what explanations are offered for any variance from excellence.

Remember that adverse events and outlier cases are going to be presented to consumers, so the information that surrounds those events is important. Trustees should be familiar with the tools and websites through which consumers will access facility data.

As sources of comparison data multiply, and standards and guidelines evolve, an organization's data may be presented unfairly at some point. It may be tempting to ignore an obscure website or mobile app, but how the organization reacts to negative surprises could be the difference between a glitch and a public relations nightmare. We recommend that organizational leaders respond concisely whenever there is disagreement on methodology or styles of presentation, and be the patient's advocate for clarity and balanced information.

Jill E. Sackman (jsackman@nai-consulting.com) is senior consultant and leader of the health care delivery practice and Daniel King (dking@nai-consulting.com) is a business analyst at Numerof & Associates Inc., St. Louis.