Why price transparency matters for health care
May 20, 2014
by Loren Bonner
, DOTmed News Online Editor
The costs of many health plans are now published for the world to see on health exchanges, but cost by procedure remains elusive, according to Will Hinde, the director of the health care practice of West Monroe Partners. But this is all changing as consumers take a more prominent role in health care decision making. DOTmed News spoke with Hinde about some of the potential benefits of price transparency — especially for imaging — and what challenges still need to be overcome.
DMN: The government seems to be supportive of more transparency in health care. How do providers and health care organizations feel?
WH: Government programs are largely administered by private organizations; the government is in favor of transparency due to the high costs of Medicare and Medicaid, which transparency would help combat.
Provider and health care organizations understand the demand and need for transparency, but the legacy organizations will most likely not be the ones to champion this movement. These organizations are somewhat slow to change, and providing transparency is a costly and complex endeavor. Providers will have a difficult time as they are contracted with many carriers, all with unique fee schedules, so providing a price will be somewhat meaningless absent the patient's insurance policy information. Payors will need to upgrade systems, educate consumers, and create easy-to-use tools to help drive adoption. They are doing so to some degree, since they have the most to gain by their members making more cost-friendly care choices with which they typically share or absorb the cost.
DMN: Why have health care organizations historically been resistant to price transparency?
WH: The costs of many health plans are now published for the world to see on health exchanges; however, cost by procedure remains elusive.
There are several reasons health care organizations (payors) have not embraced the idea of true cost transparency. First, it is complex and expensive to implement. Given the policy-centric nature of the payor back office, it is difficult to determine the true cost of a patient encounter. Also, the majority of payors run their administrative platforms on legacy technology, which is not easily configured to produce this type of inquiry. Second, if forced to disclose procedure pricing, health care organizations feel they are giving away some of their 'secret sauce' as to how they assess risk pools and negotiate with providers. In this highly competitive market every advantage counts, and they do not want to help their competition or potentially lower all prices by getting into pricing wars with one another. Finally, historically, these types of tools have not been adopted by their members; the mentality has been, "Why spend the money and effort to upgrade systems and create tools if nobody will use them?"
Although the above have been barriers in the past, the health care ecosystem is changing — consumers are more curious about the cost of health care, the world is more web-savvy, and insurers are spending massive amounts on technologies that will allow for the necessary integration and reporting to provide on-demand transparency.
DMN: Why do providers and health care organizations need to start thinking about price transparency?
WH: I do think providers and health care organizations have been thinking about price transparency for some time; however, thinking is not doing. Given the recent legislation and overall consumerism trends, those organizations who don't prepare for and eventually provide transparency will not be trusted and will therefore lose market share. The business to consumer trend will not slow down; now that consumers can conduct these data comparisons in other markets — banking, travel, property and casualty insurance — they expect and will eventually demand it for health care.
Given that health care is an entirely unique service, it will be a difficult and transformative process. If organizations don't start not only planning, but also implementing the necessary processes and technology to provide transparency, they will be left behind.
DMN: What kind of outside pressure do they face today to get on board with price transparency?
WH: The primary pressure is going to come from competitors; the organizations that provide transparency first will attract and retain consumers. Along with competition is the change mandated by legislation that requires health organizations to have accessible data on an individual patient level. Since systems have traditionally been built and configured on a group- and policy-based way of doing business, this is no small change. Call centers will begin being overwhelmed with direct calls from members as more and more individual policies are sold. Increased call volume and phone time is expensive and will hurt medical loss ratios, public perception, and member retention — not to mention employee morale.
DMN: What would be some areas where knowing the price of a medical test or procedure would be beneficial?
WH: An obvious area of knowing test prices is imaging (e.g. CT scans, MRIs), since they can vary widely from facility to facility. Another would be the cost of a prescription (e.g. compared to the generic).
To turn this question around, I don't know what area would not benefit from having a price associated with it — everything should have a price. Consumers need to have cost information to make educated decisions on their treatment plan, to avoid unnecessary tests and procedures, and at a minimum understand the options available to them. This, of course, is dependent on a physician who can communicate the advantages and disadvantages of pursuing a particular path — with that information consumers can decide what is best for them.
Is there an example of a health care organization that has begun to make this information available?
WH: Several organizations have made significant strides into providing their patients and members with transparency. The large payors have the most incentive and therefore tend to lead the way, for example, Kaiser, Cigna, Aetna, UnitedHealth, and Humana. Payors are in the best position to calculate an estimate as they have the most data on the patient, the provider contract, the insurance policy, and the aggregate data for an average cost of a procedure.
Providers are not as incentivized to disclose costs upfront (similar to how fast food restaurants were not incentivized to provide calorie counts on menus); however, patients will increasingly demand this type of information prior to office visits and procedures.
One important note, that is: even when this service is provided, consumers will need to be educated on how to leverage the information — adoption of existing tools has been extremely limited among membership with access to these services. This may be due to the lack of guarantee associated with the estimates, the difficulty in using the tools, or simply member avoidance given the personal nature of the transaction.
DMN: Anything else you'd like to add on the topic?
WH: There are many facets of the health care system that need reform. Price transparency is certainly a critical piece, but along with it several other aspects of the care continuum must change: quality transparency, reduction of fraud, waste and abuse, an evolution of the provider payment model, and consumers taking ownership of their health and treatment choices to name a few.
Transparency will usher in a new phase of care where consumers can have the right information to make these difficult decisions and understand the financial impact of their treatment plan — we can only hope this comes sooner rather than later.