Snapshot
Patients, payers and employers are pushing hospitals to become more transparent about the cost of care they provide, and hospitals are responding by setting up consumer pricing hotlines and online cost-estimator tools.
North Shore-LIJ Health System in New York City provides an online calculator to help patients estimate the out-of-pocket costs for an upcoming procedure. Pomerene Hospital in Ohio offers all-inclusive physician/hospital/ancillary prices for more than 250 procedures and services if patients pay up front. And University of Utah Health Care posts each physician’s patient satisfaction scores — and patient reviews — on its website.
Like most health systems and hospitals across the country, each is responding to one of the most challenging items on today’s health care to-do list: Provide the information that patients, payers and employers need to make good purchasing decisions.
“The escalating prevalence of high-deductible plans and other forms of financial responsibility are making people more price- and quality-sensitive as purchasers of health care, which makes providers understand the need to be more customer-friendly in how they present and make that information available,” says Rich Umbdenstock, president and chief executive of the American Hospital Association.
That is not always easy. While the government’s Hospital Compare website provides a growing list of quality, patient experience, outcomes and efficiency data that help patients compare one hospital with another, price transparency is tricky.
Payers and purchasers want to know the total amount they will pay for a patient’s care, while patients are most interested in their out-of-pocket responsibility. That requires knowledge of an individual patient’s insurance benefits, which is not always readily available to the hospital.
Nonetheless, many leading providers are trying to be proactive. For example, Fairview Health Services, a seven-hospital system in Minneapolis, offers a consumer pricing telephone line and an online form to request a price quote based on the patient’s insurance particulars.
“I do think the insurance company may be a better source of the information for an individual who has insurance but, as a provider, I don’t want to direct them off somewhere else,” says Andy McCoy, Fairview’s vice president of revenue management. “The more responsive Fairview can be to a patient, the more likely that patient is going to come to Fairview for that service. So, it’s just one more aspect of providing good service to the patient — or the potential patient in this case.”
North Shore-LIJ, a 17-hospital system, provides an online cost-estimator tool that uses a patient’s information about insurance carrier, hospital and procedure to estimate the patient’s out-of-pocket responsibility. Because each insurer may offer various plans, the estimate is presented as a range — for example, $140 to $857 for cardiac catheterization at Long Island Jewish Hospital for a patient enrolled in the Health Insurance Plan of Greater New York, or HIP — rather than a single number.
North Shore-LIJ also staffs a centralized call center for patients with or without insurance coverage to obtain price quotes. Like most systems, North Shore-LIJ offers a discount on its chargemaster prices for self-pay patients. Bob Shapiro, chief financial officer, calls price transparency for uninsured patients the “unsolved problem” of the hospital industry.
“That’s a tough one — not just for me but for the entire industry,” he says. “Our charges are historical and are used for many things. The best thing the industry can do now is try to give information that makes patients less troubled about their out-of-pocket concerns. And then, slowly over time, gradually rationalize the chargemaster without losing revenue, which, at this point in time, is very important to us.”
Providers in Charge
Pomerene Hospital in Millersburg is one of several hospitals in northeast Ohio that offer all-inclusive prices for hundreds of services and procedures. The packaged prices — $1,720 for a tonsillectomy at Pomerene, for example — originally were developed to serve members of the region’s large Anabaptist community, all of whom are self-pay.
Today, the program has grown to include more than 250 services and procedures and is used not just by Anabaptists, but by other self-pay patients as well as patients with high-deductible plans.
“The true evidence that this can be a successful program comes simply from the fact that most of our competitors have adopted this process,” Pomerene CFO Jason Justus says. “They have designed their own programs because, if they did not, they would certainly lose market share.”
Meanwhile, physician-owned surgery centers have found that all-inclusive packaged prices attract self-pay patients from outside their traditional service territory. Since 2009, when the Surgery Center of Oklahoma began posting prices online — $1,600 for ear tubes; $19,400 for knee replacement — patients have come from every state in the nation ready to pay up front, says G. Keith Smith, M.D., president and CEO.
“The biggest part of our business now is a result of direct agreements that we have with self-funded companies and county governments that are paying for their employees’ health care out of their operational revenue,” he says. “They are highly motivated to seek high-quality, affordable care because they have budgets, and they like to know up front how much something is going to cost.”
SCO’s success has prompted physician-owned surgery centers in at least five other states to begin posting prices online. And in Smith’s local market, one hospital now works with SCO to offer an all-inclusive price for procedures that need to be performed in a full-service hospital — and other hospitals are taking note of the surgery center’s prices.
“It has put some pressure on prices here in the Oklahoma City area, where hospitals are actually quoting prices that match our prices so they don’t lose business,” he says.
Purchasers in Charge
For an employee of Lowe’s, Wal-Mart or McKesson, the price for a hip or knee replacement is easy to understand. It’s $0, if the patient travels to one of the four hospitals in the Employers Centers of Excellence Network. Employees of companies that participate in the Pacific Business Group on Health Negotiating Alliance, which launched ECEN last fall, pay nothing for their care or travel if they choose the network option. Otherwise, their deductible and coinsurance responsibility may well top $3,000.
The program is expected to add new employers, new participating hospitals and new procedures in the years ahead, but its founders hope that the need for patients to travel will go away eventually, says David Lansky, PBGH president and CEO.
“I hope that this sends a signal to the market that the expectations for these employers are for very high-quality, reliable care with a low complication rate, low re-operation rate, positive patient experience and a predictable price,” he says. “If we can achieve that same level of quality and affordability in every market, that would be great — but right now, we can’t.”
The ECEN approach is an example of employers’ creating a new kind of transparency to incentivize their workers to make high-value health care choices. Another example is reference pricing, in which employees are exposed to very high cost-sharing unless they use a hospital that meets the employer’s price and quality standards.
The California Public Employees’ Retirement System — CalPERS — which covers more than 1.3 million lives, introduced reference pricing for knee and hip replacement surgeries in 2011. Its goal was to eliminate the wide variation — from $15,000 to $110,000 — in hospital charges for joint replacement surgery by setting a $30,000 threshold. Patients who choose a hospital that meets CalPERS’ quality standards and accepts $30,000 for the surgery face a maximum $3,000 out-of-pocket responsibility; those who choose a more expensive hospital are responsible for their annual deductible plus any hospital charge above the $30,000 threshold.
In the first year of the program, surgical volumes for patients covered by CalPERS increased by 21 percent at hospitals with low prices and fell by 34 percent at hospitals with high prices. Prices fell at the majority of hospitals, and CalPERS racked up $2.8 million in savings in that one year.
Purchasers, Providers Unite
MN (Minnesota) Community Measurement is the oldest and most influential of several regional collaboratives that bring a range of stakeholders together to increase transparency into quality, patient experience and financial information.
The nonprofit organization, currently chaired by Penny Wheeler, M.D., chief clinical officer of Allina Hospitals & Clinics, introduced MNHealthScores.org in 2009 to allow patients to check out the quality of care delivered at clinics or by medical groups. After the Minnesota Hospital Association joined as a sponsor organization, the website grew to include comparative data on hospital quality, including both process and outcome measures, and patient experience.
“We know that consumers are looking at the information, and we also know that providers are looking at the information and using it to improve the quality of care within their own organizations,” says Tina Frontera, chief operating officer of MN Community Measurement. “One advantage of transparency is that it does help spur improvement efforts.”
MNHealthScores.org collects payments from the state’s insurers and publishes a blended average payment rate for basic services — office visits, imaging services and a few procedures — for each clinic system. Because it is a blended average, the information is not particularly useful to patients, but it allows payers and purchasers to compare their options — and McCoy, the Fairview Health Services executive, finds it very helpful.
“Our preference is to be at market or below market in our pricing, so that is certainly something that we look at,” he says. “And if there’s an issue with a price being out of line, we want to make sure we address that with the payers.”
Next up: MNHealthScores.org later this year will debut a total cost of care measure — the average total, including hospital, physician, pharmacy and all ancillary providers, for an individual for a year. This will allow a comparison of the total cost of care among provider systems throughout the state — information that purchasers and payers will love to have.
Lola Butcher is a freelance writer in Springfield, Mo.
A Reality Gut Check
Jamie Orlikoff, president of Orlikoff & Associates Inc. and national adviser on governance and leadership to the American Hospital Association and Health Forum, says growing consumerism in health care leaves hospitals with no place to hide.
“The market is going to rip open your kimono, and you’re going to be thrust naked in front of everybody,” he says. “If you’re going to be naked, you better be buff.”
Hospital leaders cannot choose among constituencies — patients, payers, employers or their own staff — on which to focus their transparency efforts. The top priority audience is everybody.
Physicians and staff must understand and work to control quality and safety measures, patient experience scores and costs that influence prices. Payers and purchasers are going to find — or create — a way to compare your performance with that of your traditional competitors, as well as that of your new competitors: the best performers across the nation. And, with ever-increasing financial responsibility for their health care, patients are going to demand information that helps them to choose high-value providers.
How should we think about price transparency?
Orlikoff: We are moving from cost-based pricing to price-based costing. In an inefficient market, a provider does cost-based pricing, meaning its price is dependent upon their known costs. That works great for a while until the market begins to say, “Well, your price is too high; we want you to charge us less.” And I, as a provider, may lower my price but it will still be based on my cost. The market will keep pushing and eventually the market tells me it is going to pay a price that is less than my cost.
Now that is a reality gut check for leaders because they have to think completely differently. They have to re-engineer their processes to be able to produce that same product at a much lower cost, so they can still make margin. They have now entered a period of significant market efficiency where, instead of price being dependent on cost, the cost becomes dependent on the price that the market is willing to pay. We are entering the environment of efficiency marked by price-based costing, and it is a challenging environment.
Why does price transparency pose such a challenge?
Orlikoff: One study that looked at the cost of hip replacement in the United States found that the vast majority of hospitals, when called by the researchers, could not give a price. The researchers then crunched the numbers and found that across the country, the all-in price of a hip replacement ranged from a low of $11,500 to a high of $123,000.*
That is just an unbelievable variation that is impossible to defend. And the reason it still exists in hospitals is because, rather than embracing transparency, we are still covered by the cloak of opacity because we used to benefit from that. Those days are gone, and the market is now saying, “We don’t care what your costs are, and we don’t care about the rationale for the ridiculous prices on your chargemaster. We want to know what we can pay for a service where we are going to get good quality at a reasonable price to the purchaser. And if you can’t tell us what the price is, we will tell you.”
This is the essence of the revolution for providers: Instead of being rewarded for being inefficient as we have been for the past 50 years, we will be punished for our inefficiency going forward.
Insurers and others are working on transparency. Can a hospital leave this task to them?
Orlikoff: If I’m a patient who can’t get information from the hospital, but I can get it from my employer or from my insurer or from a business coalition, this marginalizes the hospital. In a consumer-driven market, the source of information is a very powerful market force, and hospitals should want to be the source of information. Otherwise, they run a great risk of being dictated to as opposed to taking control over their pricing.
Some hospitals are in isolated markets with no obvious competitors. Can they sit out the transparency movement?
Orlikoff: No one gets a pass. When hospital leaders make that claim, I always ask: Do you know any friends or colleagues who have left this community to get health care? The answer is always “yes” and they left for one of three reasons: They thought they could get better quality somewhere else, they thought they could get a lower price somewhere else or they thought they could get better value somewhere else.
Unless you are so geographically isolated that patients literally cannot leave — and I’m talking about maybe a half-dozen organizations in Alaska or places like that — this applies to everybody, including the county hospital in a rural area and the critical access hospital. As price and quality transparency increase, they will have all the indigent patients they want and all the Medicaid patients they want. But the patients who are leaving — those who have private insurance — are precisely the patients they need to keep.
How much time do hospitals have before price and quality transparency dictate their success?
Orlikoff: Less time than we think. If you look at other markets that have gone through this transformation, it’s a very jarring change and it happens much more quickly than the leaders tend to think it will. I don’t believe that hospitals can have too much of a sense of urgency on this issue.
One of the important things that leaders have to confront in this kind of revolutionary change is to recognize that there will be contradictory signals. A client tells me, “Yeah, but our largest payer is still paying fee-for-service.” That is a strong signal of the past.
Are there any small payers that are doing reference pricing or that are doing narrow networks? That is a weak signal. My advice: Pay attention to the weak signals that represent the future, not the signals that confirm your bias for the past. — L.B.
Spotlight on the Patient Experience
After 189 patient ratings, one orthopedic surgeon at University of Utah Health Care scores an overall 4.2 on a five-point scale for patient satisfaction. Comments from 89 patients range from “Best ever!” to “Doesn’t listen at all, walks in room for 30 seconds, then leaves.” The information is posted on the surgeon’s profile page on the health system’s website.
“We have confidence that our patients are able to interpret data, and even if there’s an occasional complaint, that they are able to contextualize information,” says Chrissy Daniels, the system’s director of strategic initiatives.
UUHC added the data from its Press Ganey Patient Satisfaction Survey — including de-identified patient comments displayed in their entirety — to online physician profiles after a physician expressed concern about a negative review on another site. “The problem with most online review sites is that there are only a few reviews and they are not very representative,” Daniels says. “We realized we had hundreds and hundreds of surveys of what patients thought about our physicians. So, what if we let our patients talk for our doctors?”
The patient satisfaction data is presented for any outpatient physician who has at least 30 Press Ganey survey responses. The public posting supports UUHC’s ongoing emphasis on the patient experience; its outpatient satisfaction has risen from the 38th percentile in fiscal 2011 to more than the 75th percentile today.
The faculty reviews get about 65,000 Web views a month, proving that patients value the information. “Most patients really, really like their doctors,” Daniels says. “Allowing the voice of the many to contextualize the voice of the few is a good thing.” — L.B.
