What can $124,597 do for you?

Over the last few months, I've been commenting about the recently-passed healthcare reform bill and the impact that it could potentially have in the market. I'd like to step back now on this post and share just what NCN has been doing over the last few years to address the bills that are coming in today, and what we are doing today to solve the escalating costs of healthcare.  We recently received a bill for $196,597 for a particular facility in Texas. Once we received it, we utilized our cost-based methodology to reprice the claim:

• compare the claim to national cost databases
• benchmark against like claims and facilities
• adjust for severity
• add an appropriate margin for the provider

The claim was repriced to $72,000, and the facility agreed to accept this amount. When I saw this, I immediately said "what could I buy for $124,597?"  Listed below are a few items:

1. Starter home in the Texas market
2. Fund a non-profit and its administrative staff for a year
3. iPads for the whole freshman class at a small liberal arts college
4. 13,000 pairs of shoes for needy children
5. 35,714 gallons of milk

I'm being somewhat facetious about what you could do with this money, but I think it highlights again how irrational our healthcare system is today. To take a bill of $196,597, look at benchmarks, severity adjust, and work with the facility to have them negotiate down to $72,000, there is something wrong within the system. In order to bend the curve on cost increases, we must get back to a rational approach of how to look at facility charges.

At NCN, we are passionate about looking at things from a cost-up perspective and allowing an adequate margin for that provider to make money and deliver the necessary care. It does not make sense at all to look at things from a billed charge basis. As we've shown above, billed charges are irrelevant in the discussion. We firmly believe that any claim that comes in today should never be viewed from a billed charge basis. Charges are irrelevant, inflated and have no correlation to actually what it's costing to deliver care. Nothing will change until we look at things from what they're costing, and building a margin that is acceptable to the provider, to the payer and to the consumer. Only then will we ever be successful in truly having healthcare reform. In all other areas of commerce in the United State this is true, except for healthcare. That must change.

Government regulation of insurance premiums will make healthcare costs soar

With the recent health bill that's been passed, a number of things have started to come to light. One in particular is fear that the insurance companies will start increasing premiums immediately. In response to this the Senate health committee brought together four experts to present their viewpoints on setting standards, or more importantly, evaluating any type of premium increase. An article appeared in the New York Times on Wednesday, April 21, dealing with the responses of some of these people who testified. I was particularly interested in comments made by Grace-Marie Turner from the Gaylen Institute. She said that she was highly doubtful that the new health reform package will succeed in lowering insurance costs. Turner said, "Capping premiums without recognizing the forces that are driving up costs would be like tightening the lid on a pressure cooker while the heat is being turned up."

In doing further research on the Galen Institute, I found this video from Ms. Turner; at NCN, we highly support her viewpoint. With all the regulations that will surely be coming about in the near future we believe this will do nothing to control costs. The only way to effectively control costs is on two fronts:

• 1. To have better information in the consumer's hands to help them understand what things truly cost, versus what things are being charged.
• 2. Once a bill comes in for care rendered, that the value of the bill has been benchmarked against other providers in a way that develops a rational, transparent pricing.

At NCN, we've been doing this for the last several years in helping develop a rational payment system. Until we deal on these two fronts, we will continue to have irrational pricing, consumers not engaged in the process and an unrealistic expectation of what healthcare reform will really do. The dirty little secret that we all must come to grips with is this:

• prices will continue to go up, and
• the federal government will continue to put more regulations on the insurance companies to control premiums.

But no one has been addressing the actual excessive charges and  cost-shifting that are occurring in today's marketplace. Until we do that, we are destined to have a single-payer system at some point in time.

Healthcare Transparency

In the last couple of posts I discussed the need to bring transparency to what things truly cost, and the difference between charges and costs in healthcare.  When consumers have this information, they are able to reduce the overall charges of the surgery. 

I understand that not all procedures can be negotiated in advance but greater effort must be made in getting this information into the consumer's hands beforehand.  NCN has been a leader in developing and implementing a rational and transparent way of valuing claims that are out-of-network. Taking that data we rolled out Consumer Scope to help consumers better understand what hospitals charge for a procedure vs. the actual cost to provide that service. 

We have seen in cosmetic surgery when consumers have information on charges and quality the price of that procedure goes down. In testimony before the Energy & Commerce Subcommittee on Health on June 24, 2009, John Goodman Ph.D., President & CEO for the National Center for Policy Analysis stated,

"In cosmetic surgery, virtually all payments are out-of-pocket and transparent package prices covering all services are the norm.  Even though technological progress is frequently assumed to increase health care costs, the real price of cosmetic surgery has declined over the past 15 years, despite substantial technological progress and a six-fold increase in demand.  In corrective vision surgery, out-of-pocket payments and package prices are the norm, and the real price has declined by 30% over the past decade.  Price transparency is absent in virtually every other kind of surgery."

We agree with Dr. Goodman.  When consumers have skin in the game and information is available to compare pricing and quality (which still needs improvement), we put competition into the market.  In my next post I'll discuss why with all the advancements in technology and quality improvement initiatives within healthcare, we still have not "bent the curve" in controlling the escalating cost of healthcare.

What's this going to cost me?

This question is asked by millions of people each day.  Whether getting their car repaired, home repaired or getting a simple haircut.  This basic question allows the consumer to sort out a number of options before them.  Are this person's services going to fit within my budget or what I have in my bank account?  If not, I need to check around and see if someone who performs like services is able to offer those services more cost effectively.  It is the way we do business today...except for healthcare.  There is an exception to this rule and it is for procedures that typical not covered by health insurance plans such as plastic surgery.  I was driving into work and listening to the radio when an ad came on for LASIK surgery.  This facility is located in Dallas, TX and is a leader in this type of procedure.  What was interesting about this ad was this statement, "We will beat any price in the metroplex."  Hmm...I wasn't listening to an ad for an electronics store or a big box retailer.  I was listening to an ad for a very sophisticated procedure on the eyes. 

Let's think about this for a minute, do you hear ads for maternity care based on cost...come to our hospital to deliver your baby and we will beat any prices in the metroplex.  We will even throw in 12 months of free baby check-ups and a lifetime supply of portrait sittings at any Sears photo studio.  No we don't hear these ads because most people aren't paying for this care out of their own pocket.  In these examples of LASIK or plastic surgery the consumer is paying for the procedure themselves.  Price competition occurs and a decision about whether a procedure is truly necessary happens.  It's interesting to note that in 2009, Americans received 18 percent fewer plastic-surgeries.  The recession is likely to blame but all indications are the cost of surgeries have come down as well.  In one report, I read that LASIK surgery charges have come down nearly 50% (refer to my comment about the radio ad).  Competition entered the market along with consumers having "skin in the game" AND an understanding before the procedure is performed what the charge will be.  Transparency is a beautiful thing.

Yes most people have a deductible and coinsurance to pay but the consumer has no idea what the provider is going to charge.  Why, because there is no reason to ask.  Once the consumer signs the paper work of the provider allowing surgery to take place, a copy of your insurance card and driver's license is taken and you are told what you owe for your deductible or coinsurance.  Outside of this, you are completely removed from the interaction of the provider with your insurance company.  You have no idea what the total charges will be for the procedure because someone else is paying the majority of the charges.  It's like going to restaurant and paying $10 to enter the establishment.  Once seated, you are given a menu with a listing of all the entrees and dessert but with no prices listed.  Someone else is picking up the tab so you just order off the menu or select what the waiter suggests (not asking of course what the selection costs) and enjoy.

NCN believes that consumers need to know and understand what the charges are for procedures and more importantly what the true costs are for procedures.  We must start working from a "cost plus acceptable margin" verses just reviewing what people charge.  Even though just getting a handle on what people charge is a good first step.  "Well beat any price" will become more in more prevalent as consumers take greater control of their healthcare dollars.  Until then, costs will continue to go up, premiums will continue to rise and more and more people will wish they asked "What will this cost?"

It's time to dine together

I recently had the opportunity to visit with old friends and enjoy dinner together.  During our time, we were reflecting on each of our life's journeys and how we experienced different life events that helped shape us as individuals.  As I listened to their stories, I gained a greater appreciation for the unique personalities that had been molded over the years based on these experiences.   By understanding their stories of life, I may not agree with how their situations or problems are handled but I have a better understanding of their "context."

With passage of the healthcare reform bill, and as the dust starts to settle on what is actually is in the bill, it will require many entities that in the past were viewed as potential "enemies" to now sit down and dine together and understand how we will work in the new normal.   As Stephen Covey wrote in his bestselling book, "one must first understand to be understood" and for healthcare to move in the right direction, we are going to need a whole lot of understanding. 

Judy Miller, editor-in-chief of Managed Healthcare Executive commented in its April, 2010 issue that "of all the players seated around the healthcare reform table, payers are the only ones challenging the cost of care, and yet, they're the ones getting the beating.  They know $20 for two aspirin is a rip-off, but no one is listening."

 She is right.  The payers are taking a beating in the press, and yet very few people are addressing the irrational charges being passed on to the payers and consumers of healthcare.  Payers AND providers must "sit down at the table" and understand that a rational approach to controlling the cost of healthcare is the elephant in the room. 

Both sides need to better understand the pressure points driving this irrational behavior.  As Karen Ignagni, President of AHIP recently said, "To suggest that cost containment can be achieved by singling out health plans ignores the very inconvenient truth that premium increases reflect increase in the underlying cost of medical services.  Regulating premiums won't do anything to reduce the soaring costs of medical care.  This would be like capping the prices automakers can charge consumers, but letting the steel, rubber and technology manufacturers charge the automakers whatever they want."

 Since 1994, NCN's mission has been to provide a rational, defensible and transparent payment methodology that strives bring the payer, provider and, at times the consumer, to the table to discuss openly what is a rational payment for care.  

 

What if they got the healthcare bill right?

Over the last few posts I have shared concerns about the recent healthcare bill that was passed.  Since the recent passage of the healthcare bill we are hearing additional "unintended consequences" of the bill.  People from both sides of the political aisle are scrambling to pinpoint specific sections of the bill to support their position on why this is a "good" bill or "evil" bill. 

With all the daily commentary on the potential impact of the bill (pro and con) it has made me step back from the debate and ask the question, "what if they got this right?"  For many, just asking that question triggers emotions.  I believe there are a considerable amount of problems with this bill that have or will come to light over the coming months but here are a few "positives" I see with the bill passing.

1. We now have an American public fully engaged in the discussion of healthcare and the costs of our health system.
2. There will be 24/7 news coverage on the impact of this bill on a consistent basis.
3. We can no longer complain about "something needs to be done." It's done. Now what?
4. With the economy still struggling and job creation challenges, innovative ideas will be forced to the forefront. We can no longer have paralysis through analysis.

One of my favorite authors, Charles Swindoll, once stated "we are all faced with a series of great opportunities brilliantly disguised as impossible situations."  Yes healthcare is a mess but I believe this will force a new kind of thinking requiring new ideas that the market will desperately need to solve the problems within our current system of healthcare and future structure.  What if they got this right? Time will tell.