In a press release last August, Priority Health claimed the title: the first health plan in Michigan to publish specific, regionalized health care costs and quality information by procedure, facility and physician. The company launched this tool so plan members could review and compare prices and quality for more than 300 of the most common health care services.
Patients' need for quality comparisons requires no explanation, but why did Priority Health include price data? Because the market environment has changed for hospital administrators, and there are now growing demands for transparency, including pricing transparency.
We believe there has been, and will continue to be, a convergence of trends that drive patients, caregivers and family members to shop for health care in much the same way as they purchase other goods and services.
These converging trends include:
- growth of high-deductible health plans;
- adoption of reference pricing;
- expansion of published quality of care and price data;
- more comparison shopping tools for consumers.
It is still early in the process, but we believe that a combination of changing health care policy, market dynamics, technology, demographics and cultural trends are creating a new health care delivery model, one that will more closely resemble other markets in which purchase decisions are based on the perceived value received.
What Is Driving Demand for Transparency?
Although transparency may mean different things to different people, we are talking about well-informed patients' comparison shopping among physicians, specialists, facilities and treatment options in search of the best value when they need non-emergent health care services. Transparency, according to this definition, along with the data needed for effective comparison shopping, is essential to empowering health care consumers. We have identified several trends that fuel this demand for greater transparency:
The shift to high-deductible health plans that typically incorporate health savings or health reimbursement accounts (HSAs or HRAs). These accounts, created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, offer consumers lower monthly premiums in exchange for greater "first dollar" financial responsibility. Consumers can make pretax contributions to their HSA, which they own and can transfer from job to job.
HSAs reduce the insulation between patients and the costs of care found in traditional health plans. By way of illustration, if a patient has not yet met his or her deductible and the physician orders a CT scan, the patient typically pays the full negotiated rate for that scan. Because the same scan can be performed at multiple locations for different prices (such as $150 at an imaging clinic compared with $500 at a hospital), the patient has a strong incentive to seek lower out-of-pocket costs (the $150 option).
These plans are becoming more common: As of 2006, there were just 1.3 million HSAs; in 2012 they had grown to 11.6 million, covering about 25 million people or 15 percent of the privately insured population. According to the Employee Benefit Research Institute, this equates to growth of 44 percent per year from 2006 to 2012. [For more details, see Paul Fronstin's article "Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2012," in EBRI Issue Brief, no. 382, January 2013.]
The rising popularity of high-deductible health plans means more patients are confronting the costs of care more directly. As a result, they are asking for data with which to make choices among facilities, care settings, physicians and even treatment options.
Although high-deductible plans are more common among individuals covered under employer group plans, we don't expect that the launch of state and federal government insurance exchanges will slow this trend. Even if millions of consumers eventually purchase bronze, silver, gold or platinum plans, or enroll in Medicaid, the vast majority of these individuals and families still will have significant out-of-pocket expenses to manage, and likely will demand cost and quality data to inform their decisions.
Growth in reference pricing. Another recent feature of health plan design that is gaining acceptance among employers is "reference pricing," or plan terms that limit reimbursement to an established maximum for a given procedure. Patients then have to pay the difference if they opt for a facility that charges above the reference price. If deductibles force consumers to confront costs at the low end of their health care expenditures, reference pricing for selected procedures forces a focus on expenditures at the high end.
In a pilot project run by WellPoint Inc. and the California Public Employees' Retirement System, reference pricing enabled WellPoint to reduce its cost for hip and knee replacements by 19 percent. It's too soon to report on use, but it's a safe assumption that such results, if they are borne out in further trials, will convince providers to quickly adopt the practice.
Reimbursement tied to performance measures. The availability of quality data, performance metrics and other useful information enable comparison shopping. Programs such as CMS' meaningful use incentive program, value-based payments initiative or Hospital Compare are making more data publicly available to consumers.
In addition, private insurers have launched similar efforts to tie reimbursement to performance as measured by specific quality of care measures. These efforts have been termed "value-based contracting." [See "As Obamacare Looms, Insurers Look Beyond Fee-For-Service Medicine, Say Execs At Forbes Healthcare Summit 2013" by Bruce Japsen.]
Better tools to communicate quality and cost. These tools include independent websites such as Healthcare Bluebook and research firms such as Consumer Reports or Leapfrog. Private insurers are also offering these tools to their subscribers. See more examples below:
A Growing List of Health Care Comparison Resources for Consumers
- Consumer Reports Health: www.consumerreports.org/cro/health
- CMS — Hospital Compare: www.medicare.gov/hospitalcompare
- CMS — Physician Compare: www.medicare.gov/physiciancompare
- Fair Health Consumer: www.fairhealthconsumer.org
- Healthcare Blue Book: www.healthcarebluebook.com
- HealthGrades: www.healthgrades.com
- Health in Reach (formerly PriceDoc): www.healthinreach.com
- Hospital Safety Survey (Leapfrog): www.hospitalsafetyscore.org
- New Choice Health: www.newchoicehealth.com
- New Hampshire Health Cost: www.nhhealthcost.org
- Save on Medical: www.saveonmedical.com
- ShareCare, www.sharecare.com
- The Commonwealth Fund: www.whynotthebest.org
- The Joint Commission: www.qualitycheck.org
- Truven Healthcare: www.top100hospitals.com
- U.S. News & World Report: www.usnews.com
One of the weaknesses of many of these tools is the lack of outcomes measures or cost data as a way of comparing facilities, physicians or treatment options. Also, sites that attempt to provide pricing for typical cases (other than payer-sponsored sites) may reflect list prices, not the negotiated price that insured individuals might pay. Nonetheless, the data are becoming more available as entrepreneurs are looking to capitalize on consumer demand, and payers are looking for ways to put the brakes on health care inflation.
The bottom line is we have to have transparency. There is a growing recognition among various stakeholders that the ability of patients to comparison shop for health care services is limited without greater transparency and the data needed for such shopping to be effective.
What Does the Future Look Like?
The present environment is challenging enough, but we expect that the future (within perhaps the next five years) will be even more challenging for hospitals. Here are key features of this future state:
Multiple demands for quality and cost data. We expect that hospitals will face even more demands for quality metrics, procedure volume data, patient demographics and data on cost to the consumer.
Demands from multiple sources. Beyond consumer demands for data, similar demands will come from CMS, private insurers, employers, dozens of websites and dozens of application developers, each of whom will want extensive quality and cost data. Will hospitals come under public pressure to comply with every data request? Yes!
Today's innovation becomes tomorrow's minimum standard. To stay competitive, health care organizations will need to provide basic information. Which facilities will consumers favor when faced with choices between "good" quality ratings and "data not available"? Providers who think they will be able to control the interpretation of their performance data will be disappointed.
Growing demands from consumers for outcomes data. Consumers, employers and patient advocates will increase their demands for data that matter to them, e.g., not just survival rates, but also health outcomes, recovery times, rates of complications and experience-related information such as satisfaction scores and reviews.
Leaders and laggards will be identified. Hospitals with superior metrics and outcomes actively will promote their relative positions, and those facilities with inferior performance will not be able to hide it.
Recommendations and Next Steps
Hospitals may wish to include the following recommendations in their planning discussions:
Strengthen data reporting and analytics. Hospitals are going to have to strengthen data reporting and analytics by leaps and bounds to efficiently provide data for dozens of metrics to all the organizations requesting them. There will be an advantage for those facilities whose systems can accommodate multiple calculation methodologies for any given measure. (Did you hear that, chief technology officers?)
Adopt bundled pricing and reference pricing. Consumers seeking comparative cost and quality data for a specific procedure, say gastric lap band surgery, are likely to favor comparison shopping tools and facilities that simplify the experience down to a single dollar figure and a clear set of services. Bundled pricing, at least for common procedures, is the only way to compare multiple facilities. These same dynamics will force acute care facilities to pay more attention to the treatment that takes place beyond discharge, as both bundled and reference pricing typically address the total cost of a procedure, including post-acute care like rehabilitation services.
Distinguish between process and outcome measures. Hospitals will need to generate both process measures (which are inputs) and outcome measures. For many acute care facilities, current measures are nearly all process measures: They stop at the front door. Process measures are certainly critical for managing all the details of care protocols, but what patients ultimately value (and will pay for) pertains to the recovery they experienced and the quality of life they received as a result of treatment. Acute care organizations will need to broaden their view of their responsibilities.
Build internal capability to diagnose and remediate process and outcome issues. Data that do not translate into information have very limited value; organizations that are unable to translate information to action are not much better off. Obviously, access to data is a prerequisite to remediation but, currently, many organizations seem to be operating as though access is the end goal. Organizations need to build capability in using data to understand drivers of cost and quality variances. Beyond that objective, delivery organizations need to develop clear processes for turning diagnostic conclusions into action; in other words, they need to get better at implementing change.
Start with what you do best. Hospitals will need to start somewhere, so it is likely that successful organizations will start reporting on the procedures or services they perform well. Those organizations that can demonstrate their positive performance with solid data across the broad range of procedures and services will have a clear advantage.
Implications for Infrastructure Development
Introducing transparency to the health care marketplace will add a dimension of reality to the words "accountable care" that it currently lacks. Accountability to the marketplace will have real financial consequences attached to it. It will elevate the stature and importance of the chief quality officer, repositioning that activity to be more like that of the chief financial officer than the bureaucratic undertaking that it too often is now.
The demand for transparency also will put a premium on the ability of delivery organizations to translate data into information, and information into remedial action in a timely way. That has implications for new capabilities and organizational infrastructure that health care delivery, as a pseudo-business, generally has lacked. As it evolves, transparency will stimulate more improvement in the quality of care than all the "best hospital" awards ever given.
Michael N. Abrams, M.A., is the managing partner and Daniel King, Ph.D., M.B.A., is a business analyst at Numerof & Associates Inc., St. Louis.