Incentives to Lower Health Care Costs

Story first appeared in USA TODAY.
Sarah Gardner wants her company's employees to be savvy medical shoppers.
So this year, she rolled out a plan that sets limits on how much the company will pay toward a range of tests and procedures, from MRIs to hysterectomies. Workers at Buffalo-based Prodigy Health now know to call their employee insurance plan to find a list of local doctors and facilities that meet the price. Or they can choose to go to a higher-price center elsewhere in the insurer's network and pay the difference themselves.
Before the new program, workers' incentive to shop around was limited because they had no idea — or any easy way to find out — that prices for many types of medical treatments varied widely. A test at one center might be $3,700, while right down the street they could get it for $900. Prodigy provides benefit management for self-insured employers.
Other employers and insurers are pursuing the same strategy, experimenting with ways to slow rapidly rising spending on medical care. Some, like Prodigy, are going beyond simply offering high-deductible insurance to being more directive, using financial incentives to promote doctors, hospitals or medications they've deemed more cost efficient.
Safeway employees in the San Francisco Bay Area, for example, face higher payments if they choose centers that cost more than $1,500 for a routine colonoscopy. And in January, the giant California Public Employees' Retirement System (Calpers) said it would not pay more than $30,000 toward knee or hip replacement. Workers who choose a hospital that costs more pay the difference. Next year, the program will be expanded to outpatient colon cancer tests, as well as some surgeries, including cataract repair for the 345,000 people enrolled in Calpers' preferred provider plans.
Employers say they hope the efforts, often called reference pricing, will get patients to act more like consumers — and drive down the cost of some procedures.
This sends a signal to (medical) providers about what is considered a reasonable and acceptable price. These providers should also seek Hipaa Training.
Still, patient advocates fear the trend may leave workers not only footing more of the cost of health care, but also choosing among providers mainly with information on price, not quality.
Kathleen Stoll at the advocacy group Families USA worries that some employers may be simply picking an arbitrary number for the price they're willing to pay and not considering accessibility (of the centers) or quality.
Medicare, some private insurers and a few states track a few quality measures, such as mortality rates at hospitals, but there is generally little information on the outcomes of specific procedures, especially at facilities that are not part of a hospital, says Elliott Fisher, a Dartmouth Medical School professor well known for his research into quality and cost variation in medical care.
A lack of data on quality is a concern, as it is even with high-deductible plans, which can require workers to spend thousands of their own dollars before coverage begins.
The criticism has been that it's not fair to give people cost responsibility without the ability to make quality decisions. Maybe the $500 colonoscopy is done in a terrible factorylike environment, and the $1,200 one is better, but we don't know.
Gardner says her workers, many of whom are nurses, did raise the issue.
When she broached it last November their main concern was, “Are you going to send me to some low-quality provider just to save money?”
She countered by pointing out that the providers who met reference prices were ones employees were already using. Pretty much the places they suggest they go are the big places, the well-known places.
Checking medical claims
Before officially rolling out the program in March, Prodigy hired an outside firm called Healthcare Blue Book to comb through Prodigy's medical claims spending, looking particularly for tests and procedures for which there was high demand and wide price variation.
Working with the Blue Book information, Prodigy eventually settled on nine broad categories of tests or procedures that would fall under the new program. Included are imaging services, such as computed tomography (CT scans), sleep apnea tests and some non-emergency surgeries, including arthroscopic knee procedures. What Prodigy pays for each service varies based on local costs in the cities where its 1,200 covered employees live, including Buffalo; Minneapolis; Columbus, Ohio; Evansville, Ind.; and Okemos, Mich.
The rate is set at about the median (half were higher and half were lower) that Prodigy had paid in the past for the services. About 90% so far have chosen to go to medical providers who meet the price limits, she says. The rest go to higher-price centers and pay the difference themselves.
In the program's first two months, Prodigy saved an estimated $17,000. But Gardner says her main goal is not so much saving money as arming workers with information and getting them to pay attention and ask questions.
Facing challenges
The idea of having employees pay the difference for higher-cost services is not new. About 39% of large employers surveyed in an August National Business Group on Health report said they use the technique in their prescription-drug programs, often by requiring workers who want a brand-name drug when a generic is available to pay the difference. Some employers encourage workers to use high-performance networks of doctors or hospitals by lowering their co-payments if they seek care there.
But only about 1% of employers in the August survey use reference pricing like Prodigy, for lab tests, radiology exams or other medical services.
The approach faces challenges. For one thing, it can be hard to explain to employees. Prodigy, for example, hired someone solely to help workers select a facility that meets the price limits.
Also, patients may be hesitant to question their doctor about costs or reluctant to switch to a different physician or hospital.
Focus groups show that people generally don't like shopping around for health care.
It's one thing to go from store to store to see how much toilet paper costs, but with doctors, you don't have an easy way to find out. It feels unnatural and uncomfortable to ask a doctor how much they would charge.
Still, the trend is further fueling efforts by employers and other groups to push for more quality data, Lansky says. He recalls a recent conversation with members of the American Gastroenterological Association who are developing a registry that will eventually track the quality of colonoscopy providers. They don't want to see a market where (only) the cheapest places do well. They want to reward physicians who are doing high-quality care and put in place a system that makes that visible.
Checking on doctors
Consumers can't yet check the registry to find out if their doctor does a better job than one across town. But it is under development.
Anthem, the insurer running the new hip and knee program for Calpers, says it will track the outcomes to make sure they are at least as good as what was seen before the change. About 90% of the hospitals in Anthem's California network met the reference price for hip or knee replacement, including Cedars-Sinai, UCLA and other well-known medical centers.
Anthem provides transportation costs for patients who live too far from one of the centers. About 77% of the covered workers having the procedure since launch have gone to a reference-price hospital.
The 46 hospitals were chosen after Calpers analyzed what it was paying for hip and knee replacements under its previous arrangement and found it ranged from as little as $15,000 to more than $100,000.
The $30,000 limit for hips and knees is not a median but was selected after looking at the range in costs and taking off the really high and really low numbers. The program should save Calpers about 20% of the cost of the procedures.
This is the future for select procedures where people can shop.