I recently attended a roundtable discussion that included Human Resource (HR) executives, chief financial officers (CFOs), benefits brokers, consultants and providers who discussed ways self-insured employer plans can lower their health care costs. The meeting was hosted by a state-of-the-art hospital that is part of a small chain of medical facilities, including emergency rooms, imagine, clinics, orthopedic hospitals.
Some of the consultants in attendance specialized in reference pricing, where enrollees pay all costs above a maximum allowable cost price. Other consultants specialized in direct contracting with providers. There was also a firm that negotiated cost-plus contracting and one who facilitated medical travel.
The meeting turned to a discussion of how to convince CFOs to take notice of the savings they could retain in health care spending by working more closely with providers. There are numerous providers willing to contract directly with employers and offer them lower prices, bundled discounts and guarantees on outcomes.
There are numerous obstacles. Firms that do not self-insure are subject to their carriers’ network and negotiated discounts. Firms that self-insure but have large insurers act as third-party administrators (TPAs) to adjudicate claims may find that the carriers do not want to adjudicate prices that are different than their own. Some large insurers have most favored nation pricing, where providers cannot offer a price lower than they receive. One consultant claimed some large TPAs may charge employers higher prices than they reimburse providers. Another obstacle is that large insurers who act as TPAs are not fond of releasing claims data (to verify the contracted rate was received) even though the data is technically the property of the employer’s plan. Finally, the CFO is very busy and likely does not view HR minutia as an area of interest.
HR directors do not want to take risks. Changing the plan design and doing something different may later land the HR director in trouble. A mid-market HR director has, say, 500 employees and an equal number of dependents who can potentially complain about any new plan design that requires enrollees to comparison shop for better prices. Moreover, the HR director has to worry about senior executives and the executives family members, who may be displeased with any perceived change in benefits that requires effort.
This was all a rather sad – but familiar – story. Most people with health coverage have it through their job. Most of those who do not have job-related coverage get it through Medicare or Medicaid. About 89 percent of medical bills are paid by third-parties. The convoluted way we pay for health care is so distorted that conventional incentives do not apply.
Now for the conspiracy theory. Lack of transparency is everywhere. Most of the health care stakeholders do not stand to benefit from transparency and cost-conscious patients. I spoke with a consultant who had a personal story about a family member who had recently undergone surgery. Rather than a low-cost ultrasound, the patient was wheeled in for a CT scan or MRI without a discussion of price or need. The more advanced diagnostic procedure was around $4,000 – even though MRIs/CT scans can be obtained for $400 elsewhere by paying cash. By the way, paying cash for an MRI when the insurers’ negotiated allowable price is, say, $3,000 results in the entire $400 not being counted towards the health plan deductible.
Someone posed the question: why do large insurers not take a harder line on hospital prices? One consultant claimed it’s because the status quo makes them so much money they don’t want to rock the boat. Another consultant posited it’s because the health insurer charges employers more for claims than it reimburses hospitals for the service. His theory was: the higher the price; the bigger the opportunity to profit off the spread.
One consult relayed how he had reviewed claims data and found self-insured employers are paying up to 250 percent of what Medicare pays for the same service. By direct contracting he has helped his clients get rates of 150 percent of Medicare’s price. Yet, it’s like pulling teeth to get TPAs to work with providers directly. Nowadays hospital list prices are double to triple what insurers ultimately pay for the service. Of course, list price are not real; they are a fiction to make it sound like insurers and employers are getting a bargain. The actual market price is more or less what health plans reimburse. But pity the poor soul who gets stuck paying the fictitious list price.
Consumers are also the problem. For that matter, research has found workers do not comparison shop. When a decision support tool is available, research has found from two-thirds to three-fourths of workers either do not log in ever; log in only once or only twice. Other research has found when workers do use transparency tools, they use them to make decisions about whether they can afford the medical service — not to find better prices. Consumer use the price as a take it or leave it proposition.
By the end of the evening it became clear there is plenty that can be done to lower the cost of medical care and get providers to compete on the basis of price, quality and other amenities. The problem is: nobody wants to. Workers think their employee health plan is a free perk that precludes them from having to shop. Employers are too busy pursuing their own business interests to upset the status quo. Doctors, hospitals and insurers make too much money off the current system to allow any disruption or creative destruction to threaten the gravy train. Increasingly, the gravy train is employers, who pay huge premiums for employer plans and then pass the cost on to workers in the form of lower take-home pay. Workers naïvely believe their employee contributions are their total cost and the employer contributions are free gifts. They aren’t; health benefits reduces take-home pay and future pay raises.
The problem remains: what can be done to encourage stakeholders to actual rein-in health care spending? It is not impossible. The hardest part is convincing those who need to be part of the process they should become involved.