by Dave Chase
•Pay for all U.S. economic aid to foreign countries for 36 years (and still have $14 billion left over)
•Cover all annual health care costs for the uninsured six times over
Yet, despite all this waste and devastation, and despite employers spending huge sums to keep up with hyperinflating costs, the reality is status quo health benefits are a horrible value proposition for employers and individuals.
For example, flawed reimbursement incentives have made primary care a “loss leader,” like milk in the back of the grocery store (i.e., a low-margin item designed to get customers to purchase high margin items). The result is rushed appointments, unnecessary referrals to specialty care, and lower pay, making the discipline increasingly unappealing to physicians. Unsurprisingly, this has led to a primary care shortage. This leads to long wait times to see a primary care physician or no access at all, which can cause small health care fires to become 5-alarm medical infernos. In short, undervaluing primary care is the root cause of medically unnecessary office appointments, clogged waiting rooms, and unconscionable delays in care for people who truly need a face-to-face encounter.
Not surprisingly, Figure 4 shows that Net Promoter Scores, a common measure of customer satisfaction, shows the health insurance industry is lower than even cable companies.
A Way Out
While the status quo “preservatives” squabble in DC, forward-leaning individuals and organizations aren’t waiting around. They see the threat for what it is and are creating examples for all of us to follow. There is a budding partnership between clinicians dissatisfied with the status quo, citizens who realize they have more power than they’d imagined, and employers no longer willing to passively accept further theft of the American dream.
Jeffrey Brenner, MD—executive director of The Camden Coalition of Health Care Providers and MacArthur Genius Award winner for his work using data to identify and improve the care of high-cost, high-need patients—put it succinctly in a Freakonomics interview: “There comes a point in a democracy when the public’s had enough and they stand up.”41 For many across all segments of health care and all political persuasions, that time is now.
The three most trusted professions in the U.S. are nurses, doctors, and pharmacists. A key reason I love working in the health care industry is the great people I’ve gotten to know. However, great people inside a flawed system will always underperform those in a great system.
While it will take clinicians and others of all stripes to lead the movement, doctors have a unique role to play. In fact, some doctors are leading the revolution. Here are just two examples.
Rushika Fernandopulle, MD
Rushika is a practicing physician and cofounder and CEO of Iora Health, a health care services firm based in Boston. He was also the first executive director of the Harvard Interfaculty Program for Health Systems Improvement, and managing director of the Clinical Initiatives Center at the Advisory Board Company. Fernandopulle was among the first to understand that caring for the care team is foundational to achieving the best outcomes and reducing unnecessary costs and treatment. His work was featured in The New Yorker article “Hot Spotters,” which highlighted the best ways to care for the sickest patients in our cities.42
Iora’s mission is to build a radically new primary care model that improves quality and service, while reducing overall costs. It has opened successful practices in a wide variety of clinic settings, serving casino union workers, university employees, freelancers, undocumented workers, and Medicare recipients.
Rajaie Batniji, MD
Rajaie and his cofounder Ali Diab started Collective Health to help employees receive better care and coverage than the typical health plan. To tackle this challenge, they pulled together a team that could come at it from all angles—design, engineering, finance, law, medicine, product development, and operations. What they came up with is a smarter, more flexible alternative that connects a company’s medical, pharmaceutical, dental, and vision plans on a single platform.
The impetus for Collective Health was Diab’s horrible experience battling an insurance company that did not want to pay his massive medical bills following emergency abdominal surgery. The insurer claimed some of his surgical and hospital charges were experimental or the result of physician error, leaving Diab holding the bag for a shockingly large portion of the bill.
As a physician and political economist, Batniji had seen this scenario play out many times before: individuals left to advocate for themselves in a system where all of the economic incentives are misaligned and where getting answers about costs is impossible. Enter Collective Health, which was designed specifically for self-insured employers, two-thirds of the employer-provided health care market.
For these health care revolutionaries, it’s what Ronald Reagan called Morning in America.
Case Study
Pittsburgh (Allegheny County) Schools
Bucking old habits that are devastating education funding elsewhere, forward-looking teacher union and school board leaders in Allegheny County, Pennsylvania are proving that it’s not really so difficult to slay the health care cost beast and save their kids’ future—even in an expensive and contentious health care market. Understandably, unions want their members to be fairly compensated and keep schools from being decimated. Recognizing that they share the same goals, the school board decided to take a new approach.
Assuming the current trend continues, kindergartners entering Pittsburgh area schools will collectively have $2 billion more available to invest in education and services over the course of their school years than their counterparts across the state in Philadelphia. In Philadelphia, schools pay $8,815 per member for teacher health benefits. The Allegheny County Schools Health Insurance Consortium (ACSHIC), with 48,000 covered lives, pays $4,661 per member—$199 million less per year. Class sizes in Pittsburgh are 30 percent smaller, teachers are paid better with better benefits, and there are four times as many librarians.
Rewarding Wise Decisions
Jan Klein, ACSHIC’s business manager, describes a model that is very consistent with the Health Rosetta blueprint. In a nutshell, they make smart decisions free or nearly free (e.g., primary care is free and going to high-quality care providers involves very low or no copays or deductibles) and poor decisions expensive (e.g., pay more to see higher cost, lower quality care providers). It’s a much more subtle, yet more effective, strategy than blunt-instrument, high-deductible plans that often lead to deferred care, bankruptcies, reduced teacher compensation, fewer arts programs… the list goes on.
The consortium is managed by 24 trustees, equal parts labor and management. When consultants attend consortium meetings, they often can’t tell who is who. Many times, union leaders are more aggressive in pushing forward new initiatives. While other employers have blithely accepted 5 to 20 percent annual health care cost increases, the consortium spent $233 million in annual claims in 2016—down from $241 million in 2014. The consortium is able to manage their costs without any stop loss insurance because they have control over what they call their benefit grid, a program that was defined and embraced by both union leaders and teachers.
They’ve accomplished this despite the fact that care provider organization consolidation in Western Pennsylvania has reduced competition and raised health care costs with little to no improvement in quality of care—and despite an ongoing war between the largest hospital, the University of Pittsburgh Medical Center (UPMC), and the largest local insurance carrier, Highmark.
Understanding that the best way to spend less is to improve health care quality, ACSHIC found that the path began with the following steps.
•Educating consortium trustees on quality rankings of hospitals, including sending them to a Pittsburgh Business Group on Health forum
•Retrieving hospital quality data through third-party data and tools (e.g., Imagine Health, CareChex, and Innovu)
•Validating vendor information by confirming it was not influence
d by bias
•Selecting the most effective resources by identifying credible partners/vendors
Once educated, the trustees provided the following direction to the team developing the new school district health plan.
•Use quality measures from respected third-party sources
•Create tiered products so people are free to go wherever they want for care—but they pay more if they choose sites that have lower quality and value
•Focus on ease of access to regional clinics and hospitals
•Focus on the relationship between cost and quality (the former turned out not to be indicative of the latter)
•Educate members, especially about why the local academic medical center was placed in a high-cost tier (it wasn’t the highest-quality facility for many kinds of care)
•Address member concerns (e.g., will this really save money?) through continuous communication
To improve value, ACSHIC implemented tiered benefit offerings tied to high-quality care providers.
•Enhanced tier has NO deductible and pays 100 percent of hospital charges
•Standard tier has a deductible and pays 80 percent of hospital charges
•Out-of-network care has a larger deductible and pays 50 percent of hospital charges
•Lower cost and higher quality is determined by independent third-party, benchmarks
Going Forward
The consortium expects to continue enhancing benefits with only a very modest premium increase of 1.9 percent for members. Here are a few plan attributes going forward.
•The enhanced tier has no deductibles
•Primary care visits have no copay
•Specialist visits have a $10 copay
•An employee assistance program provider
•A second opinion service
Their determination to serve kids led education leaders in Pittsburgh to move past tired assumptions about labor and management being forever at odds over health benefits. With any luck, their steely resolve in the face of local challenges will inspire teachers’ unions and school boards throughout the country to say NO to health care stealing our kids’ future.
Chapter 2
Health Care Prices: Hyperinflation or Flat?
Jeanne Pinder
A curious thing has happened in health care pricing in this country. While insurance premiums and prices for common procedures for insured people go up and up and up, cash or negotiated self-pay prices* for many procedures vary little from year to year.
But wait, I can hear you saying, health care prices always go up, don’t they? They do if they go through a PPO or major insurance carrier. But for the most part, negotiated cash or self-pay prices don’t, at least not consistently. Sometimes they modestly increase, but more often they stay the same—or even go down from year to year. Our team of journalists noticed this pattern when we began comparing data sets year over year from the same locations.
We have been surveying care providers about their cash or self-pay prices for five years and have a very good set of data for 13 metro areas. Some did, indeed, raise rates regularly, but they tended to be the higher-priced care providers in the first place. Overall the flatline pattern is clear.
For example, we recently re-reported our New York City cash prices. The following figures show the trend for MRIs and ultrasounds. Note the wild variation in pricing among care providers, which persists across regions, cities, and even within individual health care systems and hospitals. This reflects yet another health care cost problem: unpredictability and variability of cost for the same procedures.*
Unpredictable Costs
Premiums go up, deductibles go up, out-of-pocket spending goes up, as Figure 5 shows. Inexorably, inevitably. Or so we are told.
But if you look deeper, pricing and costs are completely unpredictable.
Below is a sample of comparative prices graciously given to us a couple of years ago by a care provider organization. The table below shows charged rates, reimbursement rates, and individual responsibility for a selected group of procedures at the organization. Each row is for a different individual on a different health plan.
As you can see, if you have a $10,000 deductible, you might exhaust that deductible before you get to anything else, depending on the “insurance paid” or “negotiated” rate. Or, you might spend only $2,681 towards your deductible.
Example 1: Knee arthroscopy
Charges range from $13,452 to $19,187
Insurance payments range from $2,681 to $13,607
508% variation in the actual paid amount
Example 2: Repair Initial inguinal hernia (No. 1 and No. 2)
Charges range from $13,950 to $22,184
Payments range from $2,515 to $12,281
500% variation in the actual paid amount
Example 3: Carpal tunnel surgery
Charges range from $9,694 to $11,721
Payments range from $1,953 to $7,079
362% variation in the actual paid amount
Example 4: Cataract surgery with intraocular lens (IOL)
Charges from $10,456 to $12,831
Insurance payments range from $2,474 to $8,024
324% variation in the actual paid amount
Source: ClearHealthCosts. Used with permission.45
If you’re not surprised and shocked yet, get ready. Insured individuals who ask for cash prices pay less than other insured individuals. For example, in San Francisco, Castro Valley Open MRI charges $475 cash for a lower back MRI. An insured individual who asked for a cash price for the same MRI at a different care provider knocked a $1,850 bill down to $580. A different insured individual was initially charged $5,667 for the same MRI at a third care provider. Their insurer paid $2,367 and the individual was asked to pay $1,114.54, a total of $3,471.54 to the third care provider for the same $475 MRI. It’s enough to make your head spin.
However, there’s a trend toward transparency for competitive and regulatory reasons. Fore example, Surgery Center of Oklahoma founder, Keith Smith, MD, has been publicizing cash prices online for nearly nine years.
“I’ve only changed them four times,” he said. “And in every case, I lowered them. So I think I could make a compelling case that prices are actually falling.”
Smith is still making money too, he said, often paying doctors more for procedures than insurers. “If we realize some efficiency in our practice that we’ve not seen before, then our inclination is to pass that savings along to the buyer and make ourselves even more competitive in the market.”
More and more providers are following his practice of posting cash prices publicly, pushing us closer to the day when anyone can walk into a facility or physician’s office with a price and insist they step up and match it.
Third Parties, Intermediaries, and Escalator Clauses
So what causes insurance premiums and noncash prices to continue going up?
For one thing, contracts between providers and payers can include things like automatic escalator clauses, which stipulate that payment rates automatically increase each year.
Then there’s the chargemaster, the list of prices at a hospital or other health care provider. Here’s how one hospital executive explained the chargemaster to me: “Bob in accounting made that list in the 1960s, and we just raise prices every year. But don’t tell anybody—we like them to think it’s because our cost of business keeps going up, and because of uncompensated care, and because of the burden of keeping an ER open 24-7, and because health care is just expensive.”
And then there are all the people behind the scenes between you and your doctor, each taking a dime or a dollar or a hundred dollars out of every transaction. For example, a good size hospital probably has multiple vice-presidents for strategic planning, armies of business-office workers, pricing consultants, and people to make revenue-cycle management projections—just as the insurance company does.
There are a lot of people in corporate medicine who make a ton of money of
f the lack of market-competitive pricing, Smith said. And these people don’t want to give that game up. But Smith says it’s a myth that insurance companies care about prices.
“They really don’t. All they care about are charges, because they’re in the business of selling discounts. The higher the prices are to start with, the more money they make in discounting those prices. So that’s part of the problem; a PPO will say that their discount saved an employer tens of thousands of dollars—in which they naturally share.”
Turning Things Around
Joining Smith in his cynicism is Mike Dendy, who predicts the PPO concept will die out over the next few years.
Dendy is CEO of Advanced Medical Pricing Solutions, a Georgia-based company that does health cost management for self-insured employer health plans. They help employers beat back costs using tools like close scrutiny of bills, the formation of narrower networks, direct contracting between providers and employers, and reference-based pricing services, often based on Medicare reimbursement rates. Dendy said providers commonly charge 300 to 500 percent of Medicare’s rate and even the largest employers pay 250 percent on average, including both in- and out-of-network claims, although he’s seen hospitals creep up to 700 percent.
“The last report I saw showed the average spending by an employer group last year was about $18,300 per employee,” he said.
“It’s getting unsustainable—and every 4 or 5 percent increase now is a lot bigger than it was 20 years ago. The situation can be remedied, but you need consumerism to make it happen: incentives or disincentives for the consumer. And then you need technology and information immediately available, so people can make the correct decision in non-emergency situations.”
Dendy further predicted that the insurance market will move toward defined contribution plans, where an employer’s spending would be limited in scope. He compared employer health policies with travel policies. If you’re traveling for the company, he said, the company limits your outlay.