Plans develop cost tools
Policymakers demanding transparency
When Barack Obama hit the campaign trail to lobby for healthcare reform, along the way he developed a minor skin rash. The cream he was prescribed cost him $5 so, even though it wasn’t working very well, he had the prescription refilled. The third time he filled the prescription—this time at a different pharmacy—the cream cost $450.
“The president said, ‘Wait a minute. This rash is not that bad,’” retells Rep. Michael C. Burgess (R-Texas), adding that Obama chose not to fill a prescription with a significant out-of-pocket cost.
The president related the story to legislators as an example of why prescription drug costs are in need of reform. But Burgess believes at that point Obama “became an informed consumer.”
Such forthcoming price information is vital to consumers to make knowledgeable decisions about their health and budget, he says, and to rein in healthcare spending that has seemingly little correlation with quality.
The large national health payers—and increasingly, smaller, regional payers—seem to agree. In recent years, they have begun to develop tools aimed at helping consumers understand the costs they may incur with various health procedures, prescriptions and durable medical equipment. Such price transparency signals a paradigm shift that elicits cataclysmic descriptions like “tsunami” and “tidal wave” in its ability to revolutionize healthcare.
“This is a gun loaded not just at hospitals and doctors but at every sector of healthcare, and what they simply must do is quickly arrive at some uniformity of measures that are valid and reliable that can feed the appetite of this transparency engine and accept that it’s the new normal,” says Paul H. Keckley, PhD, executive director for the Deloitte Center for Health Solutions. “It’s the way it’s going to have to be.”
Changing market expectations
As consumers are expected to pay increasingly greater shares of their healthcare costs, they are demanding more information that could transform healthcare decisions into something akin to buying a television. The key, health industry leaders and analysts say, is that this information must be delivered in readily available, accessible and understandable price transparency tools designed for average consumers.
Suzanne F. Delbanco, PhD, executive director of Catalyst for Payment Reform (CPR), a group of employers promoting price transparency, says health plans are finally responding to a call she has made since 2000.
“For the most part, health plans are working fast and furiously to create transparency tools for consumers that help them make more informed decisions,” Delbanco says.
However, she says, there is a wide range of sophistication in the tools and how much consumers are using them. In March, CPR released a “scorecard” showing that 98% of plans offer some cost-calculator tool, but only 2% of members were using them.
“A lot of health plans can check a box and say ‘yeah, we’ve got a tool,’ but they’re not necessarily making them relevant to their patients yet,” Delbanco says. “For the most part, the health plans we communicate with are fully aware that we’re in an era where these tools are needed and expected, but some health plans are fairly restrictive as to how their members gain access to data.”
In a CPR study earlier this year, only New Hampshire and Massachusetts earned “A” grades for having state laws requiring healthcare price transparency and good public access to that information. Five states earned “B”s; 29 states earned “F”s.
“The point of our report card is that some states gave token attention but put a lot of burden on the consumer,” she says.
Michigan-based Priority Health plans to roll out its transparency tool in late summer to allow its more than 600,000 members to compare prices and quality for 300 most-used health services. By partnering with Healthcare Blue Book, the payer says it will enable members to compare costs by procedure, facility and physician.
“Our motivation to do this is that it will help patients save dollars and, in turn, save dollars for their employers,” says John Fox, MD, associate vice president of medical affairs at Priority Health. “Patients have more out-of-pocket costs, and I think certainly patients have a right to know what they’re buying and how much it’s going to cost. And, if there’s no difference between one service and another, then they have a right to shop.”
Priority Health’s online tool will list a current “fair price” for each procedure in each market, then list facilities by their cost and identify them as “green” (at or below the fair price), “yellow” (slightly above the fair price), or “red” (above the fair price).
“One of the values of transparency is healthcare costs act more like they would in another market,” says Fox. “There are some systems that may be able to justify [a higher cost], and it will be left to the patients and their physicians to decide what is best.”
Consumers and employers are becoming more aware of the vast price variations within a given market, especially after the U.S. Department of Health and Human Services released data last month showing price differences for common procedures. For example, services to treat heart failure range from $21,000 to $46,000 in Denver, and from $9,000 to $51,000 in Jackson, Miss.
Hospitals that charge especially high rates will face higher scrutiny, according to officials at the Centers for Medicare and Medicaid Services. However, industry observers were outspoken about the fact that the release of the hospital charge data is only a small step. The huge volume of information hardly translates into any type of action on the part of healthcare consumers.
But the fact that CMS and federal officials are openly sharing and discussing price variation is encouraging to many. Often such scrutiny leads to industry self-regulation to discourage new federal or state regulation.
“There’s no question in my mind that the future of this healthcare system will entail much more transparency,” Delbanco says. “It’s really up to the healthcare industry how we get there. There’s going to be such demand for transparency that it’s going to happen, one way or the other. There’s absolutely no reason why health plans, doctors and hospitals can’t work together to make it usable and meaningful for those who need it. if they’re not willing then someone will make them. it’s a matter of time.”
Scrutiny is exactly what Burgess wants. In legislation he has introduced every year since 2006, Burgess—a physician—seeks a federal law that would direct states to establish and maintain provisions requiring disclosure of information on hospital charges. The bill also would require hospitals and health plans to provide that pricing information to the public, along with their estimated out-of-pocket costs. The bill, called the Health Care Price Transparency Promotion Act, has bipartisan support and is endorsed by the American Hospital Assn.
Although the Patient Protection and Affordable Care Act does include a provision aimed at transparency, Burgess says it became so watered down that additional legislation is necessary.
As more Americans turn to high-deductible, consumer-driven plans today, they expect more information about cost, he says. Burgess himself is enrolled in a consumer-driven plan.
The U.S. Department of Labor, citing a study published by National Business Group on Health and Towers Watson, says 2% of companies with 1,000 or more employees offered consumer-driven health plans in 2002, whereas 54% offered such a choice in 2010. CPR’s Delbanco says that number is closer to 66% now.
Such plans are proving more popular with employers and enable consumers to decide how to spend—or save—their healthcare dollars, Burgess says. He wants consumers to have three sets of data: the actual cost of the procedure; the price the consumer will be charged; and some quality measure.
“If they have the information, they’re going to make good decisions,” he says. “We can trust them to do that.”
Making quality information available along with prices could help consumers avoid assuming that higher price means higher quality, Delbanco says.
“Because we know there’s almost no correlation between price and quality, it can be very misleading if only price is out there,” she says.
It’s a significant culture shift for consumers.
“That’s the biggest myth in the delivery system—that higher charges mean higher quality,” Deloitte’s Keckley says. “The younger folks get it, they know that’s not the case, but if you challenge that with seniors and people in their 50s, they still hold to that.”
Ways to implement
Health plans should have easily searchable websites with relevant and easily accessible data. Keckley says studies show data should be simplified and presented in symbols that are easy to comprehend. “Consumers gloss over when they see nominal data,” he says. “The data’s pretty clear that folks, when they’re comparing prices, get overwhelmed by the terminology.”
In fact, a recent study by PwC notes that consumers are overwhelmed by the information they can access and don’t always know where the trusted sources might be. Fewer than half of the 1,000 consumers surveyed had read a healthcare review online and only 21% had used a review to choose a doctor.
“The irony will be if we overwhelm people with data, and they don’t have any information,” Keckley adds.
Online or mobile apps that consider costs in each market based on each plan will be critical. The system is still in an early stage of developing the tools, however.
Price information in particular must be personalized and specific. Priority Health’s tool will calculate an individual’s deductible level to more accurately predict the out-of-pocket cost of medical procedures and equipment.
“At the end of the day that’s what patients want to know,” Fox says. “It’s just an imperative that we do our due diligence to get that correct.”
Change is imminent
Although the healthcare market is still quite fragmented—with some 397 health plans, 5,800 hospitals, 6,000 medical device companies, and so on—payers and providers must move quickly to keep up with a singular demand for transparency, Keckley says.
“I think transparency is going to be a reality in the bigger health plans and bigger employers in the next two to three years,” Delbanco says. “It’s imminent.”
But information is not necessarily knowledge, says Christine Evans, senior marketing manager at Castlight Health, a San Francisco-based transparency software developer.
She thinks the healthcare market is “onboard” with transparency” to deliver better and more affordable care. Self-insured companies using price transparency programs have seen a 13% reduction in healthcare spend versus their projected trend, she says.
“The movement has started,” Evans says. “People have gotten a taste of some of the information that is out there. In an ideal world we’d love to get to the point where price and quality of care is open to everybody and we create a truly efficient market.”
However, not everyone wants the information “open to everybody” because of competitive pressures and privately negotiated contracts.
Megan Cundari, the American Hospital Assn’s senior associate director for federal relations, says hospitals are in favor of transparency—within a given plan and its members.
“If you’re putting it on a public website, that’s where we start to get nervous,” Cundari says. “We consider those negotiated rates proprietary information. We feel that’s information that should be kept between negotiated parties.”
Plans also need to be careful that they don’t direct consumers to a given provider over another, she notes.
“An insurance company can try to give its policyholders as much information as possible, but I don’t think it can tell them where to go,” Cundari says. “They can suggest, but it’s ultimately a policyholder’s decision.”
Still, the AHA supports Burgess’ proposal for a state-based reporting system.
“We want to build on what they’re already doing instead of there being some national reporting requirement,” Cundari says.
As the call for price transparency gains acceptance, Deloitte’s Keckley says health plans must be prepared to reveal more about themselves.
Millennials and Generation Y-ers are demanding greater access to such information throughout society, he says, and health plans must disclose information in four areas to build credibility:
- Coverage and denials;
- Executive compensation;
- Risk-based contracts with providers; and
- Granular-level price transparency.
Younger consumers adopt an “occupy healthcare movement” that’s skeptical of a health system they don’t understand, he says. They assume there is unnecessary profit and waste among not only hospitals and doctors, but insurance plans.
He advocates administrative simplification in which plans share transparency mechanisms and develop consistent methods to evaluate hospitals, doctors and themselves.
“That’s where the health plan industry loses credibility,” Keckley says. “It’s the chief proponent of health transparency and cost, but about its own operation there’s reluctance. It’s obvious in the data that health plans still don’t enjoy the complete trust of consumers, and employers view health plans as not having delivered as much value as health plans say they do. That leads to a suspicion that plans are not being enough forthcoming.”
Many consumers think health plans enjoy 30% to 50% margins or more, when the reality is probably closer to 7%, he says. Health plans could counteract such misinformation by being more transparent themselves.
“The notion of standardizing a definition of administrative costs and publishing that does expose one to competitive pressure, but that’s exactly the kind of thing that dispels myths,” Keckley says. “I think the health insurance industry’s recognition that it’s a big player in health care means they have to step up their own transparency.”
New Hampshire A
New Jersey F
New Mexico F
New York F
North Carolina F
North Dakota F
Rhode Island F
South Carolina F
South Dakota C
West Virginia D
Source: Catalyst For Payment Reform, “Report Card on State Price Transparency Laws,” March 18, 2013