Seeking Clarity – Transparency Impacts Medical Device Industry
In the world of free-market insurance shopping, a push toward greater transparency in health care pricing could drive performance improvements, customer savings, and possibly truer costs.
Historically, health pricing has been “remarkably, at best, opaque,” said Thomas Kelly, CEO of the Irving, Texas-based HealthSmart, a third-party administrator and health care benefits provider.
“We never really knew what the price of anything was until after we received the service,” Kelly said. “Once you received an explanation of benefits, you could be totally befuddled as to what it really meant, anyway. The more complicated the bill, the more confusing the explanation becomes.”
A lack of pricing clarity “really mitigates against the average customer really being able to understand what’s happening,” he said. For customers to be better able to parse the logic of the services for which they’re paying, they need both standardized and simplified pricing information that “ultimately needs to be related to end products, not intermediate prices or services,” Kelly said.
“It’s certainly the only part of life [consumers] engage in where prices are a secret,” he said.
For any other product or service, buyers comparison shop online, gauging the relative quality of what they’re buying against its price, which Kelly said is “really almost impossible to do today” in health care, despite the “substantial personal financial requirements” attached to deductibles, copays, and out-of-pocket limits. Although the Affordable Care Act forbids Americans from being denied health coverage due to pre-existing conditions, it also obligates them to purchase insurance or pay an earnings-based financial penalty.
When pricing becomes the responsibility of the insured to research, and coverage becomes the responsibility of the insured to research, and doctor effectiveness becomes the responsibility of the insured to research, then functionally, most insurance policies have been reduced to little more than a buying club in terms of service provision. So, with greater autonomy given to the individual consumer in terms of how to fulfill his state-mandated obligation of self-insurance, and with an influx of customers in the market, price transparency and competition are becoming ever more important to insurance providers in wooing new business.
“The worst thing that can happen to you in this country is to show up in a hospital where the services you want are not covered or [as an] uninsured [person],” Kelly said, “because then they own everything you own and will own it for the rest of your life.”
“We have certainly reached the point where a single episode of illness for an uninsured person is a disabling lifetime event,” Kelly said. “We were taking a large class of people who had bad luck and were putting them in a place where they were not going to recover.”
Since the passage of the ACA, however, talk has turned to whether commercially insured patients pay “a very substantial markup, even if you’re getting the best available price in the market compared to what Medicare would pay,” Kelly said.
“The system has profitability, and the remarkable growth of the health care industry has been fueled by profits,” he said. “They had a tremendous amount of ability to make prices as opposed to having to compete for prices.” Although Kelly believes the market is “more standardized for benefits and more inclusive than it has been for some time,” Americans “still have a big issue with the cost.”
At its basic level, private-sector health care pricing is based upon Medicare reimbursement rates. Because fee schedules for Medicare and Medicaid are legislated, elected officials have been fairly hands-off when it comes to regulating pricing activity in the commercial marketplace, leading to “a substantial lack of uniformity in prices,” Kelly said.
“They said, ‘We’re getting what we want in Medicare and Medicaid because we set the prices, and we’ll let the private sector figure out what they need to do,’” he added.
Whenever hospitals increase the prices they charge, consumers pay more, even if they are insured, because their insurance only entitles them to a group discount from those market-rate prices. Even those who pay per-diem rates can be locked into charge levels that make them “outliers,” he said.
“It’s kind of the hospital’s way to reinsure for high cost, but it can become just a pure manipulation to push people into outlier status and control prices as a result,” Kelly said. “It tells people that they’re not in control, and usually that they’re not going to be in control, either.”
In response, many health care facilities are beginning to post their prices directly on their websites, which is “exactly where the market needs to go and why most hospitals are horrified it might,” Kelly said. Websites like HealthcareBlueBook.com have begun to make available relative, regional market pricing, with a high, low, and median price. The mechanism allows purchasers to view the low-cost providers in their region, negotiate a rate for service, and then undergo the procedure.
If customers only purchased care at or below the fair (i.e., low median) market price, Kelly believes total health care cost could be reduced about 8 percent nationwide. Without access to that rate information, however, there’s no opportunity to hit that mark.
“It’s really powerful stuff, and until now, the only thing that’s really been published in a community is average pricing,” Kelly said. “But average pricing never really told you that much.”
That level of insight illustrates that the price differentials based on insurer — from Blue Cross to United to Aetna to Cigna — are relatively small, he said; “typically a few percent.”
“We need to create pricing competition in markets,” Kelly said, “which means you have to be able to shop, and you only shop before you receive a service, not afterwards.
“It’s going to be messy,” he said. “People are used to very high prices.”
Elements of the plan
Michael Levin, CEO of Vericred, said that his company works to drive greater transparency among health care provider networks, the better to improve consumer choice. Its focus is on educating patients largely on the design of their plans, from the metrics of cost to those of provider choice.
“If someone’s looking into a high-deductible health plan, there are very short-term elements they need to be aware of,” Levin said. “While most of the high-deductible health plans are HMOs and EPOs, there are some with out-of-network benefit.”
Although Levin said that some consider high-deductible plans to be “catastrophic” in terms of patient cost, many are appropriate choices for healthy people who don’t routinely visit the doctor except in the event of a cold or injury. Despite a high deductible, the primary physician on such a plan might offer $35 copays or even no-cost visits.
“It’s a tradeoff,” he said. “Typically, they’re healthier individuals or cost-conscious individuals. The hope is that they’re going to have limited use and therefore enjoy the lower cost.”
“If they do have an event,” Levin said, “it becomes a question of if it’s emergent and do they have the opportunity to shop.”
In high-deductible plans, an emergency-room visit can incur some $2,000 to $6,000 in costs “before you get any kind of coverage, and then there’s co-insurance on top of it,” Levin said; yet, some high-deductible health plans have flat emergency room fees, he added.
“In a world where there’s so many plans, there’s more than people realize,” Levin said. “I caution not just looking at your annual physical, which is covered in all these cases, but what’s the primary care physician and what’s the emergency room.”
Patients should also check to make sure their favorite doctor participates in their care network, Levin said. The free website PlanCompass.com, a Vericred project, allows consumers to search out plans based on their zip code and physician name, which he said, “was a six-hour voyage” prior to the concentration of data in one place.
“If you have an affinity for your doctor — and more than 70 percent of people don’t want to change their primary care physician — and you pick a high-deductible plan in which your doctor doesn’t participate, you can go outside of the network and pay for the whole thing or you change your doctor,” Levin said. “If you’re someone like me who’s got a family and four doctors you use regularly, we wanted to find a plan in which our doctors participate to keep our costs down.”
“Consumers need to be looking very carefully at the underlying network and very carefully at the differences and benefits,” he said. “Not all plans are made alike.”
Similarly, David Norris, CEO of MD Insider of Santa Monica, California, described his plan to bring big data to bear on the question of insurance plan equality. His website is intended to provide “performance transparency” for patients, to help them understand which of some 850,000 American doctors deliver the best results, and how that excellence affects their bottom lines. Norris said MD Insider has been built on acquiring health outcomes data, like claims reports, to follow patient procedures, and how their recovery went over time.
“The whole idea came from some personal experiences in trying to find doctors,” Norris said. “Consumer review sites like Yelp aren’t all that helpful.”
“We can actually see all the steps that led up to the surgery, what happened afterwards, and if there’s anything that goes really wrong, we can see that,” Norris said. “By aggregating this claims data, we can bring that information to the consumer in a way that allows them to give it first-hand.”
Some people call it “baseball stats for doctors,” he said, but by putting that information to work for consumers of health care, Norris says he’s “taking the blindfold off so consumers actually see.”
“The old adage was, ‘Shut up and listen to your doctor; he’ll tell you what to do,’ ” Norris said. “Today’s new age, they’re no longer willing to do that. The good doctors are going to love us and the bad doctors are going to hate us.”
MD Insider is a service sold to employers who provide it to their employees as a health benefit. Norris claims that the net effect of choosing physicians who perform better across the board equates to a savings of 5-10 percent of health care costs. Like Kelly observed: often the lower-cost provider is less expensive, Norris said.
“We can take historical claims from an employer and tell them not only what they spent but what they could have saved,” he said. “Let’s say two employees go to the doctor with the same condition, one charges $30,000 and another charges $20,000. Often the better doctor is cheaper because they have fewer complications. We can run our calculus and say, ‘Here are the doctors who are good, and you should send your employees to these.’ It’s not hard.”
Cost-driven models may work when patients are shopping for commodity prices on imaging scans, for example, but that same calculus doesn’t factor into surgical procedures where recovery and rehabilitation are involved. The question becomes whether a doctor who is “really expensive for one day of care” is much more cost-effective for the duration of care, Norris said.
“If you have complications from a procedure, the cost is ridiculously high, not to mention all the pain and anguish you have to go through,” he said. “The good doctors are cheaper overall, but they might be more expensive for one piece.”
If nothing else, Norris said, a system like MD Insider could drive performance-based outcomes from physicians by simply monitoring their work.
“When people start watching and it starts affecting your bottom line, doctors that don’t do as good of a job will get fewer patients,” he said. “They’ll either have to adjust or go out of business.”
“Any time you can bring data to create transparency, I think that brings huge changes to occur,” Norris said.
Keri Seitz, vice-president of sales for Biovation, of Boothbay, Maine, said that any impact of price transparency in the medical device sector will come secondarily to the general cost consciousness driven by patient behavior.
Medicare reimbursement and billing codes are meant to encompass the equipment and materials needed to do that procedure, Seitz said. Within those charges are the costs for the devices to be used in the procedure: ancillary equipment for an implantable device, for example, is covered in the cost of the procedure to install that device.
“What would be interesting for transparency is that you would see what the hospital is paying for that equipment, and it is reflected in that Medicare cost,” she said. “Providers aren’t going to have the ability or the want to pay more than they’re going to be reimbursed by Medicare for a procedure. They’re going to look at the steps for a procedure and say, ‘We’re going to do everything we can to do the procedure for at most what we can be reimbursed for, but at best, less than that so that we can make some kind of profit off of that.’”
Transparency in Medicare reimbursement really does limit product pricing and the potential value in bringing it to market, Seitz said.
“The impact of the market to the medical device industry is that the historical 70 percent, 80 percent margin for medical device manufacturers is really out the window,” she said. “That doesn’t exist anymore. Even without the end-patient transparency, there’s so much more transparency than there ever was before.”
Merely publicizing the costs of this equipment places downward pressure on prices, simply from the perspective of public outcry, Seitz said – even though it costs so much more to bring a product to market.
“If you’re blazing new trails, and before you even get into whether a clinical trial needs to be ordered, you’re looking at tens of thousands of dollars in testing just to see if it functions the way that you claimed,” she said. “If that pricing transparency continues, and the public can see what that device costs, they’re going to need some education on what it costs to bring it to market.
“It has yet to be seen if they would accept it and understand that that kind of preparation means the product is safe and OK for human use,” Seitz said. “It’s hard to say how the public would react.”