The healthcare delivery world is rapidly becoming more transparent. Efforts by consumers, the government, and private institutions to make price and quality data available are growing – and they will transform how healthcare executives think and operate.

Neither a hard-earned reputation nor brand equity purchased with expensive advertising are enough to maintain consumers’ trust. Increasingly, for non-emergent 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 of caring for patients.

Transparency Isn’t Coming, It’s Here

Although the ability to compare prices and outcomes is somewhat limited today, don’t be fooled: your data is already out there. Consumers can access key data points and overall ratings through government sources like Hospital Compare and Physician Compare, third parties like HealthGrades, Leapfrog, and Consumer Reports, insurance companies’ cost estimators, and a growing number of other websites and apps. The Centers for Medicare & Medicaid Services (CMS) has begun to publish data annually on Medicare payments to hospitals for the most common 100 DRGs. Castlight Health offers cost and quality information to self-insured employers so employees can make informed decisions about treatment options.

Additionally, 28 states have active health price transparency and price disclosure legislation, according to the National Conference of State Legislatures.  Legislation ranges from requiring hospitals and other providers to report prices to state health agencies to requiring providers to inform patients of prices for common procedures.

A growing number of states have also created all-payer claims databases (APCD) that offer guidance to patients about the costs for common treatments in a way that encourages comparison among facilities.  Eighteen states either have or are in the process of implementing an APCD and several others have expressed interested in doing so.  According to a recent analysis by the Gary and Mary West Health Policy Center, APCDs could save up to $55 billion over the next 10 years by collecting and providing data and analytics tools that supply quality, efficiency and cost information to policy makers, employers, providers, and patients.

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 were first 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 13.8 million by the end of 2014, according to the Devenir HSA market survey, and 20 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 is created, stored and shared in electronic form, websites and apps that share price, quality and other data have grown. However, data on outcomes is still lacking in most cases.

3. Value-based contracting.

Value-based payment has been widely hailed as a key to improving healthcare cost and quality. CMS has set a target of tying 50 percent of payments to alternative payment models by 2018, and hopes to have 85 percent of fee-for-service Medicare payments tied to value or quality by the end of 2016.  Private payers, employers, and other partners have set similar goals, with one prominent group committed to having 75 percent of their payments under value-based arrangements by 2020.  The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) underscores movement in this direction by including quality and cost metrics as a factor in physician payment.

Questions to ask (if you haven’t already)

To avoid surprises and manage their positioning in the market, executives and boards of directors must take a close look at how their organizations are responding to these trends. Some key questions include:

AVOID SURPRISES

• Is 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 managing and approving the release of cost and quality data?
• What are our processes and accountabilities for managing and monitoring social media, reviews and ratings?

HOW DO WE COMPARE?

• What cost data is available? How are consumers reacting to it?
• For which procedures does our organization’s quality appear worse, about the same and better versus comparators?
• For procedures where our organization appears more expensive, is our quality data better, and is it 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 more fair and balanced?

Transformative Impact

Hospitals and systems will need to redesign fundamental 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 toolset starts with cost accounting.

Most hospitals and systems have set prices based in large part on the legacy of incremental changes to their charge master, with little or no understanding 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 the 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, which greatly improves the consistency of treatments, services and drugs used for a given condition as well as the associated 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 face greater demands for transparency, both internal and external communication will become even more important. How will physicians and staff view the facility’s pricing and outcomes, and will they be prepared to represent the organization effectively to patients and the public? What will the internal and external reaction be to data on quality and cost, especially if it’s not uniformly favorable?

Six Next Steps

To succeed as the market moves toward greater cost and quality transparency, hospitals and systems should consider these six areas for investment and constant improvement.

1. Ensure internal systems can provide robust data reporting and analytics.

Most hospitals need to strengthen data reporting and analytics significantly to provide data efficiently for dozens of metrics to multiple requesting organizations. But providing that information is the easy part – understanding the current cost structure at the physician and patient level is what’s critical for addressing cost and quality issues, and ultimately delivering greater value for patients and other stakeholders. For many organizations, the starting point could be as simple as looking at outcomes and cost for a specific procedure.

2. Adopt bundled pricing.

Consumers, employers, payers, and other stakeholders seeking comparative cost and quality data for a specific procedure are likely to favor comparison shopping tools and facilities that simplify a procedure down to a single price for a clear set of services and outcomes. These 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. Healthcare delivery organizations that have already implemented bundled pricing models – either by choice or by mandate through CMS’s Comprehensive Care for Joint Replacement initiative – will be better positioned to address stakeholders demands for cost and quality transparency.

3. Start focusing on outcome measures.

Hospitals are going to have to be able to generate both process and outcome measures. Many acute care facilities currently track process measures almost exclusively, with little attention to outcomes to which patients might relate. There is a place for certain process measures, like ER admission to OR time, or compliance rate with stroke protocols. But patients also value the pace of recovery and the quality of life they experience as a result of treatment. This means being able to access quality data across the care continuum, from hospitalization through post-acute discharge. Evidence must support durable outcomes at 30, 60, 90 days and beyond. Thus, 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.

Obviously, understanding the current cost and quality picture is a prerequisite to improvement, but currently, many organizations seem to view generating data as the end goal. Organizations need to build capability in using data to understand drivers of cost and quality variances. Beyond that objective, executives need to turn their insights into action. In short, they need to get better at implementing change.

5. Put your best foot forward, but don’t ignore the rest.

Hospitals will very reasonably want to focus their reporting on the services in which they perform well, and on accolades from the rating bodies that put them in the best light. Organizations that can demonstrate their performance with solid data for the services that are most important to patients and other stakeholders will have an advantage.

6. Assess implications for infrastructure development.

Transparency in health care adds new emphasis to the phrase “accountable care.” Achieving greater accountability will require rethinking critical infrastructure elements, from organizational structure to individual job requirements. Leaders will need to ensure alignment at all levels with the goals of improving costs and outcomes, both within an organization and beyond it through partnerships with providers across the continuum. As it evolves, transparency will stimulate more improvement in the quality of care than all the “best hospital” awards ever given.

Implications for Boards and Executives

The role of boards and executives in transparency is no different from their role in other issues. They guide overall organizational performance and success, help 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 and executives must ensure that they are obtaining all relevant facts about the organization’s performance and not specially selected nuggets of success. They should review the data that is being collected by public agencies for later release. At a minimum, these individuals 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 vitally important. Boards and executives 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 organization leaders respond concisely whenever there is disagreement on methodology or styles of presentation, and be the patient’s advocate for clarity and balanced information.

Portions of this article were originally published in Trustee.