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Why healthcare price transparency is so murky

I’ve spent the better part of the last two years trying to improve price transparency in healthcare. When my startup, Medlio, began down this path, we had a very simple vision - that consumers should be able to use their smartphones to find, connect, and transact with their healthcare providers. By "transact," I mean schedule appointments, submit medical forms and insurance information, receive an upfront estimate of the cost of the visit, make payment, and receive their data afterwards.

Now, this is pretty standard fare in just about every other industry. And, to be perfectly honest, we’re not that far off even in healthcare. The b*!#@ of the bunch in that set of transactions, of course, is accurately estimating the cost of a visit before it happens, and accurately assigning responsibility based on a patient’s specific plan benefits and current accruals (as in, how much of their benefits have they used, and if they have a deductible, where are they in meeting it).

I cannot even begin to tell you how many people have told us that (1) it’s not possible, (2) patients don’t care, (3) as an estimate, it won’t be reliable or useful… and oh yes, (4) we’re stupid.

Yet, as worthless and stupid as the idea may seem, upfront cost estimates just recently became state law in Massachusetts, and if I thought it worthwhile and relevant, I would list off the other states who are either in process or developing similar legislation. I don’t, so I won’t waste our time.

Despite what people may think, performing an upfront price estimate is not that difficult. You just need 3 key pieces of information: (1) patient specific health benefits, (2) contracted rates between the patient’s insurance company and the doctor providing the services, and (3) the specific services to be rendered. And, if you want to get technical, you should understand the various insurance companies’ bundling rules.

Every clearinghouse that I know has developed this exact estimation engine. They use it to pre-adjudicate every claim before they send the claims to the various insurance companies for processing. This allows them to identify potential issues, save money, time, etc…

The challenge is not in replicating the insurance company adjudication engines. It’s about doing it scalably and integrating the solution directly at the point of transaction. I could tell you how we struggled to solve this problem, how we eventually figured it out, and how - despite all the lip service to the contrary - insurance companies really don’t care that much about supporting it. But the point of this post is really to question the idea of transparency itself.

Over the last year or so, we have been invited to participate in multiple employer generated RFPs seeking solutions to price transparency. Our response has been, and remains - we provide point-of-care price transparency. We do not support doctor shopping based on price, nor are we in the business of commoditizing doctors and the provision of care. In other words, we are not Castlight.

Central to our belief system is that patients, or consumers, have a right to know the cost of the services they are purchasing. However, until such time that we can RELIABLY deliver the necessary supporting data points that accompany price, namely - quality, access/availability, and customer satisfaction - exposing price on providers prior to an actual visit is not only irresponsible, but borderline unethical.

Why? Because people behave very predictably. For those whose insurance is still largely subsidized (i.e., traditional PPO plans) or those with means, they will gravitate to the high cost providers. For those who have to pay their own costs (i.e., high deductible plans) or those without insurance and limited means, they tend to the low cost providers.

Without adequate information, people will make decisions based on price alone. Now, I suspect the first counter argument from companies exposing price information in this manner is that they do, in fact, provide both quality and satisfaction information. To which, my response would have to be, courtesy of Jack Nicholson in As Good As It Gets, “Sell crazy someplace else. I’m all stocked up.”

Let me just say that I believe the industry wants to accurately assess quality in the form of outcomes, and it would like to understand consumer satisfaction. Nevertheless, it is in the proverbial Dark Ages where this is concerned. In other words, we could probably do as well by picking our doctors’ prowess by the circumference of their craniums.

As a result, companies that enable patients to shop for doctors and other providers based on price are interfering with the laws of supply and demand, and quite honestly, doing it irresponsibly

To give you an example, imagine your nearest academic medical center/health system. We all have one relatively nearby. I have two (within 10 miles). These systems are powerful suppliers in our geographic market, and as you might suspect, incredibly important to the different insurance companies competing in this region. After all, an insurance company without one or both of these providers in their network would look pretty anemic. And that would make it pretty hard to sell their insurance to employers. As a result, both systems wield a lot of power when negotiating reimbursement rates (“prices”) with payers.

Now, there are also a bunch of smaller suppliers, including the dwindling independents who struggle to survive. They have far less power than the health systems. They desperately need to be in the various insurance networks to pull in as many patients as possible, but they are not as essential to the insurance companies, and consequently have much lower rates.

Mind you, this price-setting process has little to nothing to do with the quality of the providers. It’s based solely on bargaining power. Hence, the bigger the system, the higher the prices.

Imagine a large employer in this market who hears about this great solution that can help steer its employees to the lowest cost providers. Again, I’m sure there’ll be promise that these low cost providers are all of the highest caliber, and that may or may not be true. To be honest though, the head of HR stopped paying attention after running a quick calculation on the potential savings. Even without being privy to the details, I can tell you that health system based providers are easily 60% more expensive (based on contracted rates) than their independent counterparts.

The employer would be foolish not to push this solution on to its employees. After all, with so many employees on high deductible plans, it’s in their interest to see the cheapest providers too.

Let’s assume this is a really big employer in this local market and they are effective in driving their employees to all the independent providers. All of sudden, the health system notices that their business is falling. They hire McKinsey to do a study to find out what is happening. A year later, after much research and many great questions, the study concludes that the health system has fallen victim to a classic “bait and switch” scam. Of course, the health system will threaten to break the contract, raise it’s fictitious MSRP prices, represented by its chargemaster, and generally put a squeeze on all the patients that belong to the offending payer that effectively colluded in the scam.

Ironically, in the process, the market’s prevailing rates will be set by… oh, yes, the excessive leverage of the payer over its weakest providers. I feel pretty comfortable in describing this as the commoditization of healthcare. For that matter, any solution that supports the ability for patients to shop for doctors predominantly (again, I would argue it’s currently being done exclusively) based on price is bad for doctors, bad for consumers, and bad for the industry.

Don’t get me wrong, the current system is horribly wrong and we desperately need to fix it, but the answer doesn’t lie in tinkering with the absurd mechanisms of the current Rube Goldberg nightmare. Maybe we should just...