New tool touted as a way for states, employers to lower healthcare costs

A new tool aims to help make hospital pricing data more accessible, and some states and employers could be using it to negotiate prices.

The National Academy for State Health Policy recently released a “Hospital Cost Tool” to shed more light on how hospital prices relate to their expenses. The organization developed the tool in cooperation with Rice University’s Baker Institute for Public Policy and Mathematics Policy Research. Arnold Ventures supported the effort.

The tool incorporates a host of cost measures from more than 4,600 hospitals from 2011 through 2019. The group hopes to have 2020 data in the near future.

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The hospital cost tool incorporates measures such as hospital revenue, profitability and cost to charge ratios. Users can search by individual hospitals and compare costs with other healthcare providers. Users can also search by state and view hospitals within a health system.

The goal of the tool is to provide opportunities for states and employers to negotiate the rates of payments, the association says.

The association touted one significant feature of the tool which identifies the “breakeven point,” the amount a commercial health plan would need to reimburse a hospital to cover its expenses.

This tool considers all of a hospital’s operating costs, including how much they make in profits or lose from public coverage programs. It considers charity care, uninsured patient hospital costs, costs disallowed by Medicare and other expenses or sources of income.

States and employers can compare the breakeven point showing what commercial payers are paying. Some hospitals can see a notable difference between the breakeven point and the payments of commercial payers, the association says.

Maureen Hensley-Quinn, senior program director at the association, said the tool can help users “understand what hospital costs are.”

In a media briefing, he said it can help states make a better case for developing policies to help curb rising healthcare costs.

“The goal across the states we’ve been working with has been to ensure critical access to care while containing cost growth,” Hensley-Quinn said.

The tool, particularly with the breakeven point, could offer opportunities for states and employers to lower their healthcare costs, the association says.

“There is a pretty substantial difference between covering hospital costs and what commercial price pays,” Hensley-Quinn said.

She said the association isn’t opposed to profits at hospitals. The group understands hospitals need to have some cushion to provide services, Hensley-Quinn said.

Marilyn Bartlett, a senior fellow at the association, explained how the data could be useful to states and employees. The former administrator of the Montana State Employee Health Plan, Bartlett helped lead the development of the tool. In her experience in Montana, she said having the data on hospitals’ costs for Medicare and Medicaid paved the way for negotiations that led to millions of dollars in savings.

She said others can follow that example.

“I think having that data starts the dialogue,” Bartlett said.

Some employer coalitions are already using the data in payment negotiations, the association says.

Claire V. S. Brockbank, chief executive officer of Colorado’s Peak Alliance, said her organization has used the hospital cost tool. She credits the tool with providing information for the nonprofit purchasing alliance that played a role in saving “millions of dollars.”

“This tool helped us go from conceptually recognizing how important it is to understand a hospital’s finances to having practical hands-on knowledge that informs our negotiations and ensures a fair and reasonable agreement,” Brockbank said in a statement.