As employee-patients develop symptoms that exceed the expertise of primary care and/or minor acute care practitioners, the more costly care becomes. This is not exclusively due to the increasing severity of conditions but also the opacity of cost and quality information regarding specialty care and facilities, which often has wide-sweeping variances.
Even for the non-emergent, transactional portions of care delivery, such as labs and imaging, price disparities can vary greatly. For example, in Nashville, a heart perfusion imaging procedure has an in-network price disparity of 721% between competitors in the same zip code for the exact same service. In Chicago, a knee arthroscopy has an in-network price disparity of 1,268% between competitors 13 miles apart for the exact same service.
In a study published in 2018, researchers used insurance claims data from three of the largest commercial insurers in the U.S. to observe that health care prices vary nationally. They found that the highest cost provider charged three times more than the fees charged by the lowest cost provider. (Until recently this data was not made available for public research use.) The data includes hospitals’ transaction prices, with substantial variation in prices across hospitals, even for identical services like lower-limb MRIs. Moreover, a significant amount of the national variation in prices occurs within hospitals. This suggests that insurers’ bargaining leverage influences the prices they negotiate with hospitals. Market structure appears strongly associated with hospitals’ price levels and contract structure. When compared to hospitals located in quadropoly or greater markets, monopoly hospitals are associated with 12% higher prices, 10% more cases paid as a share of charges and 11% less of their prospectively paid cases set as a percentage of Medicare payments.
Interested in strategies that large employers like yours can implement to help combat rising health care costs? Check out our latest State of Health Care Guide.
In regards to quality, outcomes metrics for reimbursement are already being tied to more refined performance measures dependent upon more comprehensive documentation and coding than what drives Medicare Severity-Diagnosis Related Groups (MS-DRGs) or severity of illness. For employers, this largely creates an opportunity to identify higher performing physicians and hospitals in the following measurement categories – Overall Mortality, Overall Complications, Overall All-Site Readmissions, Inpatient Quality and Patient Safety.
From these categories, quality ranges are determined for multiple categories of care (segmented by categories such as cancer care, orthopedic care or cardiac care) and rated in the following manner:
- 10% receive “highest” quality rating
- 15% receive “high” quality rating
- 50% receive “average” quality rating
- 15% receive “low” quality rating
- 10% receive “lowest” quality rating
In an analysis of cost and quality of medical facility options, the three medical systems within a top 150 metropolitan statistical area in the Southern U.S. were evaluated for cost and quality using the metrics listed above.
Each of the three hospitals had significant variance in both their quality scores for different types of specialty care as well as their billing rates as a ratio above what Medicare pays for those services. Within the metropolitan area, the voluntary nonprofit hospital that charges 25.88% less for medical services is only 7.76% lower in overall hospital quality compared to the medical facility owned by a corporation. However, when evaluating broader hospital choices within a 35-mile radius of the metropolitan area, better overall quality options are available in terms of orthopedic care and overall hospital excellence scores.
This invites discussion regarding how health care quality is dispersed by each unique hospital, the category of specialty care being received and proximity to the patient, and how those variables are perceived within the context of overall cost of care. Even though employers are the largest purchasers of health insurance, they typically don’t apply this information or leverage their influence to encourage improvements to the health care they buy.
When properly armed with this cost and quality information, employers can then configure their health care purchasing philosophy to gain better utilization of higher quality and lower overall cost facilities that results in the collective unification of “high value health care.” There are several methodologies an employer can choose from to configure the health care ecosystem to obtain the highest value care. Regardless of methodology, the intent of this process is to achieve a contracted rate that would be lower than the price an employer would receive through a traditional medical network. After all, the employer is funneling more health care volume to fewer overall service providers, who happen to perform with higher quality, in return for a favorable pricing agreement. There are several preexisting programs that aggregate multiple employers for competitive purchasing in the open market so that an employer doesn’t have to be involved in the contract development process.
An employer can utilize and integrate multiple methodologies at once, but the basic methods involved are:
- Direct contracting, pre-negotiated rates and case-rate pricing in which providers and employers agree on a defined rate for services, which is usually based upon some multiple of Medicare. Alternately, the compensation is determined via negotiation, based on the hospital’s areas of specialty and medical quality. This also will apply to domestic medical tourism and condition-specific carve-out programs, such as for dialysis.
- Value-based care, utilizing alternative payment models, including accountable care organizations (ACOs) and clinically integrated networks that focus on tighter care coordination tactics in which the care providers have a vested interest in both the clinical and cost outcomes and share in the savings created by more efficient health care utilization.
- High-performance but narrower networks focused on medical quality outcomes to determine which hospitals and physicians are included in the network. For infrequent, atypical and high-dollar procedures/conditions, a centers of excellence (COE) program can be used to direct members to hospitals nationally regarded as best in class.
For a more in-depth look at each of these methods, check out our latest State of Health Care Guide.