Is Transparency In Healthcare Costs Possible?

One of Webster’s definitions of transparency is “characterized by visibility of information especially concerning business practices.” Therefore, transparency means that the business practices are easily discernible to the public. I have long felt that the business practices of the healthcare industry are lacking in transparency, which means it’s difficult to act as an intelligent consumer of healthcare. As consumers, we’re a lot like car buyers before it was possible to go on-line and get complete information on every make and model of car with every possible accessory. Although more information is now available on-line for consumers to learn about the charges and approximate out-of-pocket costs for selected healthcare procedures, such as hip and knee replacements, the actual cost of care is still nearly impossible to find.

Part of the reason for the difficulty in determining the cost of medical care is that consumers generally associate charges with cost. If you buy a bunch of bananas, you know you’re going to pay $1.10 a pound. That is both the charge and the cost to the shopper. When it comes to healthcare, the charges almost always have no relation to the cost to the patient. Even if the patient has insurance with a high deductible, the cost to that person will be whatever the hospital or doctor has negotiated as the price the insurer will pay the provider for that service, regardless of the charges. For example, the charges associated with a hip replacement may be $30,000, but the insurance company may pay only $15,000. If you have insurance with a $5,000 deductible, you will pay $5,000 and your insurer will pay $10,000. Although the payment, $15,000, is 50% of charges, there is no true relationship. The hospital, in this instance, negotiated a rate of $15,000 with a particular insurer. By the way, the hospital may only receive $14,000 from other insurers and even less from Medicare.  Another reason why it’s difficult for the consumer to get information about the cost of a service is that the provider is almost always prohibited from disclosing what an insurer pays it for a given service.

"The public deserves greater transparency in our healthcare system."

At this point you should be asking yourself two questions. The first is why are the charges so high in relation to the actual cost or payment received? The second is why are providers prohibited from disclosing what they are paid? You may even have a third question, which is what is the hospital’s actual cost to replace that hip? The answer to the first question is that historically some insurers paid hospitals on the basis of charges. As more insurers moved away from paying charges, the hospitals increased the charges to get more dollars from the few who paid charges. The answer to the second question is that insurers were afraid that if every hospital was aware of what every other hospital was paid, it would lead to everyone holding out for what the highest paid hospital was receiving for that procedure. I have long felt that this explanation was a cop out on the part of insurers and regulators. The insurers should have been able to justify any difference in payment and the regulators should have insisted on an explanation, given that insurance costs have been out of control. Many insurers and politicians decried the fact that consumers never consider the cost in making decisions about their care, but they wouldn’t arm them with the information necessary to make intelligent decisions. This underlying lack of transparency persists to the detriment of the consumer and the premium-paying public.

Now for the third question, what does it actually cost the hospital for a patient undergoing a hip replacement? The answer, of course, varies from one patient to another and from one doctor to another. Some patients will require more days in the hospital or more testing than others, so the costs will vary. Different doctors take different amounts of time to perform the procedure and may use different implants, also resulting in variation in cost. However, hospitals have become more sophisticated in using cost accounting techniques to determine their costs for a given procedure and can even break it out by physician. Some components of cost associated with overhead, such as human resources, do require allocation methodologies. Hospitals are required to submit extensive cost information to Medicare, which is available to the public but difficult to interpret.

With the federal government now responsible for more than 50% of healthcare costs, with the increases in health benefits a drag on our economy and with per capita healthcare costs twice the rate of some other European countries, the public deserves greater transparency in our healthcare system. I would start by systematically providing information to the public on what each payer pays each hospital for the top 20 diagnoses and procedures. That should lead to some very interesting questions about variation in payment and to the cost structures that underlie those payments. It should also lead to insurers and hospitals having to explain those differences.

I look forward to your opinions and comments. --Lou Giancola

Rhode Island or Vermont -- Who has the Right Answer for Healthcare Reform?

I had the opportunity to interact with two individuals who have significant roles in leading healthcare reform in Rhode Island (RI) and Vermont (VT)—Christine (Christie) Ferguson and Anya Rader Wallack.

Christie Ferguson

Christie Ferguson has been appointed Director of the RI Health Benefits Exchange. She’s been on the job for five weeks and is struggling with the balance of just getting the Exchange functioning and addressing the larger issues of improving outcomes and controlling costs. She clearly understands that insurance coverage is important, but not sufficient. Improving the effectiveness and efficiency of the system had to be accomplished through the aggregated purchasing power of the Exchange. The purchasing power amassed through the small employer groups and the non-group individuals mandate —those likely to obtain coverage through the Exchange—will not be sufficient to drive the necessary changes. She faces the challenge of somehow marshalling the purchasing power of state employees (19,000) and Medicaid (224,000) to implement payment reform and other tactics designed to improve quality and bend the cost curve.  Other populations that might be coordinated are municipal employees. Coverage is currently purchased for these employees through several buying cooperatives. The question is whether the regulatory and political climate will make it possible to have all of these entities establish similar standards for their plans related to the role of primary care, participation in the provider network, generic drug use and quality. This is a tall order, but Ms. Ferguson has experience in state government and may be able to pull it off.

Anya Rader Wallack

Anya Rader Wallack hasn’t been around healthcare as long as Christie Ferguson, but she finds herself heading up a very ambitious effort in VT to change the state’s healthcare system. Until her recent appointment as Chairwoman of the Green Mountain Care Board, Ms. Rader Wallack served as the Deputy Chief of Staff to Governor Shumlin for Healthcare Reform. The Green Mountain Health Board was created by the VT Legislature in 2011 to:

·         improve the health of Vermonters;

·         oversee a new health system designed to improve quality while reducing the rate of growth in costs;

·         regulate hospital budgets and major capital expenditures as well as health insurance rates;

·         approve plans for health insurance benefits in Vermont’s new “exchange” program as well as plan to recruit and retain health professions; and

·         build and maintain electronic health information systems.

Wow! That’s an impressive set of goals and a tremendous concentration of power in the hands of a five-person board consisting of two doctors, a business owner and the VT Secretary of Human Services, in addition to Radar Wallack. VT has a population of 619,000, one major teaching hospital (Fletcher Allen in Burlington) and 13 community hospitals. Many Vermonters are served by the Dartmouth-Hitchcock Medical Center, another major teaching hospital located just over the border in Hanover, New Hampshire. Radar Wallack says that, although a Healthcare Exchange will be implemented, it will not be the centerpiece of reform in VT. She and her staff are spending more time reviewing hospital budgets and launching projects to test new payment methodologies.

Keep in mind that neither state has the ability to directly affect changes in the Medicare program (18% or 111,420 in VT and 17% or 176,375 in RI) or employer self insured programs, which are regulated under federal laws.

Which state do you think has the greatest chance of successfully extending coverage, improving quality and bending the cost curve?

I look forward to your comments and opinions. —Lou Giancola

BETTER HEALTHCARE, DECREASED COSTS: A MODEL WE CAN REPLICATE

A New  York Times editorial on September 3, cites the work of Bellin Health, a relatively small healthcare system in Green Bay, Wis., in managing healthcare costs. I was impressed by this piece for several reasons and wanted to bring it to your attention.

First, it is interesting that a relatively small hospital (178 beds) has managed to build a system of care capable of controlling costs and achieving extraordinary quality results. We usually hear about Geisinger and Kaiser Health Systems as achieving these results.  Yet here is a small provider marshalling the resources and the know-how to make a difference. It should inspire the rest of us to explore new ways of delivering care.

Second, it is interesting to see the tactics employed by Bellin to achieve those results. Bellin has employed a large number of primary care physicians and nurse practitioners to ensure that patients can be seen promptly. Their experience seems to confirm that a strong primary care base, combined with convenient and timely access, not only improves outcomes but reduces overall costs. This is not surprising as countries with higher ratio of primary care providers to population tend to have better health outcomes and lower costs.

"A strong primary care base, combined with convenient and timely access, not only improves outcomes but reduces overall costs."

Third, it seems that Bellin has been successful in working effectively with employers to lower their healthcare costs. The editorial notes that a number of companies have contracted with Bellin to provide on-site care to their employees. This encourages employees to seek care early and avoid expensive care in emergency departments. This information, I hope, will encourage more companies to partner with local healthcare systems to find innovative ways to reduce their healthcare expenses. In my experience companies are usually reluctant to make upfront investments even though they are crazed about their increased cost of health insurance.

As the CEO of a small healthcare system, I am sometimes overwhelmed by the challenge of converting from a traditional hospital-based system where volume is king to a system based on improving the health of the population while helping to control the costs of healthcare. Managing the transition from hospital buildings and state-of-the-art technology as capital to primary care physicians and nurse practitioners as capital, is incredibly challenging. In the midst of this transition, it is encouraging to hear about a system that seems to have made great strides in that evolution.

I look forward to your comments. —Lou Giancola