In this month’s newsletter, we are taking a closer look into value-based care’s pricing model and how transparency plays an important role for patients.
Transparency Can Lead to Confusion
Value-based care (VBC) is a healthcare delivery model in which providers, including hospitals and physicians, are paid based on patient health outcomes.VBC differs from a fee-for-service approach, in which providers are paid based on the amount of healthcare services they deliver.
Value-based purchasing (VBP) incentivize providers to enhance the caliber of their care by offering financial rewards (or penalties) based on their outcomes. Price transparency initiatives entice patients to select “higher-value” providers by offering price information.
Although the intention to promote transparency is a positive one, there is a concern is that these tools may have the opposite desired effect when executed together.
VBP makes a higher adjustment to the provider’s payment when some measure of that provider’s quality is better, or by making a lower adjustment to the provider payment when quality is inferior. But if patients equipped with a transparency tool compare prices among providers, some patients will inadvertently be incentivized to increase their following of lower-value providers and to decrease their use of higher-value providers.
Patients Deserve to Know Pricing
As with virtually any product or service, it is understandable that consumers want to know the costs of their health care, especially before they spend the money. The investment of health care expenses is the greatest financial concern for Americans. People continually report in studies that they they are longing for transparency. Nearly two-thirds say that not enough insights are available on the cost of medical services.
For starters, consumers are not familiar with how to locate medical care prices. However, if they are successful at finding information on costs, the data isn’t necessarily valuable as they are not able to extrapolate the numbers. And since consumers tend to believe high price implies high quality, focusing transparency initiatives on services where quality does not vary is important.
By making medical care prices not only public, but making it meaningful to patients, the goal is that providers with ridiculously high prices will be ashamed and forced to change. This public outcry would impede their power of elevated pricing, and ultimately push down costs.
Consumers Driving Change
In order for this health care pricing transparency initiative to work, available prices must be collective i.e., total reimbursement from the insurer plus the patient. Common procedures should be accessible online so that consumers and industry advocates could easily retrieve the information. If this strategy was executed properly, then there would be less high-priced providers and health care costs wouldn’t accelerate at the speed of Germany’s Autobhan.
There is research that claims Americans support price shopping for health care, but few actually seek out that information. And twenty percent of Americans report having tried to compare prices and those who compare prices using a price transparency tool often save money.
Consumerism (which in the context of medical care, is the personalization of care to facilitate health outcomes) is a goal of price transparency. This “full disclosure” way of thinking has been a long time in the making. For years, consumers have been digging online to research their purchasing decisions. Before they ever step foot into a brick and mortar store or click purchase on Amazon.com, they will spend time and energy online reading reviews, ratings and compare prices. But on the other hand, an argument could be made that full disclosure, i.e. providing the cost of delivering services should also be made transparent. Increases in practice costs as well as fully informing the patient as to the contribution of these overhead costs play a role to the final charge for the services. But could you imagine walking into a restaurant fast food chain, and not only is the full caloric intake stated next to each food item, but the cost the restaurant paid for the product including the cost of overhead, staffing, and insurance was disclosed too? That notion seems ridiculous.
Providers Providing Transparency
The variation in prices among healthcare facilities is likely attributed to VBP adjustments, to the payment rates from insurers. Patients may not know that providers who bill higher are often times the more efficient option because they received a financial reward for minimizing unnecessary low-value care. Patients may not understand that lower-priced providers are usually the less logical option because they are being held accountable for only reducing low-value care at a negligible rate. In this circumstance, the transparency tool that are supposed to drive patients to efficient providers, are actually doing the opposite.
One would think that the idea of price transparency may encourage providers to discuss affordable care options with their patients. But surprisingly, many providers do not necessarily know enough about the prices to even have that conversation.
According to “Survey Finds Few Orthopedic Surgeons Know the Costs of The Devices They Implant,” shared in a Health Affairs publication, only 21% of surgeons were able to estimate the implant cost, and 79% were unable to estimate the implant cost.
Physicians are often shocked to learn the cost of the supplies they used in surgery; they quite literally have sticker shock.
This lack of knowledge will require price transparency tools that allow the providers to see their patient’s out-of-pocket costs for a service or their entire spectrum of care. If this strategy was implemented effectively, then patients would be able to have meaningful discussions with their providers about costs, which would ultimately influence reducing low-value care as well as escalating compliance with medications and treatment protocols.
Cutting Costs With Purchasing Decisions
Typical hospital operating expenditures are comprised of several large categories along the supply chain, including labor, pharma, services, and supplies. According to findings reported by The Learning Center, total non-labor (i.e. supplies and services) spend is $310 billion annually in the United States — and that number is only getting bigger. The average 3-year compound annual growth rate for supplies and services is almost twice the rate of labor (9.8%).
As the value-based care model will continue to dominate the spotlight, and the need for greater pricing transparency in the public is mounting, purchasing decisions for supplies is one area that can directly impact the bottom line.
Healthcare providers have the pressure to bring their costs down now more than ever, and Auxo Medical is a facilitator in this goal by offering refurbished equipment and low cost options, as well as lower the cost of highly trained third party service companies.
Price transparency is simply a means to an end— to rescue patients from sticker shock, assist with shopping effectively for providers, uncover high prices, and eventually offer health care at a more reasonably priced rate. As patients do their due diligence for high quality care with affordability, and you would like some assistance with analyzing how Auxo Medical can help reduce your company’s spend, please give us a call at (888) 728-8448 and we’d be happy to discuss.