Academic journal article Frontiers of Health Services Management

Price Transparency: Building Community Trust

Academic journal article Frontiers of Health Services Management

Price Transparency: Building Community Trust

Article excerpt

SUMMARY - With the push from policymakers, payers, and consumers for hospitals to make their prices public, healthcare executives need to recognize two central issues related to price transparency: 1) meaningful price transparency involves helping patients and consumers understand their financial obligation for an episode of care, and 2) price transparency is key to the most critical success strategy for healthcare providers: building trust. This article reviews the history of pricing and billing practices and explores why price transparency is not easily achieved in today's environment. Pricing is a mystery even to those of us who work in the field, yet despite its complexity, the call for price transparency is not going to go away. For transparency, the goal should be to establish a rational pricing system that is easily explainable and justified to all stakeholders. Healthcare executives must make pricing a priority, understand cost, develop a pricing philosophy, understand the overall revenue requirements, examine market conditions and prices, and set up systems for review. A rational process of price setting should enhance community trust. In this matter there is nothing less at stake than the hearts of our community members.

"Pricing health care? It's not that easy."

This recent headline from the Chicago Tribune says it all. It is not easy for consumers to understand what services will cost, and it is not easy for hospital leaders to explain why their pricing system is so confusing. The article criticizes hospitals for not giving patients information related to their charges to facilitate shopping for the best deal-a line of reasoning typical of coverage in the public press (Graham 2006).

As healthcare leaders, we are well aware that our system of pricing and billing for services was created for the "wholesale" system of third-party payment-government and insurance payers. Government payers, which represent the largest payer for most hospitals, set the price for services without regard for the hospital's list price or its cost. Cost shifting (that is, increasing the price for one payer to compensate for underpayment by another) distorts relationships between prices and costs. Managed care contracting further distorts the relationships between price, cost, and payment. This system (or lack of one) creates pricing approaches that are viewed at best as confusing and at worst as price gouging and deceptive. The system is not "retail" pricing designed to facilitate patient/consumer price comparisons.

But should that challenge cause us to resist price transparency and the broader issue of consumerism? Absolutely not. Price transparency and consumerism are key components of the most critical success strategy for healthcare providers: building trust.


Before the advent of commercial health insurance in the 19303 and government programs of Medicare and Medicaid in the late 19605, hospital pricing and billing processes were simple. A procedure or group of procedures carried a list price that was communicated to the patient at the time of service, or shortly after services were rendered. The patient made arrangements to pay the bill or agreed to provide some type of in-kind service to the hospital to satisfy the bill, including labor or supplies.

By the mid-ig4os, life started to become more complicated for hospital leaders. Helen M. Yerger, one of HFMA's founders, described the growing complexity this way:

As the number of subscribers to the plans increased, thereby increasing the number of hospital insurance patients admitted to the hospital, it was obvious that new methods should be devised so that the amount of detailed effort might be reduced (Yerger 1947).

The new method Yerger advocated involved preprinted, multipart forms, an approach we still use today.

By the mid-igoos, hospital pricing and billing systems were already out of control. …

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