The rise of high-deductible plans is leading more organizations to demand "price transparency" from their healthcare providers.
When it comes to healthcare, the conflict getting the most attention right now is the one between supporters and opponents of the Patient Protection and Affordable Care Act.
Yet there's another battle going on, one that isn't quite as momentous as that being waged over healthcare reform, but one that nevertheless has clear ramifications for the bottom lines of companies and their employees. It involves the deceptively simple yet sharp-edged question of how -- and even if -- to publish the actual prices medical providers are paid for their services.
Today, hardly anyone who pays for healthcare -- including millions of employees with high-deductible plans -- gets to see price in advance of a service.
Pricing studies of many procedures often reveal an astonishingly high variation in prices without evidence of any corresponding differences in medical outcomes.
Health insurers don't reveal to their customers the prices they negotiate with providers. To be sure, an "explanation of benefits" statement for a service may report the details of charges and disallowances. But experts in medical billing say EOB statements are a flawed substitute for actually disclosing the contractually agreed-to prices with a medical provider in the insurer's network.
Experts say this lack of price transparency -- keeping employers and employees in the dark -- is a major roadblock to restraining price increases and encourages price competition. Financial illiteracy is costly, in other words.
A Reluctance to Share
Some executives speak bluntly about their frustrations. James Dickey, senior health program manager at Intel Corp., says he went "down the transparency path" for his Santa Clara, Calif.-based company's 100,000 U.S. employees, some of whom are enrolled in consumer-driven health plans with high deductibles. He says the health plans did not want to share price information.
"They said, 'We provide the best discounts. [The price information] is our intellectual property because we provide the discount,' " says Dickey, who spoke about his experiences at a healthcare conference in March sponsored by the National Business Group on Health.
The health plans also told Dickey they have anti-transparency clauses in their provider contracts and that hospitals would leave the insurers' provider networks if prices were released.
Dickey countered with an offer to show his employees prices, where available, and to say on the company's health-benefit web portal when a hospital refuses to release price, but to no avail.
Insurers sometimes defend their reluctance to share prices, even to self-insured employers, by explaining their negotiation strategy with providers. If lower-priced providers were to learn of others' prices, the insurers say, they might demand the insurers give them parity with higher-priced competitors.
Nevertheless, price transparency has been the focus of a number of private and public initiatives in recent years. When high-deductible plans began to proliferate, HR executives saw the need for tools to help employees easily digest information about the prices and quality of alternative medical providers. After all, what is consumer-driven healthcare when the driver doesn't even have a map?
In 2006, a coalition of employers and insurers called Care-Focused Purchasing retained a vendor to build a massive data warehouse of claims data for some 20 million lives. The goal was to create a source of reliable cost-and-quality data for households and employers.
However, things did not work out that way. Intractable problems with claims-data quality arose, and the system became so unwieldy that it "collapsed under its own weight," says Peter Hayes, who oversees health and wellness at Hannaford Bros., a Scarborough, Maine-based supermarket chain.
Along a roughly parallel track, several states and hospital associations built comprehensive databases to report healthcare prices. In New Hampshire, for example, the state Department of Insurance launched HealthCost, a website that discloses the cost of many tests and procedures.
A quick look into this online portal reveals that one New Hampshire hospital is typically reimbursed $8,714 for the same arthroscopic knee surgery for which an ambulatory surgical center is paid $3,603. State governments have also started to enact price-disclosure laws. Florida's Health Care Price Transparency law, which went into effect last July, requires urgent-care centers to post the prices they charge to customers who pay out-of-pocket for their 50 most-common services.
Today, there is something of a competitive race among recently launched business ventures to develop and license price-transparency tools. Their primary market is self-insured employers. Also, some insurers are turning friendly on price transparency. They are building in-house transparency tools or contracting with a transparency vendor. Meanwhile, stand-alone firms that offer transparency tools have attracted serious attention from venture capitalists.
"Would You Buy a TV This Way?"
One such vendor, San Francisco-based Castlight Health, whose investors include the Cleveland Clinic, builds portals that offer pricing and quality information on medical providers to clients' employees. In designing its portals, Castlight relied on focus groups of health consumers who told the company the types of features they found most useful.
Castlight Health is working with Honeywell Corp., which decided to offer its U.S. employees only a high-deductible health plan this year.
Brian Marcotte, vice president for compensation and benefits at Morristown, N.J.-based Honeywell, casts a rather jaundiced eye on healthcare industry practices, using an analogy he has shared with employees: "You do all your research on features and prices before you walk into Best Buy to buy a TV," he says.
"But in healthcare," he adds, "it's like you walk into Best Buy without doing any research and make a $25 co-pay to buy a TV regardless of cost. And you don't care about the risk of it breaking, because you only lose $25 in a second co-pay if you have to replace it."
For Marcotte, "price changes everything. The message is the power of price, which drives quality because you think about quality when you think about price," he says.
"We need to shift from competition at the health-plan level to competition at the provider level," he says. "We need to introduce provider quality and price at the point-of-purchase."
Within the provider network used by Honeywell, the cost of colonoscopies, for example, can range from $3,967 to $563.
Kim Anderson, vice president and manager for benefit consulting and compliance at First Horizon, a 2,400-employee Memphis-based bank holding company, speaks for many human resource executives who see price transparency's informational role: "We want to educate our employees on the total cost of healthcare, have them use tools and resources available, and then save while receiving quality care," he says.
In 2010, after it restructured its self-insured health-plan offerings to a PPO and a CDHP, First Horizon partnered with Change Healthcare, another price-transparency vendor, to bring cost information to its employees.
The company now sends out "Ways to Save" alerts to its employees that are triggered by claims data on their healthcare use.
For example, an employee may get an alert that if she were to drive an extra two miles for a pharmacy other than the one she normally uses, she would save money.
Anderson says 99 percent of the CDHP members went to the Change Healthcare portal to create their own personalized profile, such as setting the maximum distance from one's residence to include providers in price comparisons. Half of employees who received "Ways to Save" alerts went to their personalized portal to follow up.
A few insurers have also invested in price transparency, including Hartford, Conn.-based Aetna, which sells a large number of high-deductible policies.
In 2005, the insurer began offering some pricing data to members, says Wayne Gowdy, a senior product manager.
Today, members can use Aetna Navigator, the insurer's transparency tool, to find the prices they will pay for 550 different services, including physician visits, surgical procedures, diagnostics and testing.
Centrix Bank, a 130-employee bank in Manchester, N.H., uses a price-transparency tool from its insurer, Anthem Blue/Cross Blue Shield. Centrix Bank's experience may be a harbinger for stepped-up competition among insurers to offer attractive transparency products suitable for insured businesses, as well as larger self-insureds.
In late 2010, HR Specialist Debbie Bremberg took her insurance broker's suggestion to try out an incentivized transparency service called Compass SmartShopper, available through Anthem and developed by Compass Healthcare Advisers.
SmartShopper's service, offered online or over the telephone, offers at least three alternative care providers within a select geographic area. Through the service, employees are rewarded with up to $250 for selecting lower-cost providers for colonoscopies, mammograms and dozens of other preventive and medical procedures.
The relatively small size of the company allows Bremberg to hear directly from employees that the incentives are popular and that the portal is easy to use. "It has absolutely changed behavior," she says. Encouraged by the experience, the bank is expanding its incentive program to further enable deductible payments for outpatient care, depending on the site of the service.
"No Turning Back"
Despite the enthusiastic embrace of price transparency by many organizations, some formidable data challenges need to be resolved before it is ready for prime time.
One is the need to report prices at an "episode of care" level of aggregation. This would involve grouping all of the individual billable steps that predictably take place during, for example, a knee surgery, and presenting a single, reliable price. Such an approach "is essential for reliable comparison of prices among alternative providers," says Francois de Brantes, executive director of the Health Care Incentives Improvement Institute in Newtown, Conn.
The other challenge is the persistent reluctance by many insurers to disclose their negotiated prices for care. Employers and price-transparency firms have responded by investing in ways to "reverse engineer" an estimate of the negotiated price from summary claims data that insurers provide to their self-insured customers.
Not everyone agrees that reverse engineering can be effective in this regard, however. A former top executive at a health insurer, who did not wish to be identified, says it can only go so far.
"Even with a 10,000-employee group, there won't be enough claims data in a year to generate more than a handful of accurate prices for services and, in these cases, much of it will be low-dollar, high-volume services, such as office visits," he says. Nevertheless, many experts predict that transparency is the wave of the future.
"Employers and employees are tired of paying health-insurance premiums without knowing where their money is going," says Randy Boss, a risk architect at Ottawa Kent, a Jenison, Mich.-based insurance broker.
"The price of the healthcare genie is out of the bottle," says Kevin Overbey, senior managing director at Seattle-based Clearpoint/Alliant, an insurance broker and risk adviser. "There is no turning back."