Achieving transparency in healthcare

SPECIAL REPORT: Pressure is mounting to make healthcare prices available to patients, but there are significant hurdles to doing so

By Maria Castellucci and Shelby Livingston

Is the price right? Solving healthcare’s transparency problem

By Shelby Livingston

When a patient schedules a visit with Baylor Scott & White Health, the Texas health system does something that would seem ordinary in other industries: it tells that patient what the visit or procedure will cost out of pocket.

For the past five years, Dallas-based Baylor has been calling patients to provide a cost estimate for most high-dollar hospital services, even if they don’t ask for one. Walk-in and emergency room patients also receive an estimate. And patients have the option to use Baylor’s cost-estimator tool on their own, which incorporates the health system’s contracted rates and the patient’s benefits information to cough up a personalized figure.

Being transparent about price enhances the patient’s healthcare experience, said Sarah Knodel, vice president of revenue cycle at Baylor, but it isn’t just a nice thing to do. Patients are more likely to pay if they understand how much they will owe out of pocket upfront, reducing the amount of uncompensated care the system must swallow, she said. “Our goal is to start to inform the patient as soon as possible about how much they’re going to owe and to set the expectation that we are going to try to collect on that estimated amount due.” That way, patients can make an informed decision about whether they want to proceed with the healthcare service.

Like Baylor, many other healthcare organizations, from providers to insurers, are working to increase price transparency for the services they provide, to varying degrees of success. The push to bring transparency to healthcare pricing and quality has been going on for years, but still the industry undoubtedly remains one of the nation’s most opaque. The scarcity of price and quality information is often blamed for the high cost of care.

‘FLYING BLIND’

For the most part, consumers remain in the dark about what they will be asked to pay after visiting a primary-care doctor or undergoing an inpatient procedure. In that way, healthcare is unlike every other aspect of the consumer experience in America. It would be unimaginable to leave a broken-down car with a mechanic before getting a cost estimate, for example.

But in healthcare, “everyone’s flying blind,” said Francois de Brantes, vice president and director of the Center for Payment Innovation at the not-for-profit Altarum Institute. Without transparency, consumers can’t shop for healthcare and physicians can’t make cost-conscious decisions. “If you don’t know the price of the service that you are buying before you buy it and you don’t have the ability to compare that to others and determine the value of that purchase, then how is that a functional market? It’s completely dysfunctional,” he said. 

For the most part, consumers remain in the dark about what they will be asked to pay after visiting a primary-care doctor or undergoing an inpatient procedure. In that way, healthcare is unlike every other aspect of the consumer experience in America.

But things are changing, albeit at a snail’s pace. The pressure on providers, insurers and drugmakers to offer price and quality data is mounting as the nation’s healthcare spending continues to grow above the general rate of inflation and patients burdened by rising deductibles demand the information needed to shop for healthcare services. Recent high-profile cases of price gouging such as the one experienced by users of the EpiPen, a device that delivers a life-saving injection of epinephrine, have shined a bright light on what can seem like arbitrary pricing practices in the healthcare industry.

Also, alternative payment models that require providers to take on financial risk for populations of patients are forcing doctors to ask questions about the cost of ordering this test or that, referring a patient to a specific skilled-nursing facility or ordering home care.

Researchers, economists and physicians who for years have observed the evolution of transparency in the U.S. view it as an inevitable movement that can’t be quashed. But despite ardent support and demand for transparency, it’s unclear if it will be the antidote to ever-climbing costs.

It’s tough for a provider or an insurer to come up with an accurate cost estimate for a particular service. There is no standard price for a knee replacement, an angioplasty or any other healthcare service. Prices can vary by thousands of dollars between hospitals within the same neighborhood, let alone in different parts of the country.

A hospital’s charges for a procedure have little relation to the actual price an insured patient will pay. Providers and health plans hold those negotiated rates close to the vest. Physicians often don’t even know the cost of the services they provide. Plus, the patient’s own insurance benefit structure adds an extra layer of complexity, since one Blue Cross member could pay a very different amount at the same hospital for the same procedure as another Blue Cross member, explained Joe Fifer, CEO of the Healthcare Financial Management Association and former chief financial officer at Spectrum Health.

What’s more, an estimate could change drastically if a patient goes to the hospital for one thing and ends up needing something else. It takes work and coordination between the health plan and the provider to offer an accurate estimate. Even so, it can be done, Fifer said. “It’s a desire problem on the both sides. If the hospital and the health plans want to do it, the technology is there.”

MAKING SOME PROGRESS

The amount of price information available for consumers is growing. Nearly all major health plans offer a cost-estimator tool or contract with a third-party vendor to provide one so that commercially insured patients can search for a common clinical service and obtain a cost estimate. The vast majority of self-insured employers—85%—offer such tools to employees. They contract with vendors such as Castlight or Truven Health Analytics.

Of the health plans with cost-estimator tools, less than half use negotiated rates with providers to produce the estimate, according to a 2016 study in the American Journal of Managed Care.

Of the health plans with cost-estimator tools, less than half use negotiated rates with providers to produce the estimate, according to a 2016 study in the American Journal of Managed Care. While most experts say consumers need quality data alongside price information to make smart shopping decisions, only two-thirds of plans shared provider performance data with members, with half of those integrating quality data into their price-estimator tool, the study found.

Still, insurers say their tools can save members big bucks. Since it launched its tool in 2015, Grand Rapids, Mich.-based health plan Priority Health estimates that its members have saved an average of $1,000 each to date, while a total of $6.3 million has been avoided in total healthcare costs. Priority’s tool offers out-of-pocket estimates based on a member’s specific benefits, a characteristic that’s unique in the market, according to Nathan Foco, the health plan’s senior director of market research and consumer analytics.

National insurer UnitedHealthcare, which has offered its members a price-estimator tool for a decade, in July launched a website to help spread price transparency to the general public, though the estimates are not as tailored.

But evidence suggests that few patients are actually taking advantage of health plans’ tools. Just 10%, or 38,000 commercial members, use Priority’s tool. UnitedHealthcare declined to provide details on how many members use its site, but suggested the figure was low. “A lot of people aren’t aware of these tools. They don’t know to look for them,” said Craig Hankins, UnitedHealthcare’s vice president of digital resources.

Catalyst for Payment Reform, which advocates for healthcare price and quality transparency, estimates that just 2% of consumers overall use health plans’ cost-estimator tools.

Studies of the tools’ effects on healthcare spending show mixed results. A 2014 JAMA study found that Castlight’s price tool resulted in strong savings for customers shopping for the best deal in imaging—but not in clinician office visits or lab results. The study was co-authored by two Castlight data analysts and another researcher who is a paid adviser to the company.

But another 2016 Harvard Medical School study also published in JAMA found that offering employees a price-estimator tool (in the study’s case, the Truven calculator) did not lower healthcare spending. In fact, employees who used the tool ended up spending more than those who didn’t. The researchers suggested consumers could spend more if they equate high cost with high quality.

“Asking patients to become informed about price and quality, and make decisions about diagnosis and treatment in light of information about price and quality, I think that’s largely a waste of time;  and worse, it imposes radically unfair burdens on many patients,” said Alan Sager, a Boston University professor of health law, policy and management who is skeptical that transparency will lower healthcare costs.

“A lot of people aren’t aware of these tools. They don’t know to look for them.”

CRAIG HANKINS, UNITEDHEALTHCARE’S VICE PRESIDENT OF DIGITAL RESOURCES

Deductibles have risen in the name of encouraging patients to shop, thereby slowing down U.S. healthcare spending, which rose 5.8% in 2015 to reach $3.2 trillion, or $9,990 per person. But the amount of price data and quality data hasn’t increased to match, he said, noting that quality data are often unreliable. He noted that the well-known Leapfrog Group, which rates hospitals, posts a big disclaimer under the results of its comparison-shopping tool. Even if data were widely available and accurate, Sager doubted consumers would start using the pricing tools.

CONSUMER DEMAND

Surveys continue to show that consumers want price information. The massive amount of venture capital funding pouring into healthcare transparency companies illustrates that demand. David Vivero, co-founder and CEO of one of those transparency companies, San Francisco-based Amino, argued that it’s natural the tools would be slow to catch on at first.

In healthcare, “consumers have always been passengers,” Vivero said. “There’s a ton of training that has to go on with consumers who have never been trained to shop or think about healthcare as a marketplace.”

But Castlight, founded in 2007 as one of the first healthcare transparency companies, has recently pivoted to focus more heavily on employee benefits engagement and wellness programs. “Transparency is important, but it’s not enough” to change the healthcare system, said Kristin Torres Mowat, senior vice president at Castlight. “We can’t just rely on people being proactive, coming to the source of information and making these complicated, rational decisions about price and quality at the time of healthcare need.”

Much of the time, patients rely on the advice of their doctors when it comes to healthcare. Because they order the high-dollar services and do the referring, doctors’ decisions are the ones that drive the biggest share of healthcare costs, experts say. Many providers have made transparency a priority, said Leslie Schreiber, consulting director at the Advisory Board Co. who works with hospitals on their transparency strategies. That’s in part because many states are starting to require providers to disclose their prices upfront.

Others have realized that offering patients a price estimate translates to greater collections. “People are much more likely to pay their bills at the end of the day if they are equipped with an accurate price estimate upfront,” Schreiber said. Baylor Scott & White, for example, increased its point-of-service collections at facilities in its North Texas division by 60% since it started contacting patients with estimates.

It’s unclear just how many hospitals provide cost estimates. But one 2016 study from the Pioneer Institute concluded that complete prices could not be obtained from 14 of 54 acute-care hospitals in six major metropolitan areas, despite calling each institution up to 11 times. At the majority of hospitals studied, front-line employees did not know what to do with price requests, the study found.

Despite state, provider and insurer efforts to shine a light on prices and quality in healthcare, some corners of the industry remain dark. Drugmakers have come under fire for refusing to disclose how they set their prices. And pharmacy benefit managers—the middlemen who are hired by insurers and employers to negotiate prices and set formularies—have been sharply criticized for keeping the rebates they receive from drugmakers a secret.

Moreover, clinicians often don’t know the price tag of the medical services they provide. They are “highly unaware of the costs of different procedures and interventions,” said Niall Brennan, president and executive director of the Health Care Cost Institute.

A June study in the Journal of the American Osteopathic Association found that less than half of emergency room physicians and nurses knew the cost of the services used to treat common conditions.

Value-based payment models, such as accountable care organizations and bundled payments, however, demand that physicians have a better understanding of the relationship between cost and quality so they can pinpoint opportunities for improvements.

Horizon Blue Cross and Blue Shield of New Jersey is one insurer that has tuned in to the benefits of data transparency. The plan shares price and quality information with providers participating in its 18 episodes-of-care programs and works with them to improve outcomes. Doctors can see how they stack up next to similar providers and most begin to make changes, such as referring patients to lower-cost, higher-quality facilities. Through the program, Horizon has managed to reduce readmission rates and emergency room visits for certain conditions.

Capitated health systems may have a leg up on price transparency. Because its physicians are on a fixed fee schedule, Kaiser Permanente’s doctors “know and can communicate to our members the exact costs. Other staff members are also able to provide this information,” said Christine Paige, the integrated system’s senior vice president for marketing and digital strategy. Patients request more than 2,800 estimates each day using Kaiser’s price-estimator tool, which is generally 95% accurate, she said.

Not all providers are keen to share. Some states that have introduced or passed legislation to require hospitals to disclose their prices have been met with resistance from providers. In Ohio, for example, the Ohio Hospital Association and other provider groups sued to block a law that would require providers to offer patients a good-faith estimate of the amount the provider will charge the patient’s health plan and what the patient would be expected to pay out of pocket. The law, which was previously scheduled to take effect in January 2017, was delayed.

The Ohio Hospital Association’s legal counsel, Sean McGlone, said providers don’t have all the details needed to give patients an estimate on the spot. Having to call an insurer for the patient’s coverage information at the time of the patient’s appointment would lead to long delays in care, he said.

Suzanne Delbanco, executive director of Catalyst for Payment Reform, said states would be better off legislating the creation of an all-payer claims database that collects pricing data from providers, insurers, drug plans and others and publishes that data on a public website for patients to use. “Once APCD laws are passed, there is little the lobbies can really do,” she said. At the end of 2016, at least 16 states had operational all-payer claims databases, according to the National Conference of State Legislatures.

While dozens of states have laws that refer to price transparency, often those laws do little to help consumers shop for care, according to the Catalyst for Payment Reform, which grades states annually on their price transparency efforts. Nearly all states received a failing grade in the organization’s 2016 report card. And states that offer price transparency websites have struggled to attract consumers. 

On the federal level, the CMS publishes Medicare claims and payment data for common inpatient and outpatient services, though experts question whether the data are useful to consumers.

Despite state, provider and insurer efforts to shine a light on prices and quality in healthcare, some corners of the industry remain dark. Drugmakers have come under fire for refusing to disclose how they set their prices. And pharmacy benefit managers—the middlemen who are hired by insurers and employers to negotiate prices and set formularies—have been sharply criticized for keeping the rebates they receive from drugmakers a secret. PBMs argue that their negotiations with the pharmaceutical  must be concealed to hold prices down.

Experts say demand for healthcare price and quality information will only grow as the Trump administration and congressional Republican leadership push policy changes that would likely raise deductibles and other forms of cost-sharing for consumers. For instance, the Trump administration has advocated heavily for expanding the use of health savings accounts, which are linked to high-deductible health plans.

But it remains unclear just how effective price transparency will be in slowing the runaway healthcare spending growth in the U.S. Experts concede that transparency alone is not the antidote to the healthcare cost crisis.

That’s “unrealistic,” HCCI’s Brennan said. Transparency is one component in a package of reforms needed to bend the cost curve, including the shift to value-based care, he said.

But just because it’s not a cure-all doesn’t mean it’s not worth doing, advocates say. “Transparency creates transparency,” de Brantes said. “It shines a light on prices and gives information to people that they otherwise wouldn’t have. It doesn’t mean that they are all of a sudden going to make vastly different decisions, but there’s a better shot at more people making value-based decisions if they have access to pricing information at the right time, at the right place.

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