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.
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‘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 services.
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.”
Healthcare transparency companies attract big
investments from
venture
capital firms
By Shelby Livingston
Venture capital firms have poured money into
healthcare transparency tool companies in recent years, betting that the demand
for price and quality information will rise as employers and insurers shift
more of the burden of paying for healthcare to patients.
With the Trump administration and congressional Republican
leadership pushing policy changes that experts believe would raise deductibles
for consumers, investors see no signs that the demand for transparency will
fade.
“It’s this inevitable and relentless cost-sharing in healthcare”
that’s driving the need for transparency tools, and thus, investments in the
industry, said Dr. Bob Kocher, a partner at venture capital firm Venrock who
invested in Castlight, the leading transparency company. With consumers on the
hook for a larger share of their healthcare costs, employers, he said, “want
things that help people get their money’s worth.”
Investors have taken note. Before its initial public offering in
2014, Castlight raised $184 million in six rounds of funding—the largest being
in 2012 when it raised $100 million. Its competitor Vitals, a provider-search
website, has raised $86.3 million to date.
Founded in 2012, MDsave, which lists prices for consumers, has
raised $26.5 million.
Most recently, newcomer Amino, a San Francisco-based startup that
offers consumers real-time healthcare price estimates, raised $25 million in
venture capital in April. The company, launched in 2015, has raised $45 million
to date. Amino, powered by more than $3 billion in yearly health insurance
claims data, marks a new wave of transparency companies with its
consumer-friendly interface and real-time data, said Michael Gregory, head of
healthcare credit and equity at leading investor Highland Capital Management
and an Amino board member.
Amino’s predecessor companies, he said, suffered from basic
technology and a “clumsy” interface.
Another startup, Mpirica Health, which rates hospitals based on
surgical outcomes, picked up $4.6 million in funding also in April, led by a
crowdfunding platform and supported by a private equity fund.
Zocdoc, which allows consumers to find and book appointments while
staying in-network, has raised $223 million to date. The company is valued at
over $1 billion.
In total, investors pumped $3.5 billion into digital health
companies in the first half of 2017, according to venture capital firm Rock
Health. Of that, $321 million went to companies that offer tools to help
consumers buy health insurance, including transparency tool companies. Last
year, such companies didn’t even make the top six most-funded categories.
Rising deductibles are a driving force for more pricing information,
said Megan Zweig, research director at Rock Health. In 2016, for the first
time, more than half of all workers with single coverage—51%—faced a deductible
of at least $1,000, according to a study by the Kaiser Family Foundation and
the Health Research & Educational Trust.
“When that happens you create more of a consumer marketplace, where
patients are more likely to shop for their care and they are more likely to
seek out the tools these entrepreneurs are providing,” Zweig said.
Republican lawmakers have championed policies that experts believe
would increase demand for tools that shine a light on healthcare costs and
allow patients to make better decisions when choosing provider or service,
investors said. President Donald Trump and House Speaker Paul Ryan have
emphasized the importance of health savings accounts linked to high-deductible
plans as a way to increase consumer choice.
The Republican push to repeal the Affordable Care Act is on hold
after several attempts were defeated. But even if Republicans ultimately fail
to repeal the ACA, “consumerism and a desire for transparency are trends that
are not going away,” Zweig said.
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