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CMS Price Transparency Requirement: Six Steps Towards Ensuring Compliance and Defensible & Rational Pricing

The CMS 2019 transparency requirement underscores their ongoing initiative and emphasis on empowering patients through better access to hospital charge information.

On August 2nd, the Center for Medicare & Medicaid Services (CMS) released the final 2019 Inpatient Prospective System (IPPS) rule, which included requirements for hospitals to “make available a list of their current standard charges via the Internet by January 1, 2019, and to update this information at least annually, or more often as appropriate.  Publishing could be in the form of the chargemaster itself or another form of the hospital’s choice, as long as the information is in machine readable format.”

Industry Concerns with the CMS Pricing Transparency Requirements

Many valid arguments can be made around the imperfect nature of the final CMS pricing transparency rule:

  • Standard prices in the chargemaster may be confusing to patients due to the different levels of patient acuity and/or bundling of services.
  • Though providers already comply with the ACA requirements, consumers are simply not utilizing the processes in place to ascertain their cost information.
  • It would simply be better coming from the health plans, leaving hospitals to only focus on the uninsured and out-of-network patient costs.

After consideration of the public comments, CMS did not see a need to further update its guidelines beyond the updated guidelines that were previously announced would be effective January 1, 2019. Hospitals and health systems should therefore act accordingly to achieve compliance and create a plan to address their pricing processes and policies.

Preparing for the CMS Requirements

Many hospitals have begun to prepare for this CMS requirement by taking the following simple steps:

1. Ask Questions

Sit down with the team responsible for your pricing and ask them 5 quick questions:

  • Do you know the basis for your current line item prices?
  • Are your line item prices rational compared to other prices in your CDM and across your health system?
  • Are your line item prices rational compared to other hospitals that you consider peers?
  • Can you defend your line item prices based on market data, payer fee schedules, or a reasonable operating margin plus cost mark-up to cover shortfalls (i.e., Medicare, Medicaid, Charity Care, Bad Debt, or unreimbursed or under-reimbursed costs such as teaching program costs) or a hybrid thereof?
  • Can your organization’s leadership articulate the rationale behind these prices if they are all made public?

If you are not comfortable with the answers to all these questions, then you may be experiencing market pricing differentiation and exposure to transparency.  A thorough strategic pricing analysis may be necessary to ensure the defensibly of your organization’s pricing. However, you should never increase or decrease a line item charge without first performing net revenue modeling that considers the weighted average charge payer contribution at the line item level, payer fee caps, lesser-of-charge and stop-loss payer contract terms.

2. Consider Technology

Consider using specific software technology to develop and maintain your defensible chargemaster prices as unit costs, market data, payer contract terms, case-mix and volume, and financial and strategical objectives change every year.

3. Plan Communications

Develop both internal and external communication plans to articulate your pricing strategy and policies. The inability to articulate a clear, concise explanation on how a price is derived can cause a public relations headache for your leadership team

4. Educate your Staff

An important first part of building relationships with patients is educating your staff to effectively communicate during the patient price inquiry process. Make sure your staff know your patient demographics as well as your average charge and payment by service category and by payer. Being able to provide your patients with an anticipated payment level or range based on average charges and typical discount rates for in-network payers and separately for out-of-network payers provides them with a springboard and embraces transparency. However, be sure that such estimates provide adequate disclaimers and legal protection since estimates can be far different than the final claim an insurer or patient receives due to incomplete diagnosis and procedure information at the time of the estimate, unexpected complications during the procedure, and other reasons.

5. Decide on Level of Transparency

Determine the level of transparency your organization is comfortable with. Is posting your chargemaster enough to give patients the information they need? If your answer is no, then your hospital or health system may want to consider one or more of the following:

  • Post CDM along with the approximate average discount for different payer classifications. For example, you could include in-network and out-of-network, IP and OP, and by Medicare, Medicaid, Commercial, Managed Care, HSA, Self-Pay, etc.
  • Post average charges and payments by MS-DRG, APC, ASC, Private Outpatient HCPCS, ED all-inclusive and break-out between in-network and out-of-network, and by payer category. Patient estimation systems cannot anticipate complications that may occur during a patient’s inpatient stay nor additional diagnoses or procedures required that can impact the final DRG assignment and charges. By disclosing, for example, the hospital’s average charges and payments for without CC/MCC, with CC, and with CC/MCC as described above, consumers will have advance notice of the full range of expected charges and insurance payments.
  • Perform product-line profitability analysis and other analytics to help determine reasonable discounts to offer self-pay patients, those with health savings accounts, those with out-of-network insurance who are responsible for large balances due, and any case where patients do not qualify for other financial assistance. Understanding the profitability of your current payment levels at the procedure and payer levels is imperative before deploying a comprehensive discount program.

6. Automate Publication of Charges

Establish an easy-to-use and automated mechanism to initially publish online and continuously update your website. This will make it easy to publish charges during the year as your organization updates your chargemaster and prices and adds any additional information you decide to share with consumers. In today’s data hungry world, people are accustomed to having information at their fingertips through an easy-to-use website or, more commonly, a smart phone app. Be sure to include proper disclaimers to educate consumers on the need for them to understand their insurance plan benefits and their in-network versus out-of-network status and how that could drastically impact their own out-of-pocket expense.  Those providers that fail to embrace new ways to communicate with their patient community likely will find pricing transparency to be an uphill battle.


We recognize that this CMS initiative may not be the answer to pricing transparency. However, it should be viewed as an opportunity to proactively enhance the public’s confidence in your healthcare delivery and transparency. It provides us an opportunity to work collaboratively with patients to establish consumer loyalty in the marketplace while simultaneously maintaining rational and defensible pricing.

Fred Stodolak, Executive Vice President, Panacea,
Mark Spehar, Senior Vice President, Financial Services, Panacea,
Henry Gutierrez, Vice President, Financial Services, Panacea

Want to learn  more?  Watch our latest webinar, “Developing a Pricing Strategy for the 2019 CMS Transparency Requirement.”