Hidden prices on health care should be illegal

Two major events, one in the private sector, one in the public, demonstrate that the health care industry is being dragged kicking and screaming into a new world where consumers can finally determine the prices and quality of care.

The Centers of Medicare & Medicaid Services (CMS) just released eight gigabytes of data on what doctors are being paid. The revelation that some docs are taking home millions from the federal government, against a backdrop of the provider industry complaining eternally about the low levels of reimbursements, sent shock waves through the industry.

The huge data release, which was fought by all the incumbent interests who gain from inscrutable pricing and quality metrics, was long overdue. After all, this is public data. It should be subject to the Freedom of Information Act.

About the same time, a Silicon Valley startup called Castlight went public. If you don’t think there’s an emerging market for transparent price and quality information, think again. With only $13 million in 2013 revenues, Castlight is priced at more than $1 billion following its initial public offering.

That’s a big vote of confidence in Castlight’s business model, which simply sells information on health care procedures to self-insured customers.
Four of five U.S. companies with more than 200 employees are now self-insured. And a majority of those companies have moved their people to what’s called a consumer-driven health plan (CDHP), a high deductible plan, usually offset by a personal health account. That means an army of their employees now have skin in the game.

As consumers, they need to know what they are buying from doctors and hospitals and for how much. They need consumer information. It is no longer a top-down, do-whatever-the-doctor-says script.

With prices routinely varying as much as 400% in the dysfunctional market for medical treatment, the savings from a smart buy on just one or two procedures can more than cover the employer cost of providing the transparency tool. Hip replacement surgeries can vary, for instance, from $27,000 to more than $100,000 in Wisconsin. (Disclosure: I am an angel investor in a startup competitor of Castlight called Alithias that has sold a transparency tool to mid-size companies in Wisconsin, including Vollrath, Menasha Corp., Bemis Manufacturing and Sargento.
The need for clear information goes beyond self-insured employers. About one in four Americans is now on a high deductible plan, and that percentage is growing fast. Many of the plans sold on the government exchanges are high deductible plans. Even some state and local government payers are moving to consumer-driven plans.

The biggest obstacle for companies like Castlight and Alithias (there are about more than a dozen such vendors) is the unwillingness of health insurers and providers to turn over claims data – even when their customers, such as the self-insured employers, ask for their own data.

Believe it or not, there are confidentiality clauses between insurers and providers on price data as part of their mutual contracts. Clearly, such clauses ought to be prohibited by law. Consumers have the right to unfettered information, just like they do when buying a house or a car.

So said one of President Obama’s first advisors on health care. Dr. Robert Kocher wrote recently: “First, we need to embrace a transparency imperative, which says that all data on price, utilization, and quality of health care are made public unless there is a compelling reason not to do so – and enshrine it into law, mandating that all payers, public and private, must make claims data publicly available, with privacy protections.”

Right on. Individual patient data must be de-identified, but the aggregated data has to be public information.

Governors and legislators could follow the CMS lead and move the transparency train faster and further down the track by making the state’s claims data public as well. Medicare now provides both retail prices, what I call sticker prices, and the discounted prices it actually pays to doctors. The state data would be additive.

Payers will be using use that CMS data in creative ways to cut through the maze of discounts, such as:

• Paying some percentage over Medicare prices, say 125% or 140%. It’s already being done.

• Paying bundled or all-in prices for an episode of care. It’s already being done.

• Setting a maximum price, available at the best-run providers. It’s already being done under the name of Reference Based Pricing.

It’s a new day for American health care. A bright light is finally piercing the great fog bank surrounding the value propositions in this opaque industry.

This entry was posted in Transparency on Prices, Quality. Bookmark the permalink.
  • Lou Frase MD (Ret.)

    John, you remain a hero to me for your innovative approach. I know you are on the right track. Keep in mind that many people do not have employer based health care and we need to consider them as well. One thing the ACA did was to eliminate the pre-existing illness concept as a means of “cherry picking” only healthy people, eliminating caps on total annual expenditure (a killer for anyone with cancer, and easily covered by a national pool which spreads the burden, an especially valuable tool when combined with vigorous oversight) and mandating that kids be covered by family plans until age 26. Now lets tackle all the down sides of the program one by one until we get it right. I’ve read your book but don’t recall, do you have a plan for the self-employed to tap into your concepts?

    • JohnTorinus

      Hi, Lou,

      The self-employed have a tougher time managing, but they can still use a CDHP plan and an off-setting HSA. So they can become consumers, and the savings are real.

      Tools like on-site clinic are harder to come by for an individual, but, even there, concierge doctors are now available to get into a “medical home.”

  • Bob Dohnal

    I cannot understand why people are upset cause a hospital charge $500 for hernia to insurance and the $15,000 for cash customer that forces them to go bankrupt or court. In the pharmacy business there will be charges based on little costs of huge markups based on AWP and then little markups for a patented drug.

  • Joseph Kaylor

    My observation is that fear and confusion works and thankfully the ACA is forcing a much over due change in the pricing of Health Care. From a HC industry perspective, why change when you don’t have to? The cash and greed keeps flowing. For example, there is no justification for the same medical condition to cost 50% more for those that are uninsured.

    • JohnTorinus

      Big incumbents change slowly for all kinds of reasons. Hence need for disruptive new model.

  • Gerryww

    Gerald Wrench Basing everything on what the CMS charges will not solve the problem of innovation. What is keeping more people alive today. The CMS is dictatorial in what it charges. More so than the hospitals that overcharge those without insurance. Then the insurance companies who do pay a fair price to the providers are going to be taxed for a quality plan that makes up for Medicare and Medicaid. The question is do you want healthcare prices determined by a government bent on reducing costs because they are basically bankrupt and have other departments to fund in a competition with other departments who have political allies for whatever the whim of the moment is? Major cancer hospitals are being left off of coverage and who is to say that the employer plans will not be taxed even more by a government who is seeking even more tax money. Transparancy is good but only in a competitive market, not a government driven one with the ability to budget and tax who and what they want.

  • The huge data sources and the information published is quite surprising and what we can understand by the fact that so.