Big Ideas: Healthcare Price Transparency: Patients and Payers Versus Providers?

The release of the price data by Blue Cross Blue Shield of North Carolina has caused some pushback from providers in the state.

This article first appeared in the December 2015 issue of HealthLeaders magazine.

Healthcare price transparency is a laudable concept. Patients want it because they are contributing a larger share of the cost of care each year, through larger deductibles and larger out-of of-pocket maximums. The stumbling block for providers is that accurate pricing of healthcare services is nearly nonexistent. Provider organizations negotiate prices with payers, but one side often has a disproportionate influence, and what individual patients pay depends on their insurance.

Now, however, a payer is forcing the issue in a way that puts hospitals and health systems on the defensive.

"Lots of different stakeholders are demanding we produce more transparent information."

Blue Cross Blue Shield of North Carolina made news earlier this year when it decided, like the Centers for Medicare & Medicaid Services before it, to publish prices it pays to specific sites of care for specific procedures.

"Lots of different stakeholders are demanding we produce more transparent information," says Brian Caveney, MD, JD, MPH, vice president and senior medical director at BCBSNC. "Certainly the employer group insurance market is still big and important, so employer groups and their benefit consultants are particularly vocal about wanting information about where they should be steering their employees, and they're expecting the health plans to do that not only through benefit design but also through price transparency."

The release of the price data has caused some pushback from providers in the state, Caveney says, but he adds that most health plans have been making this information available to premium-paying members prior to last January's release. Individuals in the general public shopping for health plans under the Patient Protection and Affordable Care Act exchanges, however, had very little such knowledge.

"We thought that releasing this data to the general public could educate them," Caveney says. "It's relevant to know not only whether a particular site of care is in network but also to know about the potential costs potential buyers might incur if they bought these services and went to those providers."

The decision surprised many hospital and health system executives in the state, among them Linda Butler, MD, vice president of medical affairs and chief medical officer at Raleigh-based Rex Healthcare, a member of UNC Health Care, which reported net patient service revenue of $2.35 billion in 2013.

"It's relevant to know not only whether a particular site of care is in network but also to know about the potential costs potential buyers might incur if they bought these services and went to those providers."

Butler, who had no advance notice of the disclosure, told HealthLeaders Media earlier this year that the numbers can be misleading and don't always present the complete picture of what goes into the price listed. For instance, a search for colonoscopies will list prices, but the procedures have different CPT codes. "Giving you a defined price is much more complex than just giving you a range, and sicker patients will cost more," she says.

Spencer Lilly, president of the 874-bed Carolinas Medical Center in Charlotte, the flagship hospital of Carolinas HealthCare System, where he is also senior vice president, says he has yet to see any material change in patient volumes in the Carolinas marketplace that are directly associated with Blue Cross's efforts in this area, but he is concerned that patients may not be getting a full picture of the value of their care if cost is their only consideration.

"Carolinas HealthCare System supports efforts across our industry that provide patients with useful and accurate information on quality, service, and cost," he says. "As transparency and estimation tools are developed, we advocate that comparisons are inclusive of the entire value spectrum. It can be misleading to patients if cost is the only attribute, especially if cost is not a reflection of what the patient will actually pay."

So far, says Mission Health President and CEO Ron Paulus, MD, the release of BCBSNC's prices paid list has not had a material impact on the health system, or on consumers, for that matter.

The recurring theme from patients who have reached out to the six-hospital health system based in Asheville, says Paulus, is that they don't how to interpret the information, that it's confusing and doesn't seem particularly relevant.

"We have spent some considerable time trying to explain to consumers, physicians, and others what the data mean, but truthfully, in its current form, the data don't mean much of relevance to a typical consumer who wants to know: 'What will I pay and what is the difference in clinical outcome and service quality that I can expect from my encounter?' " he says.

He adds that Mission Health fully supports the concept of reliable, actionable, informative pricing, service, and quality information for consumers, and says the health system has "numerous initiatives" underway in various states of development to support patient engagement and activation much more broadly.

"We know that patients [who] are more engaged in their care feel more empowered, have better clinical outcomes, and cost less," he says. "The open question is, how do we engage consumer-patients more effectively? We are working hard in this area but have a long way to go. We are committed to making the journey."

Does top leadership at hospitals and health systems need to worry about price transparency on a strategic level? In a word, yes, says Tomas Mikuckis, a principal in the health and life sciences division of consulting firm Oliver Wyman.

He says those who pay for patient care—patients themselves, employers, and the government—are moving quickly toward price and quality comparisons for services that are easily comparable, such as certain orthopedic procedures, colonoscopies, and, of course, imaging, to name a few. He calls those services highly transactional, and their prices are heading down.

Another, less-recognized factor propelling the transparency trend is that as physician organizations and ACOs of all stripes enter into risk arrangements with payers—where the provider of care is responsible for the total cost of that care, and where the provider takes risk on performance—the cost of the service becomes much more important to the primary care physician.

"If, as a physician, I have three hospitals to choose from and one is more expensive than others but of similar quality, that is one lever I can use to manage the health of that patient I'm at risk for," Mikuckis says. "Consumer tools may take a while to catch on, but the physician angle is important. Whoever is at risk will shift referral patterns, especially with the growth of products and networks that are more at risk for referral management."

The perils of price disintermediation
The point is, many services in the healthcare universe are shoppable. As patients become more like consumers and begin shopping around, prices for profitable services—many of which hospital executives have previously counted upon to subsidize money-losing specialty programs—will rapidly ratchet down.

The ability of certain high-margin procedures "to support your business going forward is very much in jeopardy," Mikuckis contends.

He says up to two-thirds of healthcare services will become price-sensitive in the next decade. Therefore, he says, providers need to work quickly to get a true handle on what it costs them to provide each of an array of services, so that prices are based on the foundation of cost. This requires providers to become much more sophisticated on the cost to deliver from a basic allocation game, he says.

For instance: What does an incremental MRI cost? The answer depends on a lot of factors, but some organizations have been able to better allocate the fixed cost of an MRI machine, for example, by charging less for people who agree to come in at off-peak times when the machine would otherwise not be used at all.

"If you have a true understanding of the cost to deliver a service, you can get more sophisticated on what you charge," Mikuckis says.

A possible bright side for providers may be that some services are underpriced, too. Again, that's where knowing what it costs to provide the service is invaluable information.

In addition to services that are able to be commoditized, which Mikuckis estimates at 40% of all healthcare services, there are services that are not as easy to commoditize: services provided at centers of excellence for certain types of care, organ transplants, and treatments for certain cancers, where quality and outcomes may trump price quite a bit, he says.

Some providers may be undercharging for those complex services and overcharging for the basic services, he says. An academic medical center, perhaps, shouldn't be charging $2,000 for a radiology service to support charging $30,000 for "service X." Maybe you should cut the price of radiology and charge $50,000 for service X.

"There will be evening out of simple stuff, but if you are a leader in certain complex areas, you should be charging based on the actual cost," says Mikuckis. "And there is a broader piece of it. If you have a better understanding of the cost to deliver and what the market will pay, you can make strategic decisions on what to get out of or grow based on core capabilities you already have in place. Pricing rigor internally can provide valuable input for those broader strategic decisions."

Caveney goes even further on what he says is the shoppable spectrum in healthcare. He says BCBSNC's pricing tool for patients carries prices for about 1,200 procedures the health plan considers shoppable. It's no accident that those 1,200 procedures represent more than 80% of nonemergency healthcare costs, according to BCBSNC analysis.

Mikuckis says the insurer could easily provide prices for up to 5,000 conditions, but there are diminishing returns from going beyond 1,200. "We didn't want to overwhelm the public, and probably will slowly add more and more. We're not trying to shame anyone here. We're trying to do what our customers are demanding."

Cost transparency information may sting in the short run, but it can also benefit providers, Caveney says.

"We have a bunch of providers in North Carolina who can share in the upside if they can demonstrate savings in total cost of care," he says. "The best way for primary care to share upside is to be very careful where they send their patients."

Rather than resist the transparency trend, providers and payers can work together to their mutual benefit—and that of patients, Caveney says. "This is just the way the world is moving. The data are not perfect. Some hospitals do see sicker patients and price is not the end-all and be-all. But we want to improve cost and quality with and for the hospitals and health systems, not in spite of them. That will help keep patients here locally."