24 May 2012

Why Do Healthcare Costs Fluctuate?

Surgery to remove your appendix in one California hospital could cost $180,000. Have the operation at a different facility in the same state and the bill might be as little as $1,500.

That kind of disparity, typical across the country, combined with escalating medical spending and the increasing amount of data available online, has prompted several startups to get into the business of helping companies and their employees save health-care dollars.

This is about changing the way people shop for health care, and as a consequence, changing the way care gets delivered.

Medical spending in the U.S. increased 88 percent to $2.59 trillion in the last decade while out-of-pocket expenses rose 49 percent to $299.7 billion, according to data from the Centers for Medicare and Medicaid Services.

Castlight works by showing how much doctors, labs and hospitals charge for their services, as well as providing quality ratings. On May 1, the company announced it raised $100 million from investors. Other sites such as HealthcareBlueBook.com, ClearCost Health and Change Healthcare Corp. help employers identify less costly doctors and providers for their workers.

Travelocity for Health Care

With their out-of pocket medical expenses on the rise, more and more employees are open to ways to save. Last year, 13 percent of U.S. employees were covered by so-called high- deductible plans that require them to pay for most health costs, an increase from 3 percent five years ago, according to Mercer, a New York-based industry consultant.

Castlight targets companies with self-insured health plans and charges them a monthly fee based on the number of employees and dependents covered. It compiles paid claims data from employers and insurers, then publishes that information on a website for companies and their employees. The closely held company, which bills itself as a Travelocity for health care, serves more than 250,000 employees and their dependents at dozens of companies.

By helping people compare the cost of medical providers, Castlight has saved the companies they work for from 3 percent to 5 percent of their baseline costs, Colella said.

Cheaper Care

CareOperative LLC, another closely held company, debuted HealthcareBlueBook.com in January 2009. CareOperative lets consumers use the service for free, while charging companies a fee for finding health areas where they and their employees can save. The service promises to reduce an employer’s health-care costs as much as 6 percent by finding cheaper alternatives for employees and giving them incentives to switch doctors or hospitals. The Nashville, Tennessee-based site has hundreds of thousands of visitors a year.

OutOfPocket.com was started in 2007 as a crowd-sourcing tool for patients. When few visitors posted the prices they paid for services, the founder supplemented it with Medicare data as well as links to paid claims data on other websites. About 300 to 500 people a day use the free service, which pays for itself with Internet advertising.

Everyone wants to search and look, but not many people want to contribute and share. It doesn’t have the same effect as some of these other social media tools, where people like to share where they’re eating and staying.

High Deductibles

One trouble with these services is that it’s not easy to make direct price comparisons with medical treatments and many consumers won’t take the time to do it even if such a service is available, said Paul Keckley, executive director of the Deloitte Center for Health Solutions in Washington.

Tthese services are expected to continue to expand, albeit at a slow pace, as more employees are shifted onto high-deductible insurance plans.

Wide Disparities

Arming patients with wide price disparities helps them negotiate. And those disparities can be wide. An assistant professor of emergency medicine at the University of California, San Francisco, highlighted the pricing variations in a research report that looked at how much California hospitals charge for routine appendicitis. Bills ranged from $1,529 to $182,955, with a median cost of $33,611, according to Hsia’s report, which didn’t name the facilities.

Health care is one of those things where there’s always going to be so much information asymmetry.

While consumer services such as Castlight can provide valuable data, patients need to understand that cost differences may depend on the individual decisions made by their doctors facing highly individualized situations.

Treatment Options

Understanding the differences among tests, medications and types of services is another hurdle.

You know the difference between filet mignon and chuck steak, but you don’t know the difference between generic amlodipine and brand-name Norvasc, which is Pfizer Inc.’s blood pressure medication.

Another customer, Life Technologies Inc., a Carlsbad, California-based maker of gene sequencing machines, hired Castlight in early 2011, and more than half of employees on the system made a different decision than they would have without the information, according to a survey.

While publishing prices may spur more-expensive providers to lower costs, it could also prompt some physicians to boost fees if they’re on the cheaper end of the scale, according to an editorial published in the New England Journal of Medicine last year.

Making the Effort

The chief medical officer for Quest Diagnostics Inc., said even with quality rankings available on doctors, most people don’t exert much effort finding the best providers. Patients spend twice as much time deciding which model TV to buy as they do deciding which physician to chose. Convenience is the biggest motivator for choosing a doctor.

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