Most baby boomers with coverage can remember when the costs for their personal healthcare were easily managed. Health insurance premiums were low. So were co-pays. No one cared much about how much the care actually cost, because they weren’t personally responsible for payment. That was the insurance company’s problem. Insurance companies were making a reasonable profit balancing care versus costs. So what happened?
Fast forward a couple of decades and that model has been completely turned on its head. As costs for the delivery of care soared (the percentage of GDP devoted to healthcare increased from less than 7% in 1970 to 18% today, on its way to 20%), employers found they were no longer able to bear their historically large share of employee premiums. The reasons for these cost increases are many, but advancements in medical technology and prescribed testing such as MRIs, CT Scans, etc., which are more sophisticated and more expensive, have become more commonplace.
Employers responded to this financial challenge by shifting more and more of the cost of premiums to their employees. Recognizing the unsustainability of ever-increasing premiums for both employers and employees, insurance companies (payors) began introducing coverage with lower premiums. The flip side to lower premiums, however, were higher deductibles. And so high deductible health plans were born. Now, patients were paying higher premiums and more out-of-pocket whenever they sought care.
The thinking at the time was that by including patients in their own healthcare transactions, they would become more conscientious, discerning consumers. Faced with a much larger financial burden for insurance coverage and care, consumers would make more cost-efficient investments in wellness. They would shop for and select the provider or facility that promised the best value. Eventually, it was expected, the consumers of healthcare would exercise their prerogative to buy from the provider who offered the best value. And by doing so, apply age-old supply and demand economics to dampen the exploding cost of care.
Even today, 10-years after high deductible plans were introduced, patients still don’t get all the information they need. Consumers of healthcare don’t have any idea how much their care will cost. Half the equation needed in order to calculate their own cost/benefit ratio is essentially unavailable to them. Consequently, healthcare has continued to operate on a kind of market oasis, free from the economic and competitive pressures that are a reality in every other sector of the economy.
The fact is, healthcare services do not have posted “menu” prices today. That’s partly because there are so many levels of pricing for the same services depending on whether you are insured, uninsured, Medicare, Medicaid or other. The costs also vary depending on where the services are delivered – Emergency Room, clinic, etc.. Because price differences vary so dramatically, the industry has been unable to devise a way for a patient to know beforehand how much their care will cost and whether there are alternatives at a lower price. This is the status quo that must – and is about to be – disrupted.
Today, the call for price transparency is getting louder and it’s coming from many different constituencies. It’s coming from the CMS, whose new price transparency rule is only a step in their longer-term rulemaking plan. It’s coming from employers like Apple and Amazon, who are opening their own on-site clinics and entering healthcare because of the industry’s susceptibility to disruption and promising profit potential (Healthcare is, after all, nearly one fifth of the entire American economy). It’s coming from state government, where legislators in more than 30 states have proposed or are pursuing legislation to promote price transparency.
It’s also coming from the federal government where legislation has been introduced requiring price posting on 100 hospital services. In Congress, House Representative Daniel Lipinski has introduced a bill, H.R.6508, entitled Hospital Price Transparency and Disclosure Act of 2018. If this bill passes Congress and is signed by the President, all hospitals and ambulatory surgery centers will be required to disclose charges of the Top 100 Inpatient and Outpatient procedures for both insured and uninsured patients.
Surprisingly, patients themselves seem to have been the least vocal of these constituencies. A recent research report from The Commonwealth Fund observes that “A Congressional Research Service study found that early price transparency initiatives, such as the one that required California hospitals to publish their charges, did not lead to changes in consumer behavior or pricing.”
However, the report continues, “there is likely to be greater interest in price information from consumers as their cost-sharing responsibilities increase.” Citing a separate research study by Judith Hibbard, Dr. P.H., senior researcher at the Institute for Policy Research and Innovation and a professor emerita in the University of Oregon’s department of planning, public policy and management1, “when cost and quality information was reported side by side in an easy to interpret formula, more respondents made high value choices.”
Industry experts agree. In its Price Transparency in Healthcare report published in 2014, the Healthcare Financial Management Association (HFMA) concluded that “To be effective, price transparency must offer clear information that is readily accessible to patients and enables them to make meaningful comparisons among providers.”
Based on our experience working with healthcare providers around the country, we are convinced that when patients have costs presented to them side by side with information to help them evaluate quality, they will indeed choose the providers who empower them to make good choices. As the chorus call for meaningful price transparency becomes a roar, and providers embrace their new role as competitors in a consumer-driven market, patients will have the information they need to reward the providers promising the best value.
Power to the Patients
Patients may have been slow to exercise their market power, but they’re catching on fast. And the market is rushing to meet them. Apple has already been mentioned. And, of course, there’s the Amazon-Berkshire Hathaway-JP Morgan healthcare joint venture. Not to mention CVS/Aetna and other pending mega mergers all looking to disrupt the industry and compete for patients. You can bet price transparency will be a big part of these consumer-centric companies’ operating models.
It’s also critical to acknowledge the generational transition taking place at this very moment, from boomers to millennials. One of the most frequently cited reasons for patients’ lagging interest in price transparency relates to the baby-boomer generation’s perceptions and behaviors. It was this generation, remember, that grew up in the days of low-cost care. And it’s this group that’s most likely to equate cost with quality, an unreliable correlation in healthcare.
Millennials, on the other hand, are accustomed to being able to shop and compare. They know from experience that a little time doing research upfront can lead to better decisions. They’re also digitally savvy, and would actually prefer to handle things themselves on their computer or smart phone, as long as the technology is good and the user experience pleasant. If price transparency hasn’t been a high priority for patients up to now, it is about to be.
The Upside for Providers
The challenges of implementing true price transparency are formidable. But the hospitals and health systems that lead the charge will find the return on their investment compelling. As patients take a larger, more assertive role, these providers will find themselves winning more business from patients who – because of the information and planning tools made available to them – are better prepared to pay and more likely to return and refer additional business. Today, transparency presents an opportunity to stand out in an increasingly competitive marketplace. It won’t be long before it becomes a competitive imperative.
Patients Financial Bill of Rights
Based on the belief that all consumers of healthcare have a market-given right to understand what they’re buying, how much it will cost and how they’ll pay for it, Loyale Healthcare has developed our Patient Financial Bill of Rights. With these rights, we believe that patients will enjoy better access, better experiences and ultimately better care. We also believe that healthcare providers will develop more durable patient relationships and experience better long-term financial outcomes.
1. The Right to Pre-Treatment Price Transparency – Meaningful, reliable price estimation and quality information is presented before treatment, when care and purchase decisions are made.
2. The Right to Inclusive Price Estimates – Price information includes a treatment’s predictable components from all billing parties including hospital, imaging, pharmacy, physicians, anesthesiologists, etc.
3. The Right to Know Total and Out-of-Pocket costs – Complete information about how much the patient’s insurance company will pay and how much the patient or guarantor will be expected to pay, including any unmet deductibles and/or co-pays
4. The Right to Payment Options – Nearly half of all households in American are not prepared for an unexpected bill of $1,000. These consumers should have the option to choose a payment plan and/or apply for financing to make their financial obligation a manageable part of their monthly budgets
5. The Right to Information that’s Easy to understand and Act On, 24/7 – Patients have made online interactions a part of everyday life. They’re entitled to on-demand access to consolidated statements, payment plan documents, information about their balances and to interact when they have questions or need to make changes
6. The Right to Financial Experiences that are as Personal and Compassionate as Patients’ Clinical Experiences – healthcare providers are renowned for the quality of their clinical care. Patients need and expect a similar approach to the financial dimension of care.
At Loyale Healthcare, we believe the future is bright for the American healthcare industry. Informed, empowered consumers have always fueled innovation and excellence. The same dynamic applies today as healthcare adapts to compete and win. However difficult this change is likely to be, the outcomes will benefit every stakeholder. We are excited to be a part of the revolution.
Kevin Fleming is the CEO of Loyale Healthcare
Loyale Patient Financial Manager™ is a comprehensive patient financial engagement technology platform leveraging a suite of configurable solution components including predictive analytics, intelligent workflows, multiple patient financing vehicles, communications, payments, portals and other key capabilities.
Loyale Healthcare is committed to a mission of turning patient responsibility into lasting loyalty for its healthcare provider customers. Based in Lafayette, California, Loyale and its leadership team bring 27 years of expertise delivering leading financial engagement solutions for complex business environments. Loyale currently serves approximately 2,000 healthcare providers across 48 states. Loyale recently announced an Enterprise level strategic partnership with Parallon including deployment of its industry leading technology to all HCA hospitals and Physician Groups nationwide.
1 J. H. Hibbard, J. Greene, S. Sofaer et al., “An Experiment Shows That a Well-Designed Report on Costs and Quality Can Help Consumers Choose High-Value Health Care,” Health Affairs, March 2012 31(3):560–68.