Out of Network Rates – And Health Plan Transparency

Today’s Managing Health Care Costs Indicator is $15,000

Today’s USA Today has an article from the Kaiser Health Network on recent employer and health plan tweaks to evidence of coverage which could mean some patients will face enormous new costs for choosing out of plan physicians.

Here’s how this works.

Traditionally, in an HMO product design, there is no “out of network” benefit except for emergency care.   If you see a provider not in the network,  you pay the entire bill.

In a Preferred Provider Organization (PPO) plan design, there is a modest copayment or coinsurance for seeing providers who are in the network.  If you go out of the network, you will have to pay a deductible – and you’ll have to pay a larger share of the remaining costs.

The health plans usually cap the amount they will reimburse based on “usual and customary” rates – which are substantially higher than the health plan allowable rate.  However, health plans are increasingly capping reimbursement based on 150% of Medicare- which is often much less than the health plan allows for in-network providers.

The example given was a mom who expected 80% reimbursement for her son’s $18,000 out-of-network physician fee, but was shocked when Oxford Health Plan (a division of United Health Care) paid only $2500.  The family is left with a huge unexpected bill.

Capping the amount covered for out-of-plan care is sensible.  Otherwise, providers who have opted out of insurance can charge ridiculous rates and much of the cost  would still be borne by the employer and indirectly by many who are staying in network.  Capping the amount at too low a rate, though, simply shifts unmanageable costs onto patients.

It’s most important that patients as consumers know their total out-of-pocket financial responsibility in advance.  Oxford put the explanation of the new fee schedule on page 108 of a 126-page plan document – so it’s no surprise that the family was unaware of this change.   How can patients act a prudent purchasers if nothing in the medical “store” has a price tag?  Further, how can they know they are expected to shop if the plan description is 126 pages long.  Many of us have other things to do beside reading our plan documents.

Source  

There was good news on this front later in the day.  HHS revealed its approach to requiring that health plans divulge their plan design in a standard, readable,  and comparable format.   This is required as part of the Affordable Care Act.    The health plan descriptions aren’t as easy to read as nutrition labels – but they’re a start.

Next – we need to know provider prices!

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Baicker and Chandra go to the Federal Reserve

Today’s Managing Health Care Costs Indicator is $247,000

Katherine Baicker and Amitabh Chandra, both of Harvard, gave a paper to the Federal Reserve meeting in the Rockies last week.  The paper got a reasonable amount of press – but most of the focus was on the two pages where they challenge the conventional wisdom that accountable care organizations will necessarily lower health care costs.    

That coverage was accurate – but the paper was dramatically richer.

The title, “Aspirin, Angioplasty, And Proton Beam Therapy: The Economics Of Smarter Health Care Spending”  is a good place to start. Baicker and Chandra make the important point that we are purchasing high tech expensive medical care (like angioplasty and proton beam therapy), often when they haven’t even been shown to improve care.  On the other hand, it’s hard to get us to embrace inexpensive low technology innovations like aspirin to prevent heart attacks, or handwashing to prevent surgical infections.

They point out graphically that small incremental investments in low technology (aspirin and handwashing) could have huge health care benefits, while large incremental spending on high technology (angioplasty and proton beam therapy) would have only small benefits. A 1990s evaluation suggested that medical advances leave us currently paying about $247,000 per quality adjusted life year saved.

Curve A below represents appropriate productivity efficiency in health care, where investments are first made in low tech high return items like handwashing and aspirin.   This is a conventional economics efficiency frontier – each dollar is promoting further value, but the value declines with more investment as the marginal returns diminish.   Curve B represents an economists nightmare – where investments are prioritized to high technology which itself is either unproven or not shown to be of huge value, and later investments are made for the high value (but inexpensive) interventions like proton beam therapy for prostate cancer.  As you can see, each additional dollar does yield more social benefit – but we end up allocating extra dollars to health care, and we neglect schools or roads or other social needs.

Click image to enlarge.

Other key points from this paper:

• Expert opinion health care often cites that 30% of health care spending is % waste, but it’s hard to remove that waste
• The federal government’s tab is $250b annually to provide tax subsidies for employer sponsored insurance
• Americans have historically had first dollar coverage, which leads to more moral hazard and can lead to overuse of less valuable care.  Of course, we’ll see how this changes with the advance of high deductible health plans.
• Health insurance is “social insurance” which redistributes from the healthy to the sick.  For all the talk about accountability, we really don’t want to disrupt this redistribution.
• Income tax rates would have to increase by 70% to fully fund the cost of health care if it continues to increase at a rate 1% greater than overall inflation.  This type of income tax increase could lead to reductions of 3-14% in GDP. I found this number especially sobering.
• The authors point out that as long as Medicare and the FDA cannot consider cost when they determine coverage and approval, we will purchase lower value health care. 
• Information is a public good, and will require government investment to subsidize comparative effectiveness research.

Baicker and Chandra conclude that there are a few important steps to take to encourage smarter spending on health care

-        Public payers (Medicare and Medicaid) should bundle provider payments  

-        Patients should have more cost-sharing – but it should be nuanced to encourage more attention to the value of care

-        We should provide patients with far better information about the cost and quality of the care that they could receive.

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Remarks for a corporate executive upon joining a hospital or health system Board

Today’s Managing Health Care Costs Indicator is 10

Top corporate executives sit on the boards of directors or trustees of nonprofit hospitals and health care delivery systems in many communities.  It’s natural that health care providers want the best minds in business to participate in their governance.  It’s also natural that executives want to ‘give back’ to the community, and it’s an honor to serve on a hospital or health system board.

However, it’s a tough position to be in.  The rise in health care costs is a major headache for the corporate executive, but hospitals seek to increase their revenue.  A hospital that has not increased its revenue is likely to have trouble borrowing money to make capital investments that will keep it successful.

I’ve been talking to a few colleagues about this, and I offer theoretical maiden remarks for a corporate CFO who has just joined the board of a health care delivery system.

Thanks for the opportunity to serve on this board.   This health care delivery system is a pillar of our community.  It delivers health care to many of my company’s employees, and my family has benefited from the excellent quality of health care within this system.

I know I’m joining this board at a time of great change.  Health care costs have skyrocketed over the last decade, and insurance premiums are increasingly unaffordable to companies and to our employees.  My own company has only been able to continue to offer health care coverage and maintain our bottom line through converting our employees to high deductible health plans – so I’m well aware of the impact of rising health care costs.  At the same time, we’ve learned more about the mistakes patients suffer within the health care system, and we know that the system is rarely designed with patients in mind.

Health care reform promises to increase the portion of Americans with health insurance; however, many will have Medicaid, which I know has low payment rates.  It won’t be possible for providers to simply shift extra costs to employer-sponsored health insurance to make up for poor Medicaid payment rates.  

I intend to use my expertise to push this health care system retool itself to succeed in this new world. I hope my fellow Board members will join me.   I don’t underestimate the challenge, and I know that many of this health care system’s constituents would rather things remain as they were.  The current state, though, is not sustainable. We can meet our community mission through delivering higher value in health care, and we cannot meet our community mission if our costs continue to escalate unchecked.

I know that some good transformation work is already underway here, and I’ll be listening to our executives and our staff because I know many of the best ideas will come from those practicing within this system.   As I start my term, I’d like to suggest ten steps this health care delivery system should start working on tomorrow morning to start down the road toward being more accountable, and to deliver better quality, more affordable health care to this community.

1.      Be fully transparent

I’d like to see us make public all of the data we collect on quality, patient service, and patient satisfaction.    That especially means reporting on our performance where we don’t look as good as our reputation and our self-image.  I know our clinicians are intensely committed to being the best – and I suspect that we’ll make things better more quickly when everyone knows that our quality scores will be readily available to anyone through our web site.

2.      Put together bundled prices for various service lines

We need our entire medical staff to function as a team – and we need to have the right incentives to take steps out of our processes that will allow us to deliver the best treatment for a lower price.   As long as we are paid more for delivering more units of service, it will be hard for us to figure out how to make our patients better with fewer units of service.

3.      Fully disclose any medical error or bad outcome, apologize, and offer restitution when we make errors

Harvard Medical School hospitals adopted this policy a few years ago, and the Veterans Administration and the University of Michigan have showed that this can lower the overall cost of health care.  It’s also the right thing to do, and the way all of us would want ourselves and our families treated when we get care within this system.

4.      Consider the community’s real medical needs, rather than revenue potential, when we make capital decisions.

Many hospitals purchase new fancy technology which adds little to patient benefit, but allows for much larger bills and revenue.  Some hospital CEOs have complained about this, but haven’t had the fortitude to obey their own rhetoric.  We want technology that will be the best for our patients and allow us to deliver the highest quality care that is cost-effective. We don’t just want the latest gizmo.

5.      Get rid of sample closets for pharmaceuticals in practices owned by the health care system, and prohibit pharmaceutical representatives from our campuses

Our physicians are making purchasing decisions on behalf of their patients.  Let’s give them access to nonbiased sources of information, and let’s not entice them to prescribe the latest brand name medicine for which there are plenty of generic equivalents at a fraction of the price.

6.      Drive a hard bargain with suppliers

Medical devices are expensive – and often drive up the cost of medical care unnecessarily.  Limit the number of different implantable devices available, and get the best price on behalf of our patients.  The same goes for all supplies.  First, be sure we need the supply.  If we need it, get the supply at the most advantageous price – as if it were our money we were spending.  We will be spending our own money on supplies in a future world of bundled payments.

7.      Improve the health habits of our own employees

Our employees serve as an example to the entire community, and preventable chronic diseases take up too much of our medical resources.  Let’s fully cover counseling and medications to help them quit smoking, and offer healthy food alternatives in our cafeterias.  Let’s make it easy for our employees to walk or cycle to work where that’s safe, and let’s set up employee competitions for exercise to drive the social network here to promote healthy lifestyles.

8.      Give our patients better tools to help them make better decisions

Patients often don’t have the best available information to help them make difficult choices, especially where there is no single “right” medical answer.  Examples include back surgery, hysterectomies, heart surgery, and mastectomy and prostatectomy for cancer.  Patients given access to objective information on treatment alternatives often choose less invasive therapy and have lower costs.  Hospitals have not been enthusiastic about this in the past, as more invasive therapy is often more profitable.  I’d like us to focus on helping our patients make the best decisions for themselves and their families, not merely focus on promoting decisions that might be better for our bottom line

9.      Support efforts to improve the health of the entire community

Our mission is to improve the health of the community – not just those who see us as patients.  I know in the past we’ve done cancer screenings which can increase our own volume. I’d like to see us do much more.  I’d like to see this health care system as at the hub of ‘information therapy’ in the community, and I’d like to see us helping more members of our community avoid chronic disease, and avert preventable emergency department visits and preventable hospital admissions.  We should publish an annual stewardship report showing what we have done to improve the health of the entire community.

10.   Reach out to community employers to see what their real needs are, and to get feedback on how we’re doing. 

Employers purchase health care for their employees because it’s genuinely important. Employees value their health insurance, and the certainty of this insurance means that they can focus on their jobs.  Better health also leads to increased worker productivity.  I’d like to see us regularly interview executives from other companies in our community to assess their needs and how we’re meeting those needs.   When I talk to my colleagues I hear that they would like more primary care access to prevent avoidable emergency department visits and better musculoskeletal care to help patients with back injuries return to work more quickly. I’m sure we’ll learn a lot from talking to other employers, and we’ll help improve our own processes here.

None of what I’m suggesting here is easy, and much of it will be very disruptive. I’ve already talked to the CEO about this, and she’s supportive, but aware that she’ll face opposition from some clinicians and others within the organization.  To succeed, we will need this transformation to be the focus of this Board over the coming months and years.   

I think as a Board we’ll be up to this challenge, and I’m glad to have to opportunity to join you.

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Let the Pharmas Data Mine Prescription Records

Today’s Managing Health Care Costs Indicator is 3.99 billion

Vermont, New Hampshire and Maine have passed legislation prohibiting pharmaceutical companies from using data from aggregators that track physician prescribing practice for marketing purposes.  The Supreme Court heard arguments yesterday about whether these laws should be struck down as restrictions of free speech.

Physicians wrote 3.99 billion prescriptions in 2010 , a rich database that can be used to increase the value of the health care system, or to market increased use of high margin medications.

I don’t have a lot to say about the constitutional issues posed by this legislation, but I’ve been thinking about the practical implications.  When I was in full-time clinical practice, I was always surprised that the drug representatives who visited our practice knew which drugs I used and which I didn’t.  Frankly, I didn’t much like it.  However, I certainly learned that my prescription practices were being watched.

The pharmaceutical companies use this data to focus on which physicians are more likely to be persuaded to prescribe the drugs that they were targeting –which were often high-priced high-margin brand name medications.  The legislators in northern New England saw a powerful public policy reason to restrict use of this data. They saw physicians prescribing unnecessarily expensive medicines, impoverishing patients, raising the cost of health insurance, and increasing the cost of state Medicaid programs.  Further, they also explicitly allowed use of this data for purposes felt to be socially beneficial, such as research or quality reporting.

The pharmas, the data aggregators, and the American Medical Association have lined up in opposition to these state efforts to restrict data mining.  The AMA is concerned that physicians might be inappropriately profiled, and also incidentally  makes more money from licensing physician lists than it does from member dues each year. 

 

I hope that the Supreme Court does not uphold the states’ rights to restrict the use of this data . I think there is a good public policy reason to let the pharmas use this data – even while knowing that their intent is to increase profits, which will drive up the cost of health care.  

I fear that if the pharmas are not allowed to use this data in a way that  they find commercially viable, it’s highly likely this data will not end up being developed.  It’s fine in theory to restrict the use of this data to “socially valuable” purposes like research, physician quality profiles, and counter-detailing.   But there are large costs involved in sorting through this data, and lack of an “anchor customer” to underwrite the cost makes it more likely that this data will never see the light of day.

Transparency can help decrease variation, and can be used to develop profiles in which physicians are most cost-effective.  I imagine a future where patients will be able to have robust information about the practice patterns and quality of their physicians. Open databases are more likely to lead to accountability and systematic improvement than databases subject to large restrictions on their use.  I support the open availability of this data, even when it will be sometimes be used in ways that don’t make me happy.

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Overturn Ban on Divulging Provider Medicare Billing

Today’s Managing Health Care Costs Indicator is 1979

It was 32 years ago that a federal court ruled that Medicare could not publicly release the payments to individual providers.  The American Medical Association http://www.ama-assn.org/amednews/2011/04/04/gvl10404.htm fought hard against transparency of Medicare payments, and has aggressively defended this decision in court, in the legislature, and in public opinion. 

However, a recent Wall Street Journal expose using the Medicare 5% claims file has shown how private parties can “mine” the Medicare data to ferret out potential fraud.  Legislation to overturn this ban was recently filed by Ron Wyden (D-OR) and Charles Grassley (R-IA). 

Medicare providers, including me, are federal contractors.    Medicare represents 20% of total health care spending and about 23% of total  federal spending now, and this will increase as the baby boomers age in to Medicare.  It’s no longer reasonable to maintain the cloak of secrecy around provider payment.  We seek sunshine in federal procurement –and expect to learn how much military contractors are being paid for toilet seats.  It makes sense for physician and hospital Medicare payments to be a matter of public record.

My take on arguments against this transparency:

1. Patient privacy might be inadvertently compromised. It could be easy to “break” the scrambling of patient identifiers, especially as large bills were disclosed that included claims for unusual illnesses.  We should seek physician-level disclosure first, and add disclosure of deidentified patient-level data only once we are certain that patient confidentiality can be maintained.  HIPAA provides robust protection against disclosure of data that can be tracked to individual patients.
2. Providers might raise their prices when they see how much others are being paid for similar work.   Medicare has uniform fee schedules for most physician and hospital procedures.  Hospitals invest heavily in legislative and lobbying efforts to enhance fees, and I don’t see why this would increase if the rates were transparent
3. Activists could use claims payment data to target specific physicians.  For instance, Senator Rand Paul caught some flak in last year’s campaign for opposing government programs while accepting Medicare payment for his ophthalmology practice.    I think this is a concern – which is likely shared by the record number of physicians in the current Congress,   Transparency in fee schedules could “shame” physicians into being more discrete in their billing practices, which would be a social benefit.
4. Marketers could use this information to target physicians for promotional efforts.  Again, this is probably a reasonable concern.  However, information about physician economic status is readily available to marketers already, so consumer marketing isn’t likely to increase.   This information could help tailor the marketing efforts of those selling ancillary medical services (like implantable durable medical equipment.)   These manufacturers already have a clear idea of high utilizing physicians.

We underfund the administrative function of Medicare, and as a result it’s hard to police against fraud and abuse.  Full transparency in claims payment to providers can help “crowdsource” anti-fraud efforts, and thus ultimately lower health care costs. 

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The Future of Health Plans

It’s been a bad week for health insurers – most of them lost substantial value in the stock market this week after the Obama budget was released, causing investor worry due to lower payments to Medicare HMOs.  Further, the economic funk and rising unemployment will lead to a decrease in the number of Americans insured through the private marketplace, and continuing “buy downs” from comprehensive coverage to policies with higher deductibles and copays.  These plans are also far less profitable to the insurers.

 

Perhaps the biggest threat to health insurers is the possibility that health care reform could allow those under 65 without disabilities to “buy into” Medicare.   Proponents argue that Medicare has low transactional costs, obtains high levels of provider discounts and offers excellent choice to its patients.  How does Medicare achieve these economies?

(1)Medicare spends less than commercial health plans on administration as a percentage of premium – in part because it need do no marketing to attract enrollees, and in part because the premiums are so much higher for the Medicare population than they are for those under 65 (so administration costs shrink as a percentage of total costs.)

(2)Medicare does not do “network contracting” as private health plans do.  All licensed physicians who have not been convicted of fraud are eligible to join – and to do so they must agree to follow a uniform set of Medicare rules and to accept Medicare reimbursement rates. 

(3)Hospitals have long collected data showing that they lose money on Medicare, and make this up by obtaining high rates from commercial insurance plans.  It’s a classic example of cost-shifting.  If the commercial plans didn’t exist, we would either have to take billions out of our inpatient facilities, or Medicare would have to pay substantially higher rates.  

 

Today’s NY Times has an article by Reed Abelsonon how health insurers are positioning themselves for health care reform. The article contrasts the approach of United Health Care, which boasts of diversifying its business, with Aetna, which promotes itself as a company that can actually influence the delivery of health care.

 

Without diversifying out of health insurance, how can health plans add value and continue to prosper in the coming years?

 

(1)Empower patients

Engaged patients who know about their illnesses and their medical care have better outcomes, and sometimes they even prevent medical errors.  Health plans are excellent at marketing, and know how to get the attention of their enrollees.

(2)Convert vast quantities of data into information to transform health care

Some commentators decry the inaccuracy and lack of timeliness of claims data.  But my experience is that claims information is very complete, since few providers fail to bill for their services. Unfortunately, electronic medical record data tends to be unstructured and is documented differently from system to system.

(3)Promote innovative payment methodologies for providers

The current predominately fee for service reimbursement encourages additional units of service, and does not encourage coordination of care.   Medicare is statutorily mandated to pay fee-for-service, and based on its size alone would have a hard time moving ambulatory care into episode based payment or capitation.  Health plans have to compete with each other for patients and for provider networks, and the existence of multiple competing insurers makes it more likely we will see innovation in payment methodology.  

(4)Develop selective networks

Medicare is too big to develop exclusive networks, and the political fallout from excluding a major hospital or a large group of physicians from Medicare would be huge.  Health insurers can develop selective networks for a broad range of patients, or can develop selective networks for narrow groups such as patients who require organ transplantation or inpatient behavioral health care.   Multiple competing insurers are key to this type of innovation.

(5)Transparency

Medicare made some substantial strides in promoting transparency over the last few years   But health plans have put dramatically more information on the web about provider quality.  Health plans should make their data available to state agencies or collaborative to do reporting, and should continue their efforts to educate their members about where to get the highest quality, cost-effective care.

(6)Promote evidence-based care

We have adequate evidence of the efficacy of too few medical decisions. But even where the evidence is in, our health care system remains unreliable.  We treat few diabetics to blood pressure, blood sugar, and cholesterol goal, and we send patients out of our offices with blood pressure which is often too high.  We miss vaccinations and cancer screenings. We give patients medications that are dangerous in combination, and medicines that are dangerous in the context of an individual patient’s coexisting medical illnesses.   Health plans should use claims and other data to identify opportunities to improve care for individuals and populations, and implement programs to alert providers and patients to opportunities to deliver better health care.

 

 

Health care reform will mean enormous changes – and much disruption in the health insurance market.  There will be plenty of opportunities for innovative health plans to add value and use their expertise to improve the quality and the cost-effectiveness of care.

 

 

 

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