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Business Advisor
Price Transparency Is on the Way
G. Smith
Publish Date: October 7, 2020   |  Tags:   Business Advisor
OPEN FOR BUSINESS Dr. Smith wants patients who undergo surgeries at the Surgery Center of Oklahoma to know exactly how much their bills will be well in advance of their procedures.   |   Bryan Terry

The beauty of the price transparency model lies in its simplicity. You present all-in pricing for each procedure your surgery center offers, and patients pay the advertised amount. That's it. There are no hidden costs, no surprise bills and your facility, surgeons and anesthesia providers get paid upfront for each case.

Increasing numbers of forward-thinking facilities recognize price transparency can fix a broken healthcare system built on price gouging and profiteering. Joining the movement now will allow you to capture more business in the short term and set your facility apart from the competition as transparent pricing gains traction. Here's how to get started.

1Set your prices

Poll your surgeons. Simply ask them how much money they want to make for each procedure they perform. Do the same with anesthesiologists. Ask them to put a price on their time. For the facility fee, take a time-and-materials approach to calculate how much it costs to run each of your ORs for 30 minutes. Calculate your fixed costs — staffing, utilities, insurance — and pad it a bit to cover variable supply costs for each case. I suggest using the price list we created for my surgery center as a starting point (surgerycenterok.com). Customers visit the website to see exactly what they'll pay for procedures, from $4,000 for a one-sided cataract surgery to $38,000 for a single-level lumbar fusion.

The Free Market Medical Association can also help you jumpstart your journey to posting transparent prices (www.fmma.org). FMMA is full of providers, companies who self-fund their employees' medical expenses and third-party administrators. As a founding member, I teach my competitors how to copy what we've done.

You can tweak procedure pricing moving forward as you perform cases under the model and have additional conversations with surgeons, anesthesiologists and other members of your ownership group. Many physicians will be surprised to learn that they would get paid more from your advertised bundle than they do with any insurance carrier they currently work with. Remember, the idea isn't to make the facility a huge profit generator. The idea is to pay the people who are doing the work handsomely. This model works best for physician-owned private surgery centers, as facilities with private investors have another mouth to feed. Their prices must be higher to give these investors the 10% to 20% returns on their capital they expect.

2Partner with a billing clearinghouse

This is simply a company that collects the fees from your customers, whether they're self-funded companies, third-party administrators or self-paying patients. It's designed with customer convenience in mind, as patients don't want to pay the surgeon, anesthesia provider and the facility separately. They write one check or use their credit card once, and you divvy up the money.

I'm the administrator of the clearinghouse for my center. This provides me some discretion that gives us tremendous negotiating power. For example, if the portion of the pricing bundle for an implant is $3,500 and the surgeon wants to use one that costs $3,900, I negotiate the price down to $3,500. I've found that many vendors suddenly reduce their implant costs once we started this process in order to stay in the game.

3Prepare for the 'purchasing giants'

The motherload of clients interested in the price transparency model is the self-funded industry. These companies decide to pay for most of their employees' medical costs out of operating funds and buy a catastrophic stop-loss policy for major medical events. These companies make the decision to take on the risk of how much their employees' medical costs will be instead of paying a major commercial insurer to carry the risk for them.

The demand for honest, transparent pricing from these purchasing giants is so huge that no number of current providers could ever fill the demand. Self-funded companies account for 80% of claims paid in the United States that are not covered by Medicare and Medicaid. If you present transparent costs of care in a bundled fashion, you might have enough self-funded clients to eventually jettison your contracts with commercial insurance carriers.

Self-funded companies are prime clients because of the sticker shock they feel after finding out how much procedures cost in a hospital system. This prospect should make the proposition of posting your prices and changing your business model less intimidating than it seems.

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