Pricing transparency for health care services has long been considered a cornerstone of meaningful reform that could drive down prices.
How do employers know if they're getting good value for their health care spend? How do they encourage their employees to be responsible health care consumers? Benefits advisors help position their clients with cost-effective health plans, but even within well-constructed networks, prices for services and procedures can vary wildly depending on where the employee is treated and by whom.
It's not unusual, for example, to find one claim for $250 and another for $800 for an identical MRI of two different employees, the only difference being where the MRI was performed. Even worse, the employer and employee never know about the disparity in price until they get the bill. Similar examples are easy to find every day across the industry. In spite of the best efforts of benefits advisors and employers, finding the best possible value for health care services remains elusive due to a lack of transparency in pricing. It's impossible to control price variations without the ability to look at the price tags.
|Chargemaster pricing alone is useless
Pricing transparency for health care services has long been considered a cornerstone of meaningful reform that could drive down prices. Debate about how to best make health care more affordable rages across the industry and in the legislature, but there has been nearly universal agreement that everyone would benefit from less obscurity around how services are billed and reimbursed.
Congress seems to have agreed, in part, by including a provision in the ACA requiring hospitals to publicly disclose their “chargemaster” prices for all items and services. The disclosure requirement had been satisfied by providing charges to patients only when requested; in 2018, the Trump administration updated those guidelines to require hospitals to post price information on the internet in a “machine-readable” format by January 2019. Most hospitals predictably complied by doing the bare minimum: regurgitating chargemaster pricing online in unintelligible formats nearly impossible for consumers to understand and decipher.
|Proposed new rule
Criticisms of the policy have been understandably severe. Few have been able to turn the confusing data into actionable guidance for understanding how they're being charged, let alone use the info to assess value or shop services. Viewed as a standalone measure, the policy change would be worthless, but it can be argued these new requirements were a necessary and important step in the right direction, setting the table for clarification and additional policy measures in the near future.
Responding to the criticism, HHS openly sought public comments between March and May on a proposed new rule that would further the goals of transparency by requiring hospitals and providers to disclose the rates of their negotiated health plans. If some version of this new rule receives approval, the impact could be far-reaching, with patient advocate groups expressing support for the insight consumers could gain. Hospital administrators aren't as enthusiastic about having their contract details made public, with concerns ranging from understandable to absurd.
Market dynamics would inevitably force prices down as insurers and providers compete on reimbursement rates, but hospital lobbyists claim the disclosure of negotiated rates could undermine patient choices. Conveniently left out of the argument is any evidence supporting that concern.
|Innovating instead of waiting
Whether significant policy changes will be implemented remains to be seen, but the absence of action creates an opportunity for others to fill gaps in the marketplace. The efforts of hospital systems and insurance carriers to keep pricing obscured and the system unnecessarily complex are being met by resistance from those who refuse to accept the status quo. Leaders both inside and outside the health care industry are unraveling the complexities of the industry and bringing their own solutions to market. One of the keys to pricing transparency is making the pricing data actionable, and bundled pricing is helping to make charges clear and upfront to the consumer.
Dozens of businesses on the supply side are vying to become the Airbnb or Uber of the health care marketplace by making access to high-quality health care easy and affordable. Commerce is changing across all industries. Millennials will pay for convenience and value, and their generation will be driving the market for the next 50 years.
Businesses that recognize the opportunities created by this shift will have the greatest impact on how health care is delivered going forward, and if the volume of startups is an accurate indicator, no one is waiting for the government to step in and guide them.
Looking at the current landscape of health care innovation, one clear theme dominates. The best opportunity to shift how health care services are delivered isn't to force the incumbents to change. It's to wave a red flag signaling “Look over here! I have a better solution!”
The Surgery Center of Oklahoma (SCO) is one such success story. They compete by eliminating third-party payers and hospital administrators to offer all-inclusive pricing online for the procedures they perform. Employers from as far away as Alaska and Massachusetts send their employees to SCO for surgeries, often paying less than 50 percent of what they would have paid for the same procedures elsewhere.
Their pricing is all-inclusive, giving patients and employers an opportunity to fully understand what each procedure will cost before anyone books travel arrangements. The transparency works for the parties on both sides of the transaction, with no hidden charges to the employer, no balance billing to the patient, and no complex administrative overhead on the billing side for SCO.
Similarly, Sano Surgery bundles all-inclusive pricing for inpatient and outpatient procedures and sells those bundles directly to employers. Sano is able to negotiate surgical procedures, medical imaging and labs at prices significantly lower than the contract rates for the same services with insurance carriers.
On the demand side, large organizations are leveraging their purchasing power to create carve-outs for procedures by contracting directly with preferred hospital systems or setting up their own clinics. Boeing contracts with the Cleveland Clinic for cardiac procedures. PepsiCo has an agreement with Johns Hopkins for joint replacement surgeries and cardiac procedures. Intel directly contracts with Presbyterian Health Services for their employees in New Mexico for a per-employee-per-month fee structure.
Going a step further, Walmart has established nearly a dozen direct-contracting relationships with top hospital systems around the country to form their “Centers of Excellence” (CoE) program. By paying their employees to travel to specialist facilities for diagnosis and treatment of a variety of complex or serious medical conditions, they report considerable cost savings while also improving quality of care for their employees. Having those direct contracts in place also eliminates the reimbursement guessing game, allowing Walmart to better predict their health care spend.
|Implications and trends
These success stories aren't unique, one-off experiments. Others are easy to find, and the trend of transparent pricing contracts between employers and health care systems is increasing as these tactics continue to show favorable results. It's not unreasonable to think policymakers in D.C. are taking notice.
One potential outcome of the proposed new rule being considered by HHS could be bundled pricing for services and procedures at hospitals and their ancillary clinics. If required to disclose contract pricing, they may be forced to simplify the structure of chargemaster pricing and eliminate complex itemization that was created to maximize revenue. Moving to bundled pricing would also complement CMS initiatives to move from FFS billing to a value-based billing model, making it easier to align Medicare/Medicaid reimbursement under the MIPS or APMs models.
The hospital systems that will survive the coming evolution of health will be those who recognize their current business models are unsustainable and boldly pivot to a new way of doing business. The new way steps back from the scarcity mindset of doing everything at all costs to maximize reimbursement from each patient, and instead focuses on how to make it easy and affordable to get treatment and services.
Hospital systems that actively invest in removing the cloud of complexity and obscurity around health care transactions will capture market share. The approach may seem counter-intuitive to hospital administrators who fear a “race to the bottom” effect if forced to compete on price, but those that focus on value, convenience, and complete transparency will be the ones that thrive in the evolving health care system.
Dutch Rojas is the founder and CEO of Sano Surgery, which reduces, stabilizes and hedges the costs of surgeries and procedures.
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