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The Pulse on Health Pricing

With prices of medical procedures fluctuating wildly, companies are putting costs under the microscope. (2013)


By Charlotte Huff

The nearly 10,000 employees at Wayne Farms know a lot about chickens, operating hatcheries and facilities throughout the Southeast that produce 2.5 billion pounds of poultry products each year. But when leaders at the Oakwood, Georgia-based company introduced a high-deductible health plan option to their 1,000 salaried employees two years ago, they quickly entered the murky world of medical pricing.

“We talked about needing people to be better consumers,” said Helen Nelling, director of compensation and benefits. “That they should question cost, they should question treatment, they should question quality.

“And some of our employees said, ‘How do I do that?’ I called my doctor and asked how much an office visit was, and my doctor’s office wouldn’t tell me.’ ”

Wayne Farms isn’t alone in wading into unfamiliar territory around health care costs. Medical pricing practices have been ambiguous: joint-replacement surgery, for example, can fluctuate wildly from $15,000 to more than five times that amount, though an expanding array of third-party vendors, and insurance plans are starting to shed light on pricing and quality. Experts say that as high-deductible plans proliferate, such cost tools and related strategies will become increasingly important to help create a more price-savvy employee and ideally curb chronically rising medical costs in the process.

The hurdle now facing employers is persuading their workforce to look at and consider the cost of medical procedures. Pushing beyond posters and other educational efforts, some employers have decided that they need to make changes in their benefit design to further motivate their employees.

Francois de Brantes, executive director at the Health Care Incentives Improvement Institute, said high-deductible plans are exerting a Trojan horse effect, “awakening the general public and individual plan members to the absolutely insane way in which health care prices are being set today and in which health care services are being paid for today.”

High-deductible plans are forcing employees to shoulder heftier chunks of their own medical bills. For 2013, 20 percent of insured employees are enrolled in a high-deductible plan with the option of an attached savings account, such as an HSA — compared with just 8 percent in 2009, according to the Kaiser Family Foundation/Health Research & Educational Trust annual benefits survey. The rollout of the health exchanges next year through the Affordable Care Act is anticipated to further accelerate that trend, as high-deductible plans will look attractive, given their lower upfront premium costs.

Wayne Farms last year contracted with San Francisco-based Castlight Health, a third-party vendor that helps employers provide their workers with detailed information about cost and quality. Nelling and other leaders also are considering changes in benefit design, including reference pricing, in which the employer agrees to only cover a procedure up to a certain amount.

This summer, the California Public Employees’ Retirement System, known as CalPERS, reported that it saved $5.5 million in just two years by using that approach with knee- and hip-replacement surgery. Another emerging benefits design strategy, now being analyzed by companies like Dallas-based Oncor Electric Delivery Co., is bundled payments. Leaders there hope to negotiate a one-stop charge for common joint surgeries that afflict the energy company’s active workforce of linemen and meter readers.

Revised Tools
Meanwhile, insurers like Cigna are developing and revising pricing tools for their members. The insurer relaunched its tool last year so users could dig beyond the basic doctor-search level by clicking through various links to assess the cost and quality not only of doctors but also hospitals and tests, said Marie Jinks, Cigna’s director of eBusiness, who led the launch.

“When we talked to our customers, we found out that they really did have an interest in learning more about the cost and the quality of their health care,” she said. “But they didn’t necessarily know where to look.”

The online tool gets about a million basic searches each month; roughly 1 in 4 users delve further, Jinks said. For example, a member who needs a stomach doctor — the online site avoids terms like gastroenterologist — and related tests can sift through not only what individual physicians charge, but also the total cost depending upon where the tests are conducted. The estimated bill can then be broken down based on that employee’s insurance coverage, including how much of the annual deductible has already been spent.

While the usability of such insurer tools has improved, so-called gag clauses continue to pose a significant hurdle, said Ted von Glahn, a senior director at the Pacific Business Group on Health. Providers — frequently those with significant leverage in a given area — can prevent the release of cost information. (In Cigna’s case, Jinks says gag clauses only block about 1 percent of health provider’s information from insured members, although a spokesman later added that there may be other gaps, such as when there are insufficient claims to fairly reflect prices for a given procedure.)

Von Glahn described one tool he had seen the prior day, which contained cost details from less than 20 percent of the contracted health providers serving that San Francisco region. “A very nice tool with a nice interface with consumers, well-organized and all that,” said von Glahn, who reviews pricing tools for his coalition’s employer members. “But it’s blank.”

Another sticking point: how to accurately measure quality. Health insurers and vendors take pains to highlight that their pricing tools incorporate such measures. Castlight Health lists its resources, including Medicare data, physician standards set by the American Board of Medical Specialties and patient-satisfaction ratings aggregated from public websites. Cigna also provides a similar list.

But ongoing disagreements over risk adjustment and other assessment methods, including among medical providers, has made it difficult to provide a nuanced quality picture of individual doctors or hospitals, said Tom Billet, a senior consultant at Towers Watson & Co. If people don’t trust the methodology, particularly when surgery or other high-stakes medical care is involved, Billet said, “they end up using price as a proxy for quality. They think, ‘Oh, if they’re charging more, it must be better.’ ”

A study published in 2012 in the journal Health Affairs backs up Billet’s assertion that price point alone doesn’t influence patient decisions when choosing treatment options. The study, which looked at how to present cost and quality information, didn’t find any evidence that high-deductible plan users were any more price-sensitive. “I don’t quite know what’s driving that — it was surprising,” said Jessica Greene, a study author and professor at George Washington University.

Overall, the study’s participants gravitated toward imaging centers that performed more scans, believing that more is inherently better, she said. And a high-cost doctor wasn’t necessarily a deterrent.

One focus group participant, she said, captured the prevailing mindset with the following comment: “Since I really can’t judge the competency of an M.D., I would assume the guy who charges more and gets away with it must have a reason for it. He must be good. Otherwise, he couldn’t continue that kind of practice.” Greene said that the moderator then asked if information about quality would alter that perspective. What if the high-cost doctor’s care was shown to be only about average compared with higher-caliber doctors? The participant’s response: “I would absolutely change my mind.”

Designing Benefits
At CalPERS, leaders launched their hip- and knee-replacement initiative in 2011 because they were seeing a startling spread in the hospital charges — from about $15,000 to nearly $100,000 — “with no real rationality” driving the difference in terms of the quality, said Ann Boynton, the system’s deputy executive officer of benefit programs policy and planning.

To prompt members to consider pricing differences, leaders worked with Anthem Blue Cross of California to create a list of high-value hospitals based on quality, geographic access and a joint replacement cost of $30,000 or less, not including the surgeon and other charges. For those 41 hospitals, members paid only co-insurance, which maxed out at $3,000 annually. If they chose one of the 72 nondesignated hospitals, they were also responsible for any costs surpassing the $30,000 threshold.

Before the initiative, 52 percent of surgeries were performed at nonvalue hospitals in 2010. By 2012, that rate had declined to 36 percent. Even more intriguing, the average cost of a hip or knee replacement declined from $34,742 in 2010 to $25,611 in 2011, driven nearly entirely by pricing declines in nondesignated hospitals. The average price held steady at $25,471 for the first nine months of 2012.

“It tells us that the industry paid attention to what we were doing,” Boynton said, “and found a way to reduce those prices.”  

Currently, just 5 percent of employers use reference pricing. But an additional 15 percent plan to adopt the strategy in 2014, according to the annual employee benefits survey by Towers Watson and the National Business Group on Health.

To date, the “dearth of quality information has been a limiting factor” for employers considering reference pricing, von Glahn says. Setting a price limit for a complex procedure, such as a heart bypass, is difficult if patients don’t have confidence in the underlying quality measurements, he said.

The risk, von Glahn said, is that “people are going to react negatively and either rightly or wrongly assume that this is a cost-driven service, and it’s going to be of subpar quality.”

Boynton said that CalPERS hasn’t gotten much pushback about quality worries, perhaps because the value list includes some high-profile names, such as California hospitals Cedars-Sinai Medical Center in West Hollywood and Stanford University Hospital in Palo Alto. A few other procedures for CalPERS members now also incorporate reference pricing, including outpatient cataract surgery.

Any further additions will be carefully evaluated with the focus on elective procedures only, Boynton said. “If it’s any kind of close to an emergent or acute situation, people aren’t going to go onto their iPhones to look at which facility is cheaper,” she said.

Another drawback with reference pricing is that it might not capture unanticipated costs that can arise in the course of medical treatment, said de Brantes of the Health Care Incentives Improvement Institute. For example, what if a screening colonoscopy leads to a biopsy?

Similar to purchasing the entire car, rather than the tires and other individual components, insurance providers should negotiate prices for the entire treatment episode, said de Brantes, who prefers the bundled payment approach. “Then the plan member can, with accuracy, predict what the total cost would be if she went to provider A vs. provider B vs. provider C.”

In North Carolina, Blue Cross and Blue Shield has been piloting bundled payments for knee-replacement surgeries in four locations beginning in 2011, said Dr. Brian Caveney, vice president and medical director at Blue Cross and Blue Shield of North Carolina. The approach not only gives the self-insured employer the peace of mind of a set price, but also provides employees more support as they navigate the various phases of treatment, he said. It “gets everybody aligned such that there tends to be one nurse or care coordinator that helps the person through that whole system,” he said.

The insurer now is talking to some health providers about adding other procedures, Caveney said. Some possibilities: hip replacement, heart bypass surgery and possibly even bundling payment for the treatment of heart failure for a given plan year.

As of this summer, Oncor Electric was negotiating bundled payments for common joint procedures, said Kerri Veitch, the company’s senior director of total rewards. Ideally, a bundled rate would provide both the employer and employee a flat price regardless of any issues that might arise, she added.

Individual Buy-in?

At Wayne Farms, Nelling looks forward to having a year’s worth of data so she can get a better sense whether cost details have influenced employee choices. Cigna officials are in the process of analyzing the use of its new online tool; Jinks hopes to have results by early 2014. “We’re specifically trying to concentrate on: What information did they seek, and did the information they saw change their behavior?” Jinks says.

Oncor Electric leaders have already identified some cost savings related to employee choice after hiring Compass Professional Health Services in the summer of 2012. To date, Compass has assisted nearly 200 employees, saving them more than $115,000 in claims savings related to price analyses, said Oncor spokeswoman Megan Wright. The company plans to start promoting such success stories to its employees.

Wright could start with her own experience, after suffering what she initially thought was food poisoning this spring. Since it was the weekend, she sought help at an urgent-care center. The clinicians there suggested she consult a gastroenterologist for a second opinion. Before doing so, though, she contacted a Compass health consultant, who provided a cost analysis.

The projected bill for the three local gastroenterologists, including related tests they might request, such as an endoscopy, ranged from $2,000 to $3,000. Wright, who is enrolled in a high-deductible plan, would have been responsible for about $1,500. She decided to visit her family doctor first. He prescribed antibiotics and, in the end, told her a specialist’s input wasn’t needed. “I felt better physically and mentally,” she said, “knowing that I got to save that amount of money.”