As Americans continue to bear a larger share of their health care costs through high-deductible and consumer-driven health plans such as health savings accounts, consumers are increasingly aware that the health care industry does not operate like a traditional business.
The anecdote is common now: Consumers wouldn’t purchase a car, or a house or even a soda without knowing what the price was beforehand. Why, then, in health care, are patients completely unaware of what procedures will cost them or their insurers?
The pricing puzzle symbolizes much of the complexity of the American health care system. Because delivery models, quality outcomes and the range of services provided differ across the country, comparing procedures is challenging enough already. Add to that a system in which multiple payers manage multiple patient populations and negotiate different reimbursement rates for each means that there is no true standard in pricing.
When insurers picked up the bulk of health care costs, patients had little incentive to wind their way through the negotiation maze and select providers based on low-cost, high-value services. But in the age of health reform, patients are increasingly on the hook for significant payments — 34 percent of employer-sponsored plans have a deductible of $1,000 or more, according to a report published by the Henry J. Kaiser Family Foundation.
Patients, then, have become consumers, a population that spends upwards of $312 billion in out-of-pocket costs annually, according to the Centers for Medicare and Medicaid Services. Their demand for traditional market information in a third-party payer industry is shining a light on the complicated relationship between insurers and providers. And they’ve spurred the creation of an entirely new price transparency industry being built by entrepreneurs with a knack for claims data and consumer education.
“What works is when patients take the time to be informed,” Dr. Jeffrey Rice, CEO of Healthcare Bluebook, a cost solutions company that also publishes public pricing reports for health care services. “It works really well. We see patients saving thousands of dollars just by taking the time to understand what their choices are.”
What doesn't work, Rice said, is when patients have a surplus of insurance benefits and are not incentivized to shop around. Nationwide efforts are underway to pull pricing information out of insurance contracts and into the open, but without a level of deeper understanding, patients are still unable to make educated health care decisions. Thirty-four states run databases that have aggregated all payer information with the intent of compiling quality and cost data, but utilization of those resources is low. By and large, consumers are still not seeking out costs before choosing a hospital or provider.
“The lack of health literacy in this country is a very real issue, to the degree that any insurance plan is putting out price transparency tools,” said Doug Ghertner, president and CEO of Change Healthcare, a Brentwood-based cost solutions company for insurers and employers.
Why costs vary
Before patients can make effective value judgments, they have to understand why costs vary between patients and providers. The most basic cost variable is whether patients are seeing providers who are in their insurance network. Consumers who go out of network are on the hook for non-negotiated — and likely higher — rates and the insurer may pay less or none of the bill.
The second variable is the setting of care. Most procedures cost more when performed in an inpatient hospital setting opposed to an outpatient setting. In general, the facility fee, which is tacked on the procedural fee, is what causes in-hospital rates to top outpatient rates.
Finally, the individual negotiations between insurers and providers vary per market and per procedure. Through a function of patient volume and procedure mix, payers and doctors set reimbursement rates for services provided to that insurer’s population, which are often based, to a degree, off of federal Medicare reimbursement rates. The variables in these negotiations are numerous: Doctors may take a lower reimbursement rate because being in the insurer’s network is a benefit unto itself or payers may be forced to pay more if a provider is a must-have in the market. The ability to leverage market power into reimbursement rates varies from hospital to hospital and market to market.
According to Ghertner and Rice, educating patients is crucial to building the use of price transparency tools. It starts, Ghertner says, with patients accessing price information on smaller, commonly used health care services such as primary care, dental work and physical therapy.
“The folks that focus on cost transparency just for the biggest-ticket items are missing the mark,” Ghertner said. “It’s about how you create a consumer. The more common and reoccurring services are the places where you can educate that there is variability in cost — and that you can do something about it.”
Change Healthcare provides cost lookup and comparison tools for clients through data compilation, allowing consumers to compare cost, quality and convenience for a given procedure based on their individual plan design. The company also pushes proactive alerts to consumers when there are significant savings to be recognized by switching providers or making other changes.
The chance of it all backfiring
The April disclosure of 2012 Medicare billing from CMS further demonstrated the federal government’s movement toward greater price transparency, but did result in pushback from providers — many identified by name in the report — for not providing enough context to go with the raw data. But that issue aside, many expect that more readily available pricing information is bound to push high-cost, low-value providers out of the market or at least force them to improve quality and become more efficient.
But providers are not the only stakeholders slow to embrace price transparency as a cure-all. Legal issues surrounding reimbursement contracts can prohibit the disclosure of pricing information, although some states, including California, have enacted legislation disallowing such “gag clauses.” Additionally, there’s a chance price transparency could backfire and actually raise costs, as described in a report by health care purchasing nonprofit Catalyst for Payment Reform.
“Hospital A could analyze Hospital B’s prices across town and decide to negotiate for increases if Hospital B seems able to charge more without sacrificing volume,” reads that report. “Similarly, physicians and hospitals could use price information collectively to set the level of discounts to negotiate with health plans.”
Public pricing also could dilute a health plan’s ability to negotiate on volume discounts, the report suggested, which would result in higher health care costs for purchasers and consumers in the short term. In a separate report, the nonprofit has noted that in recent years, the health system has made progress on reporting quality information, but added that “much more work” is needed to integrate quality metrics with pricing data.
“There's a lot to be done,” Rice said. “There are definitely health plans that are willing and able to build their own tools or are working with a company like ours. But there are others that don't and haven't gone down that path yet.”
But Rice expects the price transparency buzz to influence the apprehensive providers and payers and says he's hopeful that within five years, the industry will make substantial progress.
“Hopefully, we'll see support for increased flow of the information,” he said. “There's some resistance in the industry from both providers and insurers to limit access to data and slow down the innovation. Hopefully, we'll see both employer and consumer pressure, as well as political or legislative, to keep it accessible.”
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