Unlocking pricing transparency for rural health providers

In the evolving health care landscape, hospital pricing transparency has become a critical component for improving patient satisfaction, ensuring fair reimbursement, and maintaining competitive market positioning. This article explores key hospital pricing strategies and how facilities can adopt transparent, fair pricing practices.

Room rates & observation charges: Fair pricing for routine care

Room rates: Room rates cover essential hospital services like nursing and facility resources. These charges are typically incorporated into diagnosis-related group reimbursement and should be priced according to geographical peer groups. In certain cases, hospitals may conduct studies examining capital, staffing, supplies, and other resources to determine a patient’s specific cost. However, room rates often don’t generate significant patient dissatisfaction because insurance companies typically collect the same copayments, coinsurance, and deductibles regardless of the room rate.

Observation charges: Observation services are billed on an hourly basis, with reimbursement varying by payer, such as case rates or fee schedules. It's recommended hospitals price observation charges at a fraction (1/24th) of the daily room rate, although some may use front-loaded charges for the first hour, with lower charges for subsequent hours. Regardless, the total charge for observation should align with a full day's room rate.

Emergency room visits & outpatient clinics: Managing complex service pricing

Emergency room charges: Emergency room visits are billed using specialized codes and should generally be priced at a multiple of Medicare reimbursement or the average of peer group prices. This approach ensures competitiveness while maintaining cost efficiency. By pricing based on a multiple of Medicare rates, hospitals can offer reasonable pricing without compromising reimbursement.

Outpatient clinic charges: Outpatient clinics are billed using the G0463 code, which combines different levels of acuity into a single code. This simplification benefits the billing process but presents challenges when it comes to setting prices based on acuity. For outpatient clinic visits, we recommend pricing at a multiple of Medicare reimbursement or the average peer group rate adjusted for acuity where applicable.

Diagnostic & therapeutic procedures: Aligning pricing with peer market

Pricing diagnostic services: Diagnostic and therapeutic procedures are typically assigned specific CPT/HCPCS codes, with reimbursement differing by payer. To ensure competitive pricing and appropriate reimbursement, it's best to price diagnostic services based on a multiple of Medicare reimbursement or peer group averages. However, areas like lab tests, CT/MRI, and mammography are often sensitive to patient satisfaction. Therefore, hospitals are encouraged to price these services competitively, benchmarking against freestanding labs or imaging centers. In some cases, hospitals may create an outpatient pricing tier for the most commonly ordered lab tests, pricing them in line with freestanding laboratories to ensure transparency and affordability for patients.

Anesthesia & operating room charges: Time-based pricing models

Anesthesia services: Anesthesia charges are based on the time spent administering the service, reflecting resource utilization. Time-based charges are calculated based on the recorded start and stop times during the procedure. For some anesthesia types, time-based pricing is recommended, while other types are charged as a flat fee.

Operating room charges: Operating room charges cover the setup, staffing, and specialized equipment required during surgeries. Pricing for OR services should be time-based, with additional charges for special or rented equipment. By using an acuity-based approach, hospitals can align charges with the complexity of the procedure and the resources required, ensuring fair pricing while capturing all necessary costs.

Recovery room charges: Pricing for post-surgical care

Post-surgical care in the recovery room (PACU) is essential for patient safety and well-being. General anesthesia typically requires a minimum of one-on-one recovery care for at least an hour. Once a patient's condition stabilizes, the nurse-to-patient ratio may decrease. Hospitals can charge for recovery care by the minute or use a front-loaded hourly charge, reflecting the nursing and facility resources required.

Because PACU services are generally included in the overall surgical reimbursement, hospitals cannot price recovery care based on a multiple of reimbursement. Instead, pricing should reflect the time and resources spent on patient recovery.

Pharmacy & medical supplies: Balancing cost-based markups

Pharmacy charges: Pharmacy charges can be a sensitive area due to the patient’s ability to compare hospital drug prices with retail pharmacy prices. To ensure transparency, hospitals should implement cost-based markups with fixed add-on charges to cover the time and resources involved in storing, handling, and preparing medications. For example, intravenous compounds require more preparation than oral tablets, warranting a higher add-on fee.

Self-administered drugs: Medicare defines self-administered drugs as those that patients can use outside the hospital. These drugs cannot be billed to Medicare, even if they are administered by health care providers during the hospital stay. To address this, hospitals should assign lower multipliers and fixed add-ons to self-administered drugs, ensuring compliance with Medicare rules while reducing patient burden.

Medical supplies: Medical supplies are priced using a cost-based markup system. However, hospitals should update pricing regularly to avoid discrepancies due to outdated charge-setting practices. By using actual cost data and applying standardized markups, facilities can align supply charges with the resources consumed. Additionally, using cost thresholds for low-cost items can streamline the billing process and reduce unnecessary administrative work.

Implantable devices & special markups: Pricing for high-cost items

Implantable devices such as pacemakers and lenses require special markup strategies due to payer sensitivities. By simplifying the markup structure for implantable supplies, hospitals can better manage payer contracts and improve pricing transparency for high-cost items. Many facilities adjust their markup based on the cost of the device, with lower markups for high-cost items and higher ones for lower-cost items.

Optimizing pricing strategies for rural hospitals

Rural hospitals must navigate a unique financial landscape, requiring strategic pricing models that account for lower patient volumes, reimbursement challenges, and limited access to specialty services. Unlike large urban hospitals that can spread costs across a high number of patients, rural facilities often operate with tighter margins. As a result, their pricing strategies must be carefully designed to balance affordability with sustainability. One key approach is to implement cost-plus pricing models, where services are priced based on actual expenses with an added margin to ensure financial viability. This strategy helps maintain revenue stability, particularly for hospitals with a high percentage of Medicare and Medicaid patients.

A major pricing challenge for rural hospitals is the lack of in-house specialty services, which can drive up the cost of outsourced procedures. To address this, some hospitals have adopted differentiated pricing models for visiting specialists and contracted services. For example, instead of applying the same markup structure across all procedures, hospitals can adjust pricing based on service demand, resource consumption, and reimbursement expectations.

Several rural hospitals have successfully realigned their pricing models to remain competitive and financially stable. CAHs have refined their pricing strategies by analyzing patient volume trends and implementing tiered pricing structures. For instance, high-demand lab tests and imaging services may be priced at a lower multiple of Medicare rates to attract more outpatient business, while specialty procedures with higher resource utilization may carry a higher margin to ensure cost recovery.

Pharmacy pricing is another area where rural hospitals must be strategic. Given that patients often compare hospital drug prices with local pharmacies, rural hospitals can adjust markup strategies based on drug type and patient coverage. Implementing lower markups for frequently used medications while maintaining appropriate margins for high-cost or compounded drugs ensures that hospitals remain competitive while covering costs. Additionally, negotiating volume-based purchasing agreements with group purchasing organizations allows rural hospitals to lower acquisition costs, which in turn supports more competitive pricing models.

To refine their pricing strategies further, rural hospitals can adopt dynamic pricing models based on real-time data analysis. By leveraging cost-accounting tools and benchmarking against peer institutions, hospitals can regularly adjust pricing to reflect service demand, cost fluctuations, and reimbursement trends. Collaborating with larger health care systems can also provide pricing insights that help rural hospitals align their charges with regional and national averages while still maintaining a financially sustainable model. Through a combination of cost-based pricing, strategic markups, and dynamic adjustments, rural hospitals can develop pricing models that enhance their financial position while continuing to serve their communities effectively.

Developing a sound hospital pricing strategy that balances cost, reimbursement, and patient satisfaction is crucial for ensuring fair pricing transparency. By implementing the right pricing models for room rates, observation services, diagnostic procedures, anesthesia, operating rooms, recovery care, pharmacy, medical supplies, and implantable devices, hospitals can improve patient satisfaction while ensuring financial sustainability.

As a Pipeline Partner of NRHA, HPS is pleased to offer NRHA members a complimentary pricing analysis of their top 10 codes.

NRHA adapted the above piece from Hospital Pricing Specialists, a trusted NRHA partner, for publication within the Association’s Rural Health Voices blog.

About the author: Randi Brantner Randi serves as the Vice President of Operations at Hospital Pricing Services. She is a seasoned healthcare professional with a strong track record of improving hospital financial operations and finding smart ways to tackle business challenges. She leads a team focused on analytics for pharmacy, supply chain, pricing strategies, contract management, and reimbursement. Her leadership and deep knowledge of hospital finance help clients solve complex problems and reach their goals more efficiently.