New Data on Healthcare Prices Raises Questions for Policymakers

The author raises several questions about whether Oregon is doing enough to deal with rising healthcare costs and looking to see if healthcare providers are cost shifting.

Jesse Ellis O’Brien's guest opinion in the Lund Report.

 

OPINION -- A New York Times report released yesterday put the spotlight on healthcare prices. We all know that healthcare still costs too much, but too often, we have little information about how much it does cost and why. Here at OSPIRG, we are trying to do something about that. But in the meantime, what we do know shows that prices for the same service can vary wildly from one hospital or clinic to the next, even for facilities within a few miles of each other. The new data shows that there are also big variations in price depending on where people get their health coverage.

Specifically, the report shows that parts of the country with low Medicare spending do not necessarily have lower healthcare prices for those of us with commercial insurance. In fact, many areas with unusually low Medicare spending have unusually high prices for people who get their insurance elsewhere. Here’s where some of Oregon’s cities rank for spending in Medicare and commercial insurance among the cities considered in the report:

On the bright side, four of these five cities are below the national average in both categories. However, these variations are dramatic, the reasons for them are unclear, and without greater transparency, there is little that consumers can do to protect themselves from high prices.

This data raises some tough questions for policymakers:

  • Is Oregon doing enough to address rising healthcare costs for all consumers? The state has relatively low Medicare spending, and has invested in a big overhaul of the Medicaid program to cut costs, but neither of these efforts address costs for commercial health insurance. Further action may be needed to ensure that lower costs benefit all Oregonians.
  • Are healthcare providers “cost-shifting?” Economists and health policy experts have long debated whether hospitals and other healthcare providers shift costs to health insurers to make up for lower reimbursement rates from Medicare and Medicaid. While the high prices charged to consumers with commercial insurance in Bend and Eugene—which have some of the lowest Medicare rates in the nation—certainly suggest this may be going on, the evidence for this is mixed.
  • Is it all about competition? One key difference between Medicare and commercial insurance is the role of market competition. Research suggests that healthcare prices are generally lower in areas with lots of hospitals and clinics competing for our business—one study found that hospitals with a local monopoly have prices 15.3 percent higher than those in cities with four or more hospitals—but the New York Times report suggests that this may work differently for Medicare than for commercial insurance, since Medicare does not have to negotiate rates with hospitals based on their market power. Out of the cities listed above, Portland has the most competition as well as the smallest disparity between Medicare and commercial insurance costs, but it is unclear from the information available whether those factors are related.
  • Why don’t we have answers to these questions? With healthcare costs largely opaque to consumers and policymakers alike—and often a mystery even to hospital administrators and others in the healthcare industry—it is hard to answer these questions, which may be critical to addressing rising healthcare costs going forward. Oregon policymakers should redouble their efforts to make accurate, actionable information about healthcare costs more widely available.

Jesse Ellis O’Brien is the healthcare advocate for OSPIRG and can be reached at jesseo@ospirg.org.

Dec 16 2015

News source: The Lund Report

How U.S. Health Care Came to Cost Insanely More

From H&HN Daily

Cost is the big factor. Cost is why we can't have nice things. The overwhelmingly vast pile of money we siphon into health care in the United States every year is the underlying driver of almost every other problem with health care in the United States from lack of access to waste to fragmentation to poor quality. We can't afford to fix the problems, cover everyone, do real outreach, build IT systems that are interoperable and transparent and doc-friendly — or so it seems, because at least on weak examination, every fix seems to add even more cost. And in the old ways of doing things in health care, the way we have been used to doing business, the conclusion of the weak examination has been correct: Despite the tsunami of money, there is never enough to do it right.

Health care that costs more than it needs to is not just an annoyance; it's a big factor in income inequality in the United States. The financial, physical and emotional burden of disease are major drivers of poverty. At the same time, the high cost of health care even after the Affordable Care Act means that many people don't access it when they need it, and this in turn deprives large swathes of the population of their true economic potential as entrepreneurs, workers and consumers. People who are burdened by disease and mental illness don't start businesses; don't show up for work; and don't spend as much money on cars, smartphones and cool apartments. Unnecessary sickness is a burden to the whole economy.

How did we get this way? What was the mechanism that differentiated U.S. health care from all other advanced countries? The usual suspects (such as "We have the most sophisticated research and teaching hospitals," or "It's the for-profit health insurers" or "Doctors make too much") all fail when we compare our system with other sophisticated national systems such as those in Germany and France. Other countries have all of these factors in varying amounts — private health insurers, world-class research, well-paid physicians — and cost a lot, but still spend a far smaller chunk of their economy on health care. Blame has been leveled in every direction but, in reality, no single part of health care has been the driver. The whole system has become drastically more expensive over the last three decades.

What's the Mechanism?

Since the difference between the United States and other countries is so large and obvious, there should be some way we can look at health care spending that would make that mechanism jump out at us. And there is a way.

The Organization for Economic Cooperation and Development gathers and publishes huge amounts of information about the top 40 or so national economies in the world. Go online and search for its database on national health expenditures as a percentage of each country's economy. Don't just look for recent data. We already know what that says: The United States throws twice as large a chunk of its economy into health care as most other countries; 50 percent more than the most expensive other countries. No, take the search back to the middle of the last century. Pull the data into a spreadsheet. Make the spreadsheet into a graph. Here's what you get:

Wow. Suddenly a rather startling pattern emerges. Right side: Yes, the United States costs twice as much. Left side: Didn't use to.

As economies grow in absolute size, they tend to dedicate a greater percentage to health care. After a certain point, somewhere around 9 percent, the cost continues to increase, but the rate of increase tends to flatten somewhat. Through the '60s and '70s we can see that happening. The United States, as the largest economy, is one of the most expensive, but it's just there at the top of the pack. In the mid-1960s Medicare is implemented — the first big infusion of federal money into the health care economy — and does the U.S. line jump up? Not really. It flatlines for a year, then continues its moderate climb.

Something Wicked This Way Comes

Then something happens that is stark, sudden and large. Health care economies tend to lag national economies by a year or two; in bad economic times, governments and private purchasers can't cut health care expenditures immediately, but they do tighten their belts for the future. At a moment when the other most expensive health care economies (Germany, Sweden, Denmark) are flatlining or drifting lower in response to the global economic malaise of the early 1980s, the U.S. line goes nearly vertical, flatlines for a year or so, then leaps ever higher in a series of startling S-curves.

That first big leap is between 1982 and 1983. What was different in 1983 that was not there in 1982? DRGs, diagnosis-related groups — the first attempt by the government to control health care costs by attaching a code to each item, each type of case, each test or procedure, and assigning a price it would pay in each of the hundreds of markets across the country. The rises continue across subsequent years as versions of this code-based reimbursement system expand it from Medicare and Medicaid to private payers, from inpatient to ambulatory care, from hospitals to physician groups and clinics, to devices and supplies, eventually becoming the default system for paying for nearly all of U.S. health care: code-driven, fee-for-service reimbursements.

Cost Control Drives Costs Up?

How can a cost control scheme drive costs up? In a number of ways: In an attempt to control the costs of the system, the DRG rubric controlled the costs of units, from individual items like an aspirin or an arm sling to the most comprehensive items such as an operation or procedure. The system did not pay for an entire clinical case across the continuum of care from diagnosis through rehab; or for an entire patient per year on a capitated basis, which would capture the economic advantages of prevention; or for an entire population. While it is more cost-effective (as well as better medicine) to provide a diabetes patient with medical management, in-home nursing visits and nutritional counseling rather than, say, waiting until the patient needs an amputation, the coding system actually punished that efficiency and effectiveness. Under this system, we got paid for our inefficiencies, and even for our mistakes: Do-overs often would drop far more to the bottom line than the original procedure did.

The system punished, rather than rewarded, spending more time with patients, trying to help patients before their problems became acute, or maintaining a long-term, trusted relationship with patients. Under a code-driven, fee-for-service system, getting serious about prevention and population health management would be a broad road to bankruptcy.

If extra items were deemed necessary (an extra test or scan, say), there were codes for that, and reimbursements awaiting. In so doing, the system rewarded doing more (volume) rather than whatever would be the best, most appropriate, most efficient treatment path (value). It provided a written, detailed catalog of reimbursements which rewarded diagnoses of greater complexity, rewarded new techniques and technologies with new and usually higher reimbursements, and especially rewarded systems that invested in a greater capability to navigate the coding system. At the same time, the reimbursements were constantly open to pressure from the industry. Each part of the industry, each region, each specialty, each part of the device industry, became fiercely focused on keeping those reimbursements up, and getting new codes for more costly procedures.

The business and strategic side of health care became a matter of making money by farming the coding system. Do more of what gets better reimbursement, less of what does not. Make sure every item gets a code and gets charged for. The codes became a manual for success, a handbook for empire.

The Smoking Gun

The smoking gun is right there in the chart, at the big split between the trajectories of the United States and other countries. And today, at this moment, the code-based, fee-for-service payment system is still by far the basis of most revenue streams across health care.

The unifying factor between multiple new strategies unfolding in health care right now, including patient-centered medical homes, pay for performance, bundled prices, reference prices, accountable care organizations, direct pay primary care and others, is to find some way around the strict code-based, fee-for-service system, either by avoiding it entirely or by adding epicycles and feedback loops to it to counter its most deleterious effects.

There is no perfect way to pay for health care. All payment methods have their drawbacks and unintended consequences. But the code-based, fee-for-service system got us here, and any path out of the cost mess we are in has to get us off that escalator one way or another.

Joe Flower, CEO of the Change Project Inc., serves on Speakers Express, the speaking faculty of the AHA's Health Forum, and on the board of the Center for Health Design. He is also a regular contributor to H&HN Daily.

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Post the Price, Please

OSPIRG Report. Two bills claim to make health care prices transparent. Only one does. Here’s why.

The Oregon State Legislature is poised to debate the merits of two pieces of legislation with very different approaches to making health care prices more transparent and publicly available for consumers. Senate Bill 891 would require Oregon health care facilities to post their own prices publicly, like other businesses, and provide real-time price estimates on request. Senate Bill 900 would require the state to set up a website with aggregated data about average amounts collected by Oregon hospitals for the most common health care procedures.

While these bills may appear to be aimed at accomplishing the same ends, the differences are profound. Here are the key differences in a nutshell:

SB 891 would provide consumers with accurate, actionable information about prices that would be included in a bill. SB 900 would not.

Health insurance plans with deductibles and coinsurance have become more popular in part because they are perceived as giving consumers “skin in the game” and giving them more responsibility to control their own health care costs. However, it is impossible for consumers to use this responsibility without ready access to negotiated prices.

That’s because consumers are often required to pay all or part of the price that their insurer pays for health care services they use. This number is called the “allowed amount,” but will be referred to as “the price” in this paper. The price is negotiated between health care payers and providers, can vary widely between different insurers, and traditionally has been kept secret from consumers.

SB 891 would require health care facilities to post these prices publicly, both online and at the facility, broken down by each of the top health care payers in the state. In contrast, SB 900 would require the government to aggregate historical claims data from commercial insurers and government programs. Since the price for a procedure can vary widely between different insurers, the aggregate number would not be actionable for a consumer.

Even the leader of Oregon’s hospital trade group admits this. From the Salem Statesman Journal (3/16/2015):

“Andy Davidson, president and CEO of Oregon Association of Hospitals and Health Systems, admitted the database might be more of an educational and awareness tool rather than something to plan personal finances around.”[i]

One defense of keeping prices a secret is that the actual portion of the price that a consumer will pay will vary depending on the details of their insurance plan, and thus the price isn’t meaningful for consumers. However, this ignores the fact that our private insurance system makes it necessary for consumers to do some math in order to calculate their out-of-pocket obligation. That’s the reality of ensuring that consumers have “skin in the game”.

The data provided by SB 900 would not be completely meaningless. It would have some uses, including providing policymakers and the public with some information about average price variations across Oregon hospitals. But it would not provide an accurate price signal to Oregon consumers – and that’s what our goal should be.

SB 891 would enable the creation of consumer-friendly tools and shopping guides that would help Oregonians shop around and identify high-value health care. The impact of SB 900 would be much more limited.

The online price postings included in SB 891 would be required to adopt a consistent machine-readable format. This detail is important because it would empower outside organizations and companies to make the data more useful for consumers via the development of apps and web tools, as well as shopping guides like those produced by Consumer Reports.

The success of health care price transparency services like Castlight Health and HealthSparq demonstrates that there is a market for this data. The business model of these organizations is currently based on developing proprietary contractual arrangements with insurers and large employers, but with broader public access to data, these innovative companies could create tools for a broader audience that could enable more informed consumerism in health care. They could also explore combining the data from the price posting required by SB 891 with existing public data on health care quality to help consumers make decisions about value, not just cost.

SB 900 would not enable the development of this kind of tool. The data posted to the OHA website could be used to inform consumers about average price variations between hospitals, but this kind of information is of limited use to consumers on a limited budget who need to know the actual cost of services in advance.

SB 891 would enable consumers to request an actionable estimate in real time, at the point of service. SB 900 does not include any provisions to this effect.

SB 891 would require health care facilities to provide an estimate upon request without unreasonable delay, in a timely enough fashion to enable consumers to make an informed decision about whether to access a health care service.

This estimate would include both the posted price for the service and any ancillary charges that might be included in a bill, including facility fees and out-of-network fees. With consumers increasingly aware of the danger of receiving surprise bills when out-of-network providers participate in procedures in in-network facilities, this provision will be especially important.

SB 900 does not include a provision for in-person estimates. The Oregon Association of Hospitals and Health Systems has recently stated that their membership has volunteered to provide price estimates on request to uninsured and self-pay patients, but this is not included in the bill.[ii] This voluntary agreement does not appear to extend to providing estimates to insured patients, even if they may face thousands of dollars in out-of-pocket costs in deductibles and coinsurance.

SB 900 requires the state to engage in a complex IT project, at significant cost to Oregon taxpayers. SB 891 puts the responsibility on health care facilities themselves to post their prices, like other businesses.

Unlike SB 900, SB 891 will not require the state government to spend additional funds to implement its requirements. Under SB 891, the role of the state is limited to defining a standard format for health care facilities to use to post their prices, and enforcing these requirements through its existing licensure program.

Some health care industry interests have expressed concern that SB 891 will create an administrative burden. While it is true that posting prices will require health care facilities to change their current practices, these changes simply hold health care providers to the same standard as any other business, and are quite reasonable to expect given the consumer need for actionable price information.

Moreover, hospitals and other facilities already have staff and resources devoted to billing and managing reimbursement rates; SB 891 simply requires that those activities are made more public and transparent for patients.

Regardless of the merits of spending taxpayer funds to create the website outlined in SB 900, putting all of the responsibility on Oregon’s state government to provide health care price data to consumers could appear to absolve the health care industry of their responsibility to make their prices available to their customers, like other businesses.

SB 891 would strengthen the doctor-patient relationship and begin a needed transformation of the practice of medicine.

Today, physicians are often unable to have frank conversations with their patients about the costs and benefits of health care services.

This poses a key obstacle for physicians who want to treat the whole person, not just the medical condition. It can also lead to mistrust, and can sometimes cause patients to forgo needed care out of concerns about cost that could be alleviated with greater access to information. 

It is also a missed opportunity to lower the cost of care. Recent research indicates that making prices available for individual procedures can bring down costs by encouraging active consumerism and fostering price competition.[iii]

SB 900 will not represent a significant step in this direction. While physicians could potentially use the OHA data to provide their patients with advice about which hospitals are generally more expensive, this information would not necessarily be enough to inform an individual patient about where to go to get the best value.

SB 891 applies to all health care facilities; SB 900 only applies to hospitals and hospital outpatient clinics.

Hospitals are not the only provider of expensive health care services. Ambulatory surgery centers, independent imaging centers and other non-hospital clinics are key health care providers for many Oregonians, and their prices may vary significantly from hospital prices. SB 891 would enable Oregonians to make a better-informed decision about whether a hospital or another kind of health care facility would be the best place to receive the care they need. SB 900 would not provide this information.

Released by: OSPIRG

Release date: Wednesday, March 25, 2015

> Read News Release

> Download Report (PDF

Notes:

[i] The Statesman-Journal’s full coverage is available at http://www.statesmanjournal.com/story/news/health/2015/03/17/two-oregon-bills-target-health-care-cost-transparency/24898103/

[ii] For more on this voluntary agreement, read the Bend Bulletin’s coverage of the issue, available at http://www.bendbulletin.com/health/2965469-151/oregon-bills-seek-price-transparency-for-medical-services

[iii] E.g., a demonstration project showed that providing up-front prices for MRI scans increased use of less costly providers and encouraged price competition. The study is available at http://content.healthaffairs.org/content/33/8/1391.abstract

Elizabeth Hayes: The Uncovered

From Portland Business Journal:

In 2019, five years after the Affordable Care Act has kicked in and, presumably, Cover Oregon’s woes are a distant memory, many more Oregonians will have insurance than do today.

But not everyone.

An estimated 120,000 Oregonians who are subject to the “individual mandate” will still lack insurance, according to a new fact sheet by the Oregon Center for Public Policy. Here’s a breakdown:

• An estimated 71 percent — or 84,000 people — will be low income, earning below 200 percent of the federal poverty line.

• At least two thirds of them — or 56,000 people — will earn too much to qualify for the Oregon Health Plan.

• Another 11,000 would make too much for a tax subsidy through Cover Oregon to help offset the cost of their premium.

The subsidy is available for those earning under 400 percent of the federal poverty level. But even a subsidy wouldn’t place insurance within reach for many of these people, hence the tens of thousands of future uninsureds.

“The primary issue is affordability and the options available on Cover Oregon,” said Janet Bauer, health care policy analyst for the Center for Public Policy.

When other states offered coverage to those who made too much for Medicaid, here’s what happened: If the premium was at 1 percent of their income, 57 percent took the plans. When the premium rose to 4 percent, the “take up rate” dropped to 25 percent.

“Low income individuals are very price sensitive,” Bauer said.

In addition to the 120,000 estimated uninsured, another 99,000 undocumented immigrants will also lack insurance, as will another 69,000 who are deemed exempt from the mandate, including those who aren’t required to file federal taxes, tribal members and those experiencing hardship circumstances, the Center for Public Policy estimates.

Despite all this, the picture would look much bleaker without health reform. Under that scenario, there would be 680,000 uninsured in 2019, up from 600,000 in 2013.

“That, to our minds, is major progress,” Bauer said, “but we’re not there yet.”

One possible way to fill the gap in affordable coverage is for the state to offer what’s called a Basic Health Plan for people who make between 139 percent and 200 percent of the federal poverty level, too much for Medicaid. A bill to study the cost of such a program in Oregon will be considered by the Legislature in February.

More next week on how exactly it would work.

Low income, lower coverage

By 2019, a vast majority of the estimated 120,000 Oregonians still uninsured will be low income, defined as earning below 200 percent of the federal poverty line, according to research from the Oregon Center for Public Policy. All are subject to the “individual mandate” that requires individuals to obtain health insurance or pay a penalty.

71% - BELOW 200% OF FEDERAL POVERTY LINE

20% - BETWEEN 200% - 400% OF FEDERAL POVERTY LINE

9% - OVER 400% OF FEDERAL POVERTY LINE

Elizabeth Hayes covers health care for the Portland Business Journal.

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Study: Strict Malpractice Laws Do Not Reduce Health Care Costs

Laws that make it harder to sue physicians for malpractice do not reduce hospital emergency department care costs, according a RAND Corporation study published Wednesday in the New England Journal of Medicine, Reuters reports.

The study found that:

  • Tougher limits generally did not reduce the cost or volume of ED care;
  • Legal risk does not motivate physicians as much as some previously thought ("Wonkblog," Washington Post, 10/15); and
  • While there was a 3.6% drop in Georgia ED charges, researchers noted that the strict malpractice laws provided "little (if any) change" in ED physicians' practice intensity.

"[The latest results] certainly [run] counter to most people's expectation[s]," said chief study author Daniel Waxman of the RAND Corporation.

Click here for the full article.

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