Price Check!

Insurers are cluing members in on what doctors and hospitals charge.

Few people would buy a car, a TV or an airline ticket without knowing how much it costs. Many wouldn't even buy a loaf of bread without checking the price tag first. But when it comes to healthcare, most people "buy blind," getting the treatment first and learning the cost later. The result too often is sticker shock.

"Healthcare is one of the few services or goods that Americans still buy without knowing beforehand what they'll have to pay," says Don Hardin, senior healthcare consultant with Mercer Human Resource Consulting.

Health insurers are working hard to change that. Over the past several months, health plans nationwide have been spending hundreds of thousands of dollars to give their members more detailed information on what doctors and hospitals actually charge for their services—albeit often to the chagrin of providers.

As Modern Healthcare reported earlier this year, providers are already feeling heat from state and federal lawmakers to release their master charge lists (March 28, p. 6).

Fueling their efforts is the rapid rise of health savings accounts and other so-called consumer-driven health plans, which aim to reduce costs by compelling patients to take greater responsibility for their medical spending decisions. As more consumers begin to seek the best care at the lowest cost, the theory goes, the ensuing competition among providers will lead to lower prices and improved quality of care.

This shift toward consumerism has generated a wealth of information about quality of care, with patients now able to compare providers on everything from their complication rates to the number of procedures performed to their use of electronic medical records. What has lagged sorely behind, some experts say, is the availability of useful information on how treatment costs vary from one provider to the next.

"To create a more functional healthcare marketplace, we need greater transparency in pricing as well as quality," says Ronald Williams, president of Aetna, which in August became what is believed to be the first health insurer to make available online the actual negotiated rates it pays some of its physicians for their services.

Insurers' attempts to pull back the pricing veil haven't come without opposition. Providers, for instance, have long resisted efforts to reveal their contracted payment rates, considered by many to be proprietary information.

"Insurance companies are throwing up all kinds of information on their Web sites, and hospitals are having to deal with it," complains Richard Wade, spokesman for the American Hospital Association.

Others scorn the idea of patients comparison-shopping for care as though they were hunting for the best buy on an appliance. Perusing price lists online "oversimplifies what is really a much more complicated process," says Tim Maglione, senior director of government relations for the Ohio State Medical Association. "Sometimes (providers) won't know what services a patient needs until they are diagnosed. ... So it's difficult to price healthcare like you would a lawnmower. A lawnmower is what it is. But the human body is much more complex than that."

Supply and demand

Studies show that consumers are beginning to ask for more information. According to a Towers Perrin survey of 1,400 employees released in June, 85% said they needed more data and tools to make wise healthcare decisions. Another survey of 2,500 employees released by McKinsey & Co. in the same month found that 80% of those enrolled in consumer-driven plans were frustrated by the lack of information available on physician costs.

"As people are starting to get more information, they're starting to demand more information. It's a growing continuum," says William McKinney, vice president of consumer-directed health systems for Regence Group, a Portland, Ore.-based group of Blue Cross and Blue Shield plans in Idaho, Oregon, Utah and Washington state. "The information we're seeing today is nowhere near what's going to be available six months from now."

Regence recently expanded its online information tools after a survey of its members found that 40% said they wanted more information on medical costs and that they expected their health plan to help them find it.

Traditionally, consumers had little desire—or need—to know what their medical services actually cost. As managed care took hold in the '80s and '90s, insurers kept mum about the fees they negotiated with providers. That was fine for members, who typically made the same copayment regardless of where they received care.

But pricing transparency has taken on new importance in recent years as HMOs and PPOs, hit with soaring medical costs, have adopted deductibles and coinsurance requirements that can run into the thousands of dollars. Meanwhile, more employers have begun shepherding their workers into so-called consumer-driven plans, which typically require members to pay for care with money from a personal savings account until a high deductible is met.

Insurers, eager to help their members become more frugal healthcare consumers, were among the first to try to take some of the mystery out of healthcare pricing. But their early efforts were largely limited to offering nonspecific cost comparisons, either by lumping providers into broad cost "tiers" or by using a generic rating system—say, from "$" to "$$$$"—to convey how doctors or hospitals compare on cost.

Several state agencies and provider associations have also taken stabs at making provider cost data public, but by most accounts the information has proven either too difficult to understand or too general to be meaningful.

Since 2004, California, for example, has required hospitals to publish their chargemasters, books containing prices for every medical service and product they provide. But because chargemasters can be thousands of pages long and are rife with medical jargon, scarcely any consumers have requested to view them.

More recently, the Oregon Association of Hospitals and Health Systems launched a far more user-friendly Web site that lets consumers compare hospitals' average prices for common procedures. But the PricePoint tool—launched in response to proposed state legislation seeking greater provider transparency—lists only hospitals' charges, or retail prices for services, not the discounted rates that health plan members actually pay.

"Retail charges give you only the vaguest suggestion of what things will really cost," Mercer's Hardin says.

Health insurers are attempting to drill down further into the pricing process. Aetna, for example, garnered wide media attention in August when it began posting the actual discounted rates it pays doctors for about 25 of their most common office-based procedures, such as physicals, electrocardiograms and vaccinations. Under an initial pilot program, members in the greater Cincinnati area can now look up the fees charged by some 5,000 local physicians and specialists to better gauge what their out-of-pocket costs will be.

Posting discounted rather than retail fees "kicks things up a notch in terms of accuracy and specificity," says Dexter Campinha-Bacote, an Aetna medical director in charge of the pilot. "The goal is to give members as much information as we can upfront so they aren't shocked and surprised when they get to the doctor's office."

Incomplete picture

Maglione of the Ohio medical association says he questions the overall usefulness of Aetna's price-quote tool, given that it omits pharmacy and hospital prices, which are often far larger cost drivers than doctors' rates.

"While it attempts to be transparent, it draws a very incomplete picture of healthcare financing," he says. Consumers, he adds, also may not understand that prices can vary among doctors because of a number of factors, including their emphases and the extent of services they provide, he adds.

"You might look on Aetna's Web site and say, `Here's a doctor that costs $60 for an office visit while this other doctor costs $70.' But maybe the $70 doctor is ordering an extra test that the first one isn't," Maglione says. "What we don't want to see is patients relying solely on price information when choosing where to go for care."

Doctors also fear that making their rates public could jeopardize what limited bargaining leverage they may have, Maglione says. In theory, rival insurers could use the data as ammunition during future rate negotiations. "Physicians can be in 10 different HMO networks and charge 10 different amounts. But if HMOs can go in and see what the other guys are paying, they might try to make that the lowest common denominator," he says.

Campinha-Bacote, however, notes that Aetna's Web site was "designed to be an information tool, not a price-comparison tool." Only members can view the cost data, and then only for one physician at a time.

Insurers, he notes, have always told their members how much providers are paid for their services. "It has just been retrospectively," once the procedure is completed and an explanation of benefits form is issued, Campinha-Bacote says. "We're just providing the information on the front end rather than the back end."

In a similar move, Cigna Corp. recently launched a Web-based tool that lets members comparison-shop for medications at 52,000 pharmacies nationwide. Enrollees can view the discounted price of drugs at various pharmacies as well as their share of the total cost based on the type of coverage they have. The tool also automatically lets users know if a cheaper generic equivalent is available.

In a further nod at pricing transparency, Cigna next year plans to begin covering visits to MinuteClinic outlets, which are cropping up in Target, CVS and other retail stores nationwide. The tiny kiosks are staffed by nurse practitioners who can diagnose and treat up to two dozen common ailments, such as bronchitis, pink eye and ear infections, for a fraction of the cost of going to a doctor's office. The clinics' prices, which average about $45 per service, are posted upfront so patients know exactly what they will have to pay.

Easy choices

"We've focused on areas where consumers can most easily make choices that will have an immediate impact on their healthcare spending," says Thomas Richards, senior vice president for product at Cigna. "Whereas members aren't likely to change physicians overnight, they can certainly choose to buy their Prozac at a lower-cost pharmacy, switch to a cheaper generic alternative or decide whether to get their flu shot at a MinuteClinic."

Industry observers predict that other insurers will follow suit—and that their efforts at transparency will become increasingly sophisticated and comprehensive—as the growth of high-deductible health plans prompts more people to ask, "How much?"

"You're going to see a much greater level of detail and specificity emerge from health plans," predicts Ann Mond Johnson, founder and president of decision-support tools vendor Subimo. Johnson's company—whose name is a loose acronym for "so you can be informed more often"—compiles reams of healthcare quality and cost information from state agencies and private research firms, and then incorporates it into customized online tools for insurers. "Carriers are acknowledging that as the public becomes more engaged, it's going to require health plans to be much more forthcoming in what their members can expect to pay," she says.

By most accounts, hospital pricing has remained the toughest part of the transparency equation. Much of the problem is attributable to the myriad cost variables that go into each procedure. A hip replacement, for example, could include 10 to 20 distinct hospital services. In order to truly comparison shop, a consumer would have to know the prices for each.

Further complicating matters is that hospitals, like doctors, have closely guarded their reimbursement rates, viewing them as business-sensitive information. "The provider community would be up in arms as soon as insurers started posting those numbers," says David Shevock, vice president of marketing for Subimo. "People start screaming every time you post any kind of comparison information, let alone cost information."

Yet insurers admit that they too remain reluctant to publish their contracted rates for fear of losing their bargaining edge with rival hospital systems.

"One of the big dialogues in the industry is that if you start making that kind of information public, the next person will demand the same rate," says Regence's McKinney.

The result, for now, has been a balancing act, with insurers seeking ways to provide members with more cost information while protecting their competitive secrets and keeping providers' objections to a minimum.

In September, Regence launched a new online budgeting tool to help members calculate their families' expected annual medical expenses. Members can add up the average total cost of their prescriptions, doctor visits and any anticipated hospitals procedures, such as knee surgery. The numbers are based on Regence's contracted rates for services and products, but are shown only as a cumulative average across all its providers.

Supplementing this feature is an additional tool from Subimo that lets members compare the average discounted prices for services at specific hospitals in a particular area. The prices, shown as ranges, are based on Medicare reimbursement rates.

Although far from exact, the price quotes can give Regence members a closer estimation of what they can expect to pay. Take a Regence member with a serious knee injury. Using the Oregon hospital association's PricePoint tool, that person would learn that the average undiscounted cost for "major hip, knee, ankle (or) foot surgery" at Providence Portland (Ore.) Medical Center is $29,130. But using Regence's Web tool, that member could see that Providence Portland's discounted price for arthroscopic knee surgery runs from $9,500 to $15,200.

"We'd love to be able to say that it's going to cost exactly $9,612.31," says Regence spokeswoman Angela Hult. "But at this point, this is the closest approximation of costs that we're able to provide."

Humana has gone a step further. Since January, the insurer has provided members with an online tool that lets members compare hospitals based on their average discounted price for an entire episode of care.

The price quotes are derived not from contract information but from claims data Humana tracks by diagnosis, says Humana spokeswoman Mary Sellers. The prices reflect inpatient costs as well as physician fees, laboratory work and all other expenses related to a specific procedure.

By entering their ZIP codes and the type of care sought, members can view estimated out-of-pocket costs at up to 10 local hospitals at a time. For example, a search of facilities within 30 miles of San Antonio found that patients undergoing treatment for a heart attack could expect to pay roughly $1,250 at Baptist Health System or $1,750 at Southwest Texas Methodist Hospital.

"The numbers aren't going to be exact, of course, but they give patients a good idea of the price differences they're likely to encounter among providers," Sellers says.

Meanwhile, Cigna has been using a three-star rating system to rank hospitals by their contracted rates for specific services, with one star being the cheapest and three stars being the most expensive. Next month, the insurer plans to replace the stars with actual price ranges—say, from $10,000 to $11,500—"to give members a truer feel for what things actually cost," Cigna's Richards says.

Cigna provides an appeals process for hospitals that take issue with the rankings. While a few hospitals have chosen to be omitted from the Web tool altogether, Richards says, most disputes are resolved in short order. "The vast majority of providers understand that this is where the industry is headed and want to work with us," he says.

Some provider groups, however, have begun to question whether these efforts could ultimately backfire. The growing abundance of disparate cost and quality data could confuse the average consumer—or worse, information and consumerism could become synonymous with reductions in benefits, says the AHA's Wade.

"There's a transparency frenzy going on out there, where everyone is throwing out all the information they can get their hands on. The public is becoming awash in more and more data," Wade says. "The real question is, how useful is this information to consumers?"