The Effect of Price Transparency on Health Care Costs
Pat Stricker, RN, MEd, Senior Vice President, TCS Healthcare Technologies
Last month’s article provided an overview of data related to health care costs and the downward trend in health care spending. Now that we have a better idea of the overall cost of
health care in the U.S., let’s examine how this data is being used to slow health care spending.
There are many reasons for the decreased spending, such as changes brought about by the Affordable Care Act (ACA), new payment and reimbursement models, and the implementation of ACO. These primarily involve payers and providers, but there are also public and consumer initiatives that are having an effect on the spending slowdown. Examples of these include price transparency, public awareness, and informed consumer choice.
Price transparency, one of the four principles of value-based
purchasing
i (VBP) is defined as readily available data and other information on the price of health care services that helps define the value of those services and enables patients and other care purchasers to identify, compare, and choose providers that offer the desired level of value. Using price information, in conjunction with available quality, safety, and patient experience
information, helps patients and other purchasers to make meaningful value comparisons and informed decisions prior to receiving care.
The
2014 Total Cost of Care Report was the nation’s first comprehensive study to allow consumers to compare the total cost of care for medical groups across the state of Minnesota. The amounts were risk-adjusted and outlier costs were removed to ensure true differences in cost could be evaluated. The study included costs from four large health plans covering more than 1.5 million patients in 115 medical four groups with 1,052 locations. A detailed interactive website,
MNHealthScores, provides consumers with the cost of 17 types of office visits, 20 blood tests, and seven procedures, as well as total costs by each medical group and clinic location. This actionable cost information helps consumers make more informed health care decisions. Some high-level data includes:
- Average monthly cost of medical care per patient was $435
- A small decrease of just $12 per month per patient would significantly increase savings – $750 million annually
- Costs differed by groups – ranging from $269 to $826 per patient, per month
These types of cost disparities are also found in other areas of the country as well, and there are often no clear explanations of why these disparities exist.
- The California Healthcare Foundation reported an almost 60-percent difference between average hospital payments in Los Angeles versus San Francisco.
- The LA Times reported joint replacement surgeries varied from $39,000 to $237,000 in Los Angeles hospitals. The average charge nationwide was $54,239.
All three of the above are good examples of how data is being used and disseminated to the public to accomplish VBP Principle #2 – Measurement Transparency and Public Reportingi.
A
price referencing project by the California Public Employees’ Retirement System (CalPERS) took reporting and disseminating data a step further by actively working with their health plan to reduce the cost of hip and knee replacement. CalPERS’ cost per surgery ranged from $15,000 to $115,000, with no specific reason for the disparity in costs. Working with the health plan, they analyzed costs and redesigned
benefit limits in their PPO product, setting a new reference price of $30,000 per surgery. A great deal of time was spent in educating the providers and consumers, but within a year CalPERS realized a $3.1 million savings (447 patients). As summary of results follows:
- Employees who chose low-cost hospitals showed a 21-percent increase.
- Those who chose high-price hospitals decreased by 34.4 percent.
- The volume at low-price hospitals increased by 28.5 percent.
- Hospital prices decreased by 20 percent ($7,028 per case).
- 75 percent of the hospitals performing 10 or more replacements each year met or exceeded the
benefit limit of $30,000.
- Surgeries performed below the
benefit limit increased by 6.8 percent.
- The average paid amount per surgery decreased by 26.5 percent.
This project is a perfect example of how data is being used to change payment models and accomplish VBP principle #3 – Payment
Innovation
i.
Another venue for disseminating information includes the state websites that publish and compare health care costs. Most states have these types of website, but New Hampshire has become the nation’s model, by being the only state to receive an A rating for their NHHealthCost.org. Although the website has had relatively low usage by consumers, an analysis of the program found that it has had a significant effect on reducing prices in response to increased transparency. HealthCost was responsible for highlighting wide gaps in provider pricing, which led to media attention and public price transparency initiatives. Analysis of the key cost drivers led to better cost negotiation efforts, rebalancing of the health plan-provider contracting leverage, and changes in health plan
benefit designs. As a result, price variation became part of the fabric of the community.
This example seems to prove what proponents for price transparency contend – that transparency increases competition, lowers health care costs, and leads to changes in consumer behavior. This example
show how data was used to accomplish VBP principles Nos. 2, 3, and 4 – Measurement Transparency and Public Reporting, Payment Innovation, and Informed Consumer Choicei.
As in New Hampshire, even though states are providing health care cost comparison websites, that doesn’t mean consumers are actually using them. A survey by the California HealthCare Foundation found that only 26 percent of those surveyed said they searched for cost information prior to getting care. However, those with a relatively high deductible ($5,000 or more) were twice as likely to look for costs before getting care.
So what does all of this mean to case managers? Of course, our main concern is to advocate for the patients in terms of the care they need and the quality of that care. However, in addition to that, we have an ever-increasing role to help patients understand their benefits, the cost of health care, and how these relate to their specific situation. Case managers need to become aware of the health care cost and quality websites available in their state or local region and encourage patients to refer to these sites before making health care decisions. Case managers need to ensure that patients understand that quality factors are as important, or more important, than cost. Price is not necessarily an indication of the quality of care that will be received.
iThe four principles of Value-based Purchasing:
- Standardized Performance Data Collection and Measurement
The measurement of health plans, hospitals, physician groups, individual practitioners, and consumers needs to be based on actionable information for informed decision-making regarding cost, quality, and appropriateness of care.
- Measurement Transparency and Public Reporting
Transparency in health care costs and quality are essential. It is difficult for consumers to make value-based decisions without having
validated price and quality information before costs occur.
- Payment Innovation
Provider reimbursements need to be based on demonstrated performance and desired outcomes. New reimbursement models reward providers for keeping patients healthy, not just for treating their illnesses.
- Informed Consumer Choice
A key element of VBP is individual consumer choice based on value. Consumers must be provided with clear information, incentives and coaching to help them make better informed decisions, change their behaviors, and self-manage their health.
For more information on the principles of VBP refer to "Do Case Managers Affect Value-Based Purchasing?" in the June issue of the CMSA Newsletter.
REMINDER: I am sure you are all aware that ICD-10 is only 42 days away! Are you ready? The Centers for Medicare and Medicaid Services (CMS) has developed an animated short video with 10 facts about the new code set and tips to help you through the transition. Its website also has other resources, like the Quick Start Guide, to help you make sure you are ready for ICD-10.