Price transparency opportunities for payers
Price transparency data unlocks a new era of healthcare analytics
Demystify payer and provider contractual pricing data for better transparency across the industry
The Final Rule for hospital price transparency (HPT)1 and Transparency in Coverage Final Rules (TiC)2 have changed the U.S. healthcare system. This paper is one in a series of papers that describes how Milliman’s price transparency solution (Milliman Transparent)3 is relevant to everyone, from payers to providers to consumers. This paper assumes the reader is already familiar with the concepts discussed in the introductory paper of the series, Price transparency in 2023.4
This paper specifically focuses on how Milliman Transparent contains the analytics that payers need to succeed in contracting analytics. Below we discuss real world examples and highlight key questions that payers can answer with Milliman Transparent.
Questions for payers
How do competitors structure contracts?
One use case for Milliman Transparent is understanding how competing payers structure their provider contracts. This includes understanding:
Taken together, these elements can help payers understand how they may be advantaged or disadvantaged relative to competitor contracts.
Case study: California hospital contracts
A payer in California was seeking to understand its competitors' contract structures. The payer was negotiating with a key health system in the area and wanted intelligence on the health system's other payer contracts. Using Milliman Transparent, the client was able to summarize the prevalence of data for each contract by code set (e.g., MS-DRG) and reimbursement method (e.g., per case). The summary was at the California state level of detail (for all available contracted hospitals in the state for each payer), with the ability to then drill into individual hospital results. These summaries allowed the payer to answer the following questions:
- Where are competitor contracts strongest/weakest?
- What reimbursement terms are driving the strong/weak contract performance?
- What are the contracting opportunities?
See Figure 1 for an inpatient summary that could be used to answer these questions for a single hospital. The payer also accessed outpatient summaries.
Figure 1: Inpatient contracts by payer and reimbursement method
| Contract Structure | Payer A | Payer B | Payer C |
| Total records in transparency data | |||
|---|---|---|---|
| MS-DRG (Per Case) | 759 | 288 | 0 |
| MS-DRG (Per Day) | 4 | 150 | 92 |
| RevCode (Per Day) | 0 | 15 | 112 |
| Records after Milliman Transparent quality process | |||
| MS-DRG (Per Case) | 759 | 96 | 0 |
| MS-DRG (Per Day) | 1 | 50 | 46 |
| RevCode (Per Day) | 0 | 5 | 55 |
| Percent of Expected | |||
| Initial | 100.1% | 132.8% | 214.6% |
| Excluded | 1.6% | 88.5% | 107.3% |
| Invalid codes | 0.0% | 0.0% | 0.0% |
| Multiple rates | 0.0% | 88.5% | 107.3% |
| Outlier High | 1.6% | 0.0% | 0.0% |
| Outlier Low | 0.0% | 0.0% | 0.0% |
| Included | 98.4% | 44.3% | 107.3% |
| MS-DRG (Per Case) | 97.4% | 29.8% | 0.0% |
| MS-DRG (Per Day) | 1.0% | 10.9% | 9.5% |
| RevCode (Per Day) | 0.0% | 3.5% | 97.9% |
The Percent of Expected is based on a Milliman-developed relative value unit (RVU) schedule known as GlobalRVUs™ (GRVUs).5 It estimates the total RVUs associated with the transparency data that pass all quality checks relative to the total RVUs we would expect for the given provider type and line of business (LOB) (e.g., 97.4% of the expected RVUs are covered by MS-DRG per case terms in Payer A’s contract).
A few observations about the results in Figure 1:
- Payer A uses more case rates in its contracting with this hospital than Payer B and Payer C.
- Payer C uses exclusively per diem rates in its contracting, whereas Payer B uses a blend of case rates and per diem rates.
- As part of the Milliman Transparent quality process, large amounts of duplicate data were detected in the data submissions for Payer B and Payer C and removed to create more appropriate comparisons.
- Payer A’s data submission included rates that were identified as unreasonably high (i.e., greater than 800% of GRVU Medicare).
- Payer C’s Percent of Expected is greater than 100%, which indicates that there are likely overlapping services in its contract rates by MS-DRG and Revenue Code.
Knowing this information, along with the relative reimbursement levels for each payer at the hospital (i.e., Percent of GRVU Medicare),6 helped the payer understand opportunities in contract renewal discussions.
How to contract in new markets?
Payers looking to enter new markets have typically struggled with knowing where to set initial contract targets with new health systems/facilities. Using Milliman Transparent, we recently assisted a payer entering a new market in understanding the prevailing competitive rates.
The payer did not know what reimbursement levels were considered competitive for the market. With the analytics from Milliman Transparent, they were able to answer the following questions:
- What target reimbursement level should be used to enter negotiations?
- What is the range of reimbursement among competition in this region?
- Which service categories (e.g., maternity) are particularly competitive at these facilities?
Figure 2 below shows a modified version of high-level results provided. The Percent of GRVU Medicare7 from Milliman Transparent provides an apples-to-apples approach to comparing commercial reimbursement levels, showing our client what parity with competition looked like. This also shows the range in rates, like at Facility B, which had results between 211% and 322% of GRVU Medicare. Figure 3 shows drivers of the range in reimbursement levels for Facility B, in particular the maternity service category for each payer, although Payer 2 is consistently reimbursing at higher levels across all inpatient categories.
An initial negotiation strategy for inpatient services at Facility B could be to target Payer 1 reimbursement levels. We also provided the detailed code level results, which allowed for a deeper dive into specific cases that may arise during negotiations such as carve outs or per diems.
Milliman Transparent leverages Milliman’s proprietary data assets8 that contain detailed claims data for over 75M commercial insured lives in the US to create utilization distributions that represent an accurate service mix to be used when creating contract-level comparisons. We also have the capability to model custom utilization distributions, specific to a provider, payer, or employer group’s experience. For this analysis, we focused on the service mix of this market to produce aggregated results.
Figure 2: Percent of GRVU Medicare by facility
| Facility | Payer 1 | Payer 2 |
|---|---|---|
| Facility A | 198% | 244% |
| Facility B | 211% | 325% |
| Facility C | 184% | 283% |
| Facility D | 203% | 183% |
| Facility E | 333% | 232% |
| Facility F | 204% | n/a |
| Facility G | 249% | 198% |
| Facility H | 409% | 277% |
Figure 3: Percent of GRVU Medicare for Facility B by service category
| HCG Category | Payer 1 | Payer 2 |
|---|---|---|
| Inpatient (FIP) Total | 211% | 325% |
| FIP Medical | 195% | 373% |
| FIP Surgical | 210% | 297% |
| FIP MHSA | 191% | 437% |
| FIP Maternity | 274% | 516% |
Conclusion
With Milliman Transparent, payers can gain a much deeper understanding of key questions that have historically been very challenging to answer. Payers are one group of many stakeholders that can benefit by leveraging Milliman Transparent. Understanding competitive contract structure and prevailing market rates are just two examples of how Milliman Transparent can help payers obtain answers to previously impossible questions.
Caveats and limitations
The observations and ideas presented in this paper reflect a point-in-time analysis based on the current information collected and reviewed. Files and file content may have been updated since retrieval.
The data presented in this paper is intended to illustrate how transparency data can potentially be used and is not to be relied upon outside of this illustrative context.
The data presented in this paper is only a subset of the data available at each facility or payer displayed. As such, the results of these limited comparisons should not be interpreted as indicators of any broad contracting relationships or trends.
The estimates included in this paper are not predictions of the future; they are estimates based on the assumptions and data analyzed at a point in time. If the underlying data or other listings are inaccurate or incomplete, the results may also be inaccurate or incomplete.
Throughout this analysis, Milliman relied on data and other information provided by publicly available data sources. Milliman has not audited or verified this data and other information but has reviewed it for reasonableness. Models used in the preparation of our analysis were applied consistent with their intended use. We have reviewed the models, including their inputs, calculations, and outputs, for consistency, reasonableness, and appropriateness to the intended purpose and in compliance with generally accepted actuarial practice and relevant actuarial standards of practice (ASOP).
Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all actuarial communications. Chris Smith, FSA, MAAA and Spencer Marshall, FSA, MAAA are members of the American Academy of Actuaries and meet the qualification standards for performing the analyses in this paper.
1 Federal Register, Vol. 84, No. 229 (November 27, 2019). Medicare and Medicaid Programs: CY 2020 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates. Price Transparency Requirements for Hospitals To Make Standard Charges Public. Final Rule. Retrieved March 8, 2021, from https://www.govinfo.gov/content/pkg/FR-2019-11-27/pdf/2019-24931.pdf.
2 Transparency in Coverage: Final Rule. Retrieved September 10, 2021, from https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/CMS-Transparency-in-Coverage-9915F.pdf.
3 See here for more information about Milliman’s price transparency solution: https://www.milliman.com/en/products/milliman-price-transparency-solutions-for-payers-and-providers.
4 Price transparency in 2023 https://www.milliman.com/en/insight/price-transparency-in-2023.
5 For more information about GRVUs, please see here: https://www.milliman.com/en/products/globalrvus .
6 For more information about the GRVU Medicare metric, please see the paper here: https://www.milliman.com/en/insight/price-transparency-in-2023.
7 See the link in footnotes 4 and 6 for more information.
8 See here for more information on Milliman’s data assets: https://www.milliman.com/en/health/life-sciences/data-assets.