The “multiple stakeholder dilemma” provides a useful framework for understanding how healthcare prices are derived and why they appear to vary arbitrarily. It does not however fully explain why healthcare prices remain so hard to interpret. Healthcare is not the only service in the marketplace with prices that are determined through complicated processes that require expert knowledge to understand. Real estate prices also vary widely. Like healthcare prices, they are settled through private negotiations with undisclosed terms. Like healthcare, it is seldom clear how different components add up to what you are paying for; one home may cost more because of a larger yard, another may cost more because of an additional bedroom. And like healthcare, costs are passed on to the buyer through an indirect mechanism that uses pooled resources of other buyers to mitigate near-term financial risk (in this case in the form a bank mortgage rather than an insurance policy).
Nonetheless, homebuyers know the overall sale price upfront. Typically, patients have no such luck. Homebuyers are able to see what similar homes sold for in the past. Patients rarely know what those who have come before them have paid. Homebuyers have access to home inspectors who can verify the quality of the construction and real estate agents to provide context for the home’s fair-market value. Yet here too patients are considerably less equipped and are given little guidance from anyone on how to determine quality or value.
Why do patients have so much less agency than other types of consumers in the marketplace? In our view, the answer it is not just the way prices are derived, but the process by which healthcare is delivered. Homebuyers might not separately calculate the price of the kitchen and bathroom but they at least have an opportunity to tour the house and see all of the items they are buying before the sale is made. By contrast, patients rarely know the individual components of what they are purchasing, even in real time. A patient may experience her blood getting drawn but does not necessarily experience every individual test that is subsequently run on her blood sample.
It is common for several parallel cost-generating processes to occur behind the scenes from the patient experience—from blood testing to instrument sterilizing to clinical documentation. The technical expertise required to understand and navigate these processes makes it challenging for patients to make independent decisions about their care. In some cases, the urgency or deteriorated status of a patient’s condition may not allow for any direct participation at all. Because of the ways healthcare gets delivered, patients are highly reliant on clinicians to act as their agents.
Most agents (like real estate agents) are expected to disclose the terms and rationale behind every decision they make on their client’s behalf. By contrast, it is rare for clinicians to comprehensively disclose the care they are providing at a level of detail that accounts for each billable item. That being said, lack of disclosure is not entirely the clinician’s fault. Although well-meaning clinicians will often do their best to disclose the most salient aspects of their decisions whenever possible, disclosing the detailed rationale behind every decision may be unduly cumbersome at the point of care. As a result, the ideal of shared decision making between patients and their caregivers is seldom achieved (Chapter 12).23 Moreover, clinicians are rarely trained to consider financial consequences (Chapter 11). For these reasons, we believe that achieving healthcare transparency will require more than just being able to know, explain, or justify the price. We will need ways to capture pricing information as well as ways to deliver this information to patients in a form that is timely, interpretable, and actionable.
Story From the Frontlines—“Sticker Shock”
It was supposed to be a routine office visit for my patient. Unexpectedly, it turned into a real-world health economics lesson for me, the treating physician. The old adage “listen to your patients; they will always give you the answer” became exceedingly true in this case, even when it dealt with an issue beyond a medical diagnosis, such as lack of transparency regarding insurance coverage for medical procedures.
My patient had recently undergone an interventional procedure to treat severe peripheral vascular disease in order to improve his leg circulation. Usually, patients like him don’t seek treatment for vascular insufficiency until the discomfort associated with activity, or claudication, is severe enough to interfere with their regular rounds of golf. That is the real motivator for these patients. The procedure was a success and a few days following the procedure he was back to his normal activities and was pleased that his leg no longer bothered him as he motored around the golf course.
My patient calmly waited until after I checked his pulses, reviewed his medications and gave him a plan for follow-up before he expressed his real concern, and it certainly wasn’t about whether he could now get an extra 20 yards on his tee shot as a result of the new strength in his leg. Despite my office obtaining all the necessary private insurance pre-authorizations for the interventional procedure, he still had received a bill for approximately $10,000 related to out-of-network charges. I was baffled and my patient was disgruntled about this mix-up. After reviewing with him in the examination room the numerous sheets of paper he had received from his insurance company, it became clear what had happened.
A magical alignment of stars needs to occur for an elective procedure to be pre-approved. Emergency services are covered through a separate and more straightforward mechanism. First, the provider, or surgeon in this case, needs to be within the patient’s insurance network. Appropriate professional credentialing and outcome data are submitted to the insurance company, and if acceptable, the provider can participate in the company’s insurance plan. This tedious process needs to be repeated for every insurance plan in which the physician wants to participate. Second, appropriate medical record documentation needs to be submitted to the insurance company demonstrating medical necessity for the procedure. Third, the intended hospital where the procedure is being performed needs to be in-network, which is completely independent of the provider’s status.
Pre-authorizations in this patient’s case were obtained for both the surgeon’s fee and hospital charges. The particular anesthesiologist utilized for this patient’s procedure—a member of the medical team for which insurance companies don’t require pre-authorization—was out-of-network. It is not customary to obtain pre-authorization for anesthesiologists since almost always the anesthesiologist is in the same network as the physician and hospital. We assume, incorrectly, that if an anesthesiologist is working in an in-network hospital and with an in-network surgeon, that they also have in-network status.
The challenge in this process is the lack of transparency surrounding patient choice regarding anesthesiologist assignment, which is often made by the operating room staff moments before the procedure. Despite the anesthesiologist meeting the patient in the holding area before the procedure, no one informed the patient about his upcoming out-of-network charge related to anesthesia services or gave the patient an option to choose another anesthesiologist who was within his insurance’s network.
Fortunately, the out-of-network anesthesiologist worked with my patient to drastically reduce the cost of his services and they agreed upon a much more reasonable charge and associated payment plan. Subsequently, my office has modified the process to ensure that the anesthesiologist assigned to a patient’s procedure is pre-authorized.
This patient’s case was an eye-opening experience for me and helped me better understand the complex maze of healthcare reimbursement. It also enabled me to see things more clearly from my patient’s perspective. I am thankful that this patient took the time to speak-up and share his financial situation with me. How many other patients have I operated on were put in this situation and suffered financially in silence? I have always prided myself on making sure my patients have a thorough understanding of their disease and upcoming procedure. Now, I take the time to make sure they also have a clear understanding of the reimbursement process. As a physician, it is not enough to relieve the physical pain of a medical problem, it is also our responsibility to help patients avoid preventable financial jeopardy.
—Grayson Wheatley. “Sticker Shock.” Costs of Care, 2010.
Capturing pricing data and delivering it to patients at the right time
At some point, patients will learn the price of their care. The problem is that this information frequently arrives too late. In the continuum of healthcare delivery there are several earlier points when cost information can be more helpful, starting at the very beginning with selection of an appropriate health insurance plan. Until recently, even this task was incredibly challenging. As we described in Chapter 2, the majority of nonelderly Americans receive employer-sponsored health insurance. This amounts to approximately 149 million people receiving health insurance via one of 1.5 million employers who negotiate policies from 1200 different private insurance companies, each with their own specific policies and rates.24,25
These Americans typically rely on their employers to select an appropriate plan on their behalf, with highly variable results depending on their employer’s generosity and ability to negotiate. Before the Affordable Care Act (ACA), an additional 19 million Americans were left to purchase insurance on their own with little available guidance on how to compare plans, and nearly 50 million Americans were crowded out of the insurance market altogether, presumably because none of the available plans were either affordable or deemed worthwhile.26,27 Since the ACA was passed, employers have been reluctant to take on the cumbersome role of acting as a healthcare purchaser. At the same time, individual premiums have become more affordable. As a result, the number of Americans who will be directly purchasing their own health insurance is expected to skyrocket. S&P Capital IQ, a research firm serving the financial industry, predicts that by 2020 as many as 90% of the 149 million pre-ACA Americans who received health insurance from their employers will instead be shifted to government exchanges created by the new health law (Chapter 2).28
For the rapidly growing number of Americans who must purchase their own health insurance, the Obama administration released Healthcare.gov in October 2013 to provide necessary guidance for choosing an appropriate health plan. On the website, health plans are tiered from “catastrophic” at the lowest end to bronze, silver, gold, and platinum depending on the degree of coverage they provide (Table 3-1). Each plan is also required to include simplified and standardized “labeling” that makes the specific benefit structures easier to understand. Furthermore, all plans on the exchanges are guaranteed to provide a core set of benefits, ranging from preventive care to childbirth.29 Despite these guarantees, the amount that the patient will owe will still depend on the tier of the plan. The majority of enrollees opting for more affordable plans with low premiums will face high out-of-pocket expenses when they actually need to receive care.
Health exchange coverage tiers
For the growing group of price-sensitive patients with high out-of-pocket expenses, simply knowing the degree of cost sharing in their health plan is not enough for them to fully understand their costs. They also need ways to obtain prices for anticipated services upfront. In the spring of 2013, a medical student named Jaime Rosenthal undertook a project that poignantly illustrates how challenging obtaining price estimates can be. She decided to contact each of the 20 US News and World Report top-ranked orthopedic hospitals in the country to find out the price of a common elective surgery called a “total hip arthroplasty.” As the scripted story went, Jaime was looking for the “bundled price” (physician and hospital fees) for an acquaintance’s 62-year-old grandmother who did not have health insurance but had the means to pay out-of-pocket. Jaime found that less than half of the hospitals were even able to quote a price, and for those who were the price varied by an order of magnitude (from $12,500 to $105,000).30
Clearly, even if you sign up for a platinum plan on Healthcare.gov that covers 90% of the cost of hospital care, the type of price variation that Jaime discovered would flummox the most savvy of patients trying to shop for affordable care. The patient’s 10% share of the cost of a total hip arthroscopy could range from $1000 to $10,000 for similar quality care at a top ranked hospital. In response, a number of public and private resources are emerging to help patients better understand their healthcare costs upfront, and in some cases even shop for the most affordable option.
As of March 2011, more than 30 states were either considering or actively pursuing legislation to provide patients with at least some degree of upfront price transparency (Table 3-2).31 As part of a comprehensive survey performed at that time by Harvard health policy researchers Anna Sinaiko and Meredith Rosenthal, the majority of these states could provide average or median within-hospital prices for individual services. This level of information would at least give patients a sense of the relative expensiveness of one hospital compared to another, and might steer shoppers like Jaime to a lower cost facility. Still, it does not tell them how much they will actually pay out-of-pocket. Some states such as New Hampshire do provide patients with expected out of pocket costs for both individual services (like x-rays) and bundled episodes of care (like surgeries).32 Massachusetts additionally pairs this pricing information with high-level estimates of healthcare quality.33 In 2013, in order to encourage other states to continue down this pathway, the Healthcare Incentives Improvement Institute (HCI3) and Catalyst for Payment Reform (CPR) began issuing an annual report card that assigns letter “grades” to states based on their healthcare price transparency efforts.34
States with price transparency initiatives
|Favorite Table|Download (.pdf) Table 3-2
States with price transparency initiatives
|Selected State-Level Price-Transparency Initiatives∗ |
|State ||Type of Provider ||Information Reported ||Source |
|California ||Hospitals ||Median charge by hospital for common surgeries, including digestive, female system, heart and circulatory, male system, obstetrical, skeletal, thyroid, urinary procedures. Quality data by hospital are also available elsewhere on website. ||www.oshpd.ca.gov/commonsurgery |
|Massachusetts ||Hospitals, medical groups ||Both summary and detailed average costs that commercial health plans pay, by provider, for common cardiac, imaging, obstetrics, orthopedic, pulmonary, and select other procedures. Listed alongside provider-level quality information, if available. ||http://hcqcc.hcf.state.ma.us |
|Minnesota ||Clinics, medical groups, hospitals ||Average payment made by insurance plans for select gastrointestinal procedures, laboratory services, mental health services, obstetrical services, office visits, surgical procedures. Quality ratings by site of care are also available at same Web page. ||www.mnhealthscores.org |
|New Jersey ||Hospitals ||Average hospital charges and length of stay for most common major diagnostic categories and diagnosis-related groups. ||www.njhospitalpricecompare.com |
|New Hampshire ||Hospitals, surgery centers, physicians, other healthcare professionals ||Expected out-of-pocket and total price of preventive health services, emergency visits, radiology procedures, surgical procedures, and maternity services by insurance plans (includes prices for uninsured). ||www.nhhealthcost.org |
In many cases, data for these state-based initiatives are sourced from “all-payer claims databases,” or APCDs, that use legislative mandates to collect, organize, and analyze private insurance claims. While the majority of states in the United States either have or are planning to build APCDs, only a small minority are currently using them to guide patient decision making, due the sensitivities in disclosing privately negotiated payment rates.35 An alternate source of data on the highly variable and individually negotiated rates has come from providers on the other side of the transaction. Under the ACA, all providers were required to publish their chargemasters. As of January 2014, all providers in Massachusetts are required to disclose the “allowed amount” (contractually agreed amount paid by a private insurance company) or charge of an admission, procedure, or service to any patient who asks within 2 working days.36 In California, providers have to disclose price estimates to uninsured patients and cannot bill for an amount greater than the reimbursement the hospital would receive from a government payer.37
Where states have not yet been able to impose price transparency measures, private organizations have stepped in. Among providers, an Oklahoma City surgery center made national headlines in July 2013 by advertising itself as a “free market-loving, price-displaying” surgical facility, starting a price bidding war among several local competing hospitals.38 Other providers that feel they are able to offer competitive prices compared to their peers have been encouraged to do the same.39 Among payers, several insurance companies are offering tools that guide their members toward lower cost facilities and help them estimate their out-of-pocket expenses. United Healthcare created one of the first price transparency applications for smartphones.40
Among patients, several crowdsourcing initiatives have emerged that allow patients to report their experiences with the value of healthcare services via credible third-party platforms. A collaboration between the Knight Foundation and several public radio stations aims to “map” regional variation in healthcare prices for specific services.41 Even traditional consumer rating organizations such as Consumer Reports have started to get involved in helping patients navigate healthcare price and quality.42 The number of companies seeking to provide patients with price transparency solutions is rapidly multiplying (Table 3-3). In 2014, a company called Castlight Health reached an initial public offering of its stock that valued the company at $3 billion.43
Private price transparency approaches
|Favorite Table|Download (.pdf) Table 3-3
Private price transparency approaches
|Company ||Year Founded ||Approach |
|Castlight Health ||2008 ||Contracts with large employers to analyze and interpret payer claims, provides Web-based suite of enterprise software applications to support patient decisions |
|HealthSparq ||2012 ||Contracts with both health plans and employers to create member-facing cost and quality visualizations that are ultimately delivered through the payer member portals |
|Change: Healthcare ||2007 ||Contracts with both employers and health plans to provide a member engagement platform based on analysis of proprietary claims information |
|Healthcare Bluebook ||2008 ||Provides patients with free “fair price” cash payment estimates based on a distributed industry data on the amount providers accept as payment in full. Customized version provided to employers that offer high-deductible plans. |
|Clear Health Costs ||2011 ||Partners with media partners to CrowdSource prices from patients who submit medical bills |
Making pricing data interpretable and actionable
Existing solutions for providing patients with the upfront price of healthcare are imperfect and not yet universally available. However, even as such services become more specific, accurate, and widely utilized in the near future, interpreting and acting on this data remains challenging. Patients cannot always predict which services they will need. As Johns Hopkins University Professor Gerard Anderson has put it, “without knowing which services they will need in advance, it is impossible for patients to comparison shop.”44 One price transparency company, HealthSparq, aims to mitigate some of this predictive uncertainty by contracting directly with payers. In addition to providing out-of-pocket cost estimates for individual services, HealthSparq advertises treatment level, encounter level, and service level cost estimates by taking into account the most common care pathways that other patients in the same health plan with similar conditions take.45 With this tool, patients can see the most likely expected expenses for complex episodes of care.
Even if patients had an easy way to predict and interpret healthcare prices upfront, it would only help them select which facility to go to, and in many cases, particularly when patients are very sick, patients may not have much choice about where to go. Moreover, few solutions exist to help patients interpret and act on pricing data once they are already in the door of a healthcare facility. In the majority of cases where patients have limited agency over specific clinical decisions, it is particularly important for clinicians making decisions on their behalf to consider the value of the care they are providing. One dimension of considering value may be to understand and communicate pricing information to patients at the point of care. As author and Stanford Professor Dr Abraham Verghese has put it, “in a healthcare system in which our menu has no prices, we can order filet mignon at every meal.”46
Currently, clinicians appear to have very little idea how their decisions impact what patients pay for care. In one study, the vast majority of hospital medicine physicians were unable to estimate inpatient charges for routinely ordered tests within a reasonable margin of error.47 In another study, the majority of orthopedic surgeons struggled to estimate the institutional costs of common implantable devices within the correct order of magnitude—guesses ranged from less than 50 times too low to more than 25 times too much.48 To address this significant knowledge gap, several medical centers over the last two decades have experimented with “putting prices back on the menu.” A growing number of institutions are embedding some level of cost information into the computer “order-entry” systems clinicians use, and some have been able to demonstrate modest decreases in utilization of laboratory tests.49
In 2014 a private company called Maven Medical partnered with Johns Hopkins University to provide real-time cost and quality analytics at the point of care.50 In the same year the Wall Street Journal reported that the University of Pittsburgh Medical Center will begin selling software that “shows physicians how they can achieve the most desirable outcomes from procedures using more efficient, lower cost clinical processes and equipment.”51 The utility and efficacy of these solutions remain to be seen. Moreover, bringing price transparency to the bedside is unlikely to be a panacea by itself. Nonetheless, understanding prices is clearly a necessary component of providing the best possible care at the lowest possible cost. This information must be paired with thoughtful consideration from clinicians who are trained to provide value-based care, balancing cost information with quality, safety, and patient preferences. The remaining chapters of this book aim to provide the context and tools to do exactly that.
Providers, payers, and patients all consider costs from different perspectives. Furthermore, the amount that a provider charges is not necessarily related to the amount the patient pays.
Inflated prices often result from an attempt to reconcile the relatively low and fixed reimbursements of government payers with the higher negotiable reimbursements of private payers.
A number of public and private solutions are emerging to provide both patients and clinicians with more transparent price information.
The complexity of clinical processes, limited patient agency, and predictive uncertainty of healthcare delivery all make existing price data challenging to interpret.