Health Business Blog

This is the transcript of my recent interview with Harvard Pilgrim’s CEO Eric Schultz. An audio version is available here.

David E. Williams:  This is David Williams, President of the Health Business Group and author of the Health Business blog. I’m here today with Eric Schultz, President and CEO of Harvard Pilgrim Health Care.

Eric, there’s a lot of discussion these days about consumer engagement. What is consumer engagement and what is Harvard Pilgrim doing in that area?

Eric H. Schultz: I agree, David. Consumer engagement is finally starting to get real traction. It has been a bit of a third rail because so many parts of consumer engagement speak to the individual role and individual responsibility.

That doesn’t mean that we’re where we are with health care cost and quality because the consumers have failed to do something, not at all. But I think some policymakers, some elected officials might be concerned that the term consumer engagement is putting some sort of blame on consumers. And that’s not it at all.

The other piece I would mention upfront, just to get the language out of the way is I recognize that some actors in the health care system just don’t like the word consumer.

And I think what they’re getting to is that health care and wellness is very personal, it’s human. It’s not buying a refrigerator, and we understand that. Calling someone a health care a consumer is not meant to be disrespectful. It’s hard to imagine what more important decisions any one person can make.

But I would just lay that out and so when I speak about consumers, I mean no disrespect. There is a place for that word. There also is a place for the word patient. Maybe it’s informed patient rather than consumer. But let’s put the language off to the side.

The good news is that consumer engagement is getting real attention at the front line. Up until this point, we were seeing more attention being placed on the provider contracting strategies, moving away from fee-for-service and more toward payment for value, not for volume. And that’s essential for us in the United States getting our arms around more efficient care, more effective quality of care.

But that, in and of itself, is absolutely insufficient for the U.S. to get where it needs to be, because in some cases there are providers with great market power, great brand power, and great geographic control. They really don’t have the same reason to reduce their cost or invest in how they deliver care to reduce the cost of care.

That’s why we need this counter force, which is where the consumer comes in, to reward those providers that are doing a great job on cost and quality and frankly, to threaten those providers that are very costly. They may be high quality but don’t have the pressure yet to invest to become more cost-efficient.

So it’s a dual kind of strategy and it’s very welcome.

I’ve always felt that there are two ways for us to get control of cost trend. One is for the government to set rates, which I don’t believe is effective in dealing with trend over the long haul. And the second is for the market to work. And in United States, although some people say the market approach to health care has failed, I say the market has never been tested.

We all know, in a market, you’ve got supply, you’ve got demand and you’ve got price. Even today the price is largely separated from the demanders. There are oligopolies and monopolies and everything in between where your demanders of service don’t have to know how much things cost. And therefore we don’t have the regular market rules applying. This is a nice way to get that started.

There are really two major demanders. The first one that comes to mind most readily for most of us is the patient, the consumer. We demand care. The second is less obvious to those of us who are not in the business, clinical or otherwise, and that’s the referring physician.

There is value in physicians having transparency, especially for primary care physicians and a handful of specialists that have the responsibility and the authority to refer patients to other institutions or clinicians. And yet, even they don’t know how much these services cost nor do they know the quality. They may think they do, but it’s anecdotal, because that’s how we’ve always run this business as physicians. They need the information.

So it’s nice to see consumer engagement happening and it’s nice to engage the demanders in a way that’s going to really have an impact on the supply and on the price of the supply.

Williams:  Much of the recent discussion about consumer engagement focuses on transparency and specifically, price transparency. What is Harvard Pilgrim doing in that area?

Schultz: We’re very actively involved in price transparency. I will tell you that it’s been a journey. A worry of mine early on –and I’m past this point now—is that price transparency was occurring before there was quality of care transparency.

Even with value-based insurance plans that act an important reason or incentive to use information to make decisions, if we, as consumers, know the cost of something and we don’t know the quality of it, the majority of consumers believe that if it costs more, the quality is better. So I think we were creating a tension that insurers wanted members to go to lower quality providers to save money.

The other problem I had early on was that when you make prices that we’ve negotiated to pay physicians, hospitals and others available to the public, those providers who are being paid less are going to end pushing for more. And those who are being paid more, they’re not going to volunteer to get paid less.

So all boats rise, and I was worried that the prices were going to rise. In fact, they did rise after the Attorney General came out with the report, which I’m glad came out. It’s an outstanding report and I wouldn’t have it any other way. I’m glad she did it and it’s been very helpful.

But there’s been this evolution of thought. Now, I’m much more comfortable with being transparent on price because we’ve started producing better quality data at the provider-specific level or group level. So we’ve got some of that being balanced in.

And the other thing is that the real thought leaders, whether elected officials, business leaders, or others are being much more open around the role of consumer engagement and we have a lot of studies out there that have shown that just because it costs more doesn’t mean the quality is better.

So we’re moving forward aggressively in making cost and quality at the provider-specific level available to our customers and even more importantly to have it available with benefit-specific implications, because as you know, high-deductible plans have become very common.

They’ve grown quite a bit here in Massachusetts and in New Hampshire and Maine where we operate. More and more, our members are at risk for big costs. Now we have information that helps them make decisions that are going to complement their benefit plan designs better.

But it’s hard to know, with a $2,000 deductible, how much is left. If I have to go for an MRI and one is $1,900 and the other is $850, how much am I going to have to pay out of pocket, given whatever deductible is left? It’s complex.

So it’s really important to have tools that provide information that is person-specific with the benefits that you have. And that’s exactly what we’re introducing in the marketplace in September called Now iKnow. It’s a tool that we’ve branded that has “Castlight Inside” which is a play on Intel Inside. Castlight has a great software technology that helps us bring it to the market quicker.

The bottom line is to make more and more information available to complement the value-based insurance plans that we have, to complement tiered networks that we’re offering, and to put the consumers in the driver seat.

We want them to feel more control than they had back in the ’90s when managed care really took a black eye because there weren’t choices. People didn’t feel like they had the control in so many ways. And that’s really what guides our thinking around transparency: empowering individuals with the information and the tools to make more informed decisions that work for them or their family member.

There’s another interesting thing around transparency that we’ve identified, what we call aided transparency. One thing we know for sure here at Harvard Pilgrim is that this is definitely a journey that consumers are on. The notion of giving an individual information –even if it’s easy to access—along with value-based insurance plan designs, is a big shift on how people access care and think about paying for it.

Aided transparency is really a transitional phase where we help individuals use the information. We have nurses that help individuals who use information along with their benefit plan designs. This is in a product called SaveOn.

The idea behind SaveOn was to focus on those services that are easy to identify and where there is a huge swing in negotiated rates and a negligible difference in quality of care.

To no surprise, high-end diagnostics like MRIs and CT scans and high-volume diagnostics like colonoscopies are the focus. These services have grown over the last decade because hospitals and large multi-specialty group practices, have pursued very deliberate revenue strategies and they’ve been really successful.

The number of MRI machines out there in any given marketplace is outrageous. It’s overkill. But there’s never been a connection between demand and price and supply, so it’s worked. What we want to do now is provide an incentive to our members with SaveOn. If they are referred by their physician to get an MRI, we educate them that they can call our nurses.

If my doctor wants me to have an MRI of the spine, our nurse will look online and offer alternatives that are lower cost within that driving time.

Now you’d think that okay, that’s fine. But this is where the real value and nuances fall in place. If the members do this and they go get the care at the other place, we’ll pay them up to $75. So this is the first time we are keeping the benefits the same and paying a reward for making this choice.

The second thing and this is the aided piece, we’ll also say to Mrs. Jones, would you like us to call your physician? Would you like us to call this new facility and set up the appointment for you? Would you like us to call the other and cancel?

We address those administrative burdens and discomforting conversations you might have with your doctor. So many people don’t want to disagree with their physician; with our help they’re more likely to do it. It’s amazing. All of a sudden you feel their shoulders just dropping when you’re on the telephone with them because these issues have been a real barrier.

The other thing if a patient calls and it turns out they’re already  going to the most cost-effective provider we will say, “Mrs. Jones, thanks so much for calling. You’re at the best provider for cost and quality, but we’ll send you a check for $10 just for calling in.

We want to reward people, we want to help them get rid of some of the barriers. That’s the aided transparency that I’m talking about that we have to be ready to continue with. We don’t want to push the consumers too far too fast so they throw up their hands in frustration and then this strategy falls apart.

Williams:  You mentioned you see two fundamental approaches to cost containment, a government approach or a free-market approach. It seems in Massachusetts we have a hybrid. With recent health care reform laws, the government is taking some steps to require transparency. How does that fit in with what you’re doing? And is what the state government is doing helpful or unhelpful?

Schultz:  In Massachusetts, the state’s role has been largely helpful.

The role of the government can be to catalyze action, which has been really good. They don’t want to overly prescribe what things should look like. They want to see how the market can produce something because with competition, we’re desirous of having the better tool. And they want to take advantage of that. But they want to know that they’re pushing the industry to move in a direction that makes sense and where we all know it needs to go.

So Chapter 224 last July had a requirement to have insurers produce a tool to support transparency. So I think that’s been really good.

Another example of support from the government is to drive the conversation away from fee-for-service toward fee-for-value. That’s made a big difference. Providers, in particular, hospitals  have responded. We’re seeing medical trends well below four percent; and it’s really the hard collaborative effort between providers, physicians and insurers responding to the invisible (or not so invisible) hand or of the regulators.

Those are two good examples, where government is making a big difference.

The area where I think we need greater movement is in requiring hospitals to produce a standard set of quality measures on a more real-time basis.

A lot of data is used from Medicare reports and some other standard reports, but it’s not enough. Consumers should have access to that. The hospital level is a start, but we all know we’re moving toward a combination of physician and hospital department information; we have to get there but that’s down the road. So I’d like to see more movement to get better quality data. We’ve got a ways to go.

Williams: You mentioned two types of demanders, patients, but also referring physicians. You’ve been describing a lot of activities and initiatives that you’re undertaking for the consumers. What about for those referring physicians? Can these same tools be use? Are there other tools that you’re using to help the referrers?

Schultz:  We’re more advanced with our tools for the consumer to begin with. We do provide some information for our physicians about the cost of specialists and the cost of hospitals. We have a long way to go in that arena, though.

I know that tools, which will be in the hands of the consumers, will automatically have an influence on the referring physicians. My preference would have been –if the technology were there– to give the physicians, especially the referring physicians, the same tool at the same time. That’s where I would want to be if I were the physician.

The bottom line is the first phase was available for the consumers and I said let’s get that out. Let’s not wait for both or perfection. The good news is that Harvard Pilgrim insures a large number of the physicians in the state. They are members of ours and they’ll have the tool.

What we’re talking about here is only one slice of the pie, which is how we use the tool for acute services. We’re not talking about health and wellness. But transparency and value-based insurance have a big impact on our choices as consumers to be healthier. That’s probably a different subject than today’s discussion about price and quality transparency.

But even when in making decisions about health and wellness, we want people to select physicians who have high scores, partly because they’re focused on how they keep their patients well. Do they manage all of their diabetics well? If so the scores would reflect that. So their higher quality scores will be partially a reflection of how they help their patients manage their health.

Williams:  You mentioned that you chose Castlight in order to get to market sooner. But not many health plans are using it. In fact, you may be the first one. Are there any barriers to plans bringing Castlight on and do you see other plans following in your footsteps?

Schultz:  We were the first health plan to select Castlight. I suppose for some payers it was a little bit unsettling because Castlight is going directly to large employers and selling this feature that creates competitive pressure on insurers.

Our thinking here is first, we wanted speed-to-market. We were moving forward with the strategy before Massachusetts passed the law. So we were going to be fine anyway. We look at a number of products that were already existing and we felt this one was the best one that was out there.

We are glad we had the opportunity to brand it uniquely to our health plans, so that helped to deal with some of that concern about competitive pressure. Another health plan in the marketplace, Tufts, is using Castlight. I think they’re using it under the Castlight name.

There’s always a little bit of concern, but the greater value of bringing this to our customers won the day.

Williams:  I’ve been speaking today with Eric Schultz, President and CEO of Harvard Pilgrim. Thank you.

Schultz:  Nice to be here.

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HarvardPilgrim HealthCare, which has been ranked as the best health plan in the US for the past nine years, is taking new steps in the areas of consumer engagement and price transparency. It recently became the first health plan to select transparency vendor Castlight Health to provide patient-specific price information.

In this podcast interview, CEO Eric Schultz discusses the “journey” the organization has taken on price transparency, why they decided to work with Castlight, and the state of transparency tools for referring physicians. Schultz describes the concept of “aided” transparency to help consumers transition from established approaches to more value-oriented behavior, and explains HarvardPilgrim’s new Now iKnow and SaveOn initiatives.

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By David E. Williams of the Health Business Group.

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The Affordable Care Act is a big step in the right direction but like any big complex new thing (think 787 Dreamliner) there are likely to be hiccups coming out of the gate. I’d like to see us learn from implementation of the law and make improvements along the way. Unfortunately many opponents take the opposite view –and would still rather repeal the whole law or resist implementation. For example, Eric Cantor is again vowing a House vote on full repeal, states are rejecting the Medicaid expansion and having the federal government run insurance exchanges in their states rather than doing it themselves.

In the spirit of improving the law, I’d like to see a modification to the minimum medical loss ratio rules for health plans. Under the law, plans have to spend at least 80 percent (individual and small group) or 85 percent (large group) of premiums on medical costs. On the positive side this ensures that health plans use their resources on medical care and reduces incentives to restrict access, but it also limits the incentives for health plans to contain costs. After all, if medical costs are contained “too much” then the plan has to pay a rebate.

But we really should want plans to contain costs: by negotiating hard with providers, by introducing better network designs, and improving payment methodologies. Plans should be rewarded financially for doing this.

One way to make it happen would be to let plans with a strong track record of cost containment escape the MLR, at least partially. For example, if a plan raised its premiums by less than the market rate or less than some external benchmark such as the Consumer Price Index, it could be allowed to have a lower MLR –and higher profit margin. That would encourage plans to do a better job of holding the line on costs because it would be the surest route to enhanced profitability.

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The business and operational needs of health plans are changing so quickly that it’s no wonder they’re running into information technology challenges. At the same time plans are by their nature are conservative about changing how they operate and swapping out old systems for new ones.

In this podcast interview, Joe Marabito, CEO of ikaSystems lays out the complexities of the health plan IT world, describes how health reform is providing new opportunities for administrative innovation, and speculates about the role Accountable Care Organizations will play in transforming the payer world.

ika provides a variety of next-generation IT infrastructure to health plans and so has a front row view of the changes.

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By David E. Williams of the Health Business Group.

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David Williams interviews ikaSystems CEO Joe Marabito [ 19:54 ] Play Now | Play in Popup | Download

This is the transcript of yesterday’s podcast with Castlight Health President John Driscoll.

David E. Williams:  This is David Williams from the Health Business Group.  I’m speaking today with John Driscoll, president of Castlight Health.  John, nice to speak with you today.

John Driscoll:  Great to be with you, David.

Williams:  John, we’re going to talk about two topics today.  One is the new Castlight Pharmacy product and another is Castlight’s emergence in my home market of Massachusetts with its first health plan deal with Harvard Pilgrim.

Let’s talk about pharmacy first.  What is this Castlight pharmacy product?  What is the need that you’re addressing?

Driscoll:  As you know, David, we are absolutely aggressive about making sure that consumers have real time information that allows them to make the best choice.  And we are focused on the lack of cost and quality information in marketplace.  That’s an entirely new area for consumers and patients.

The one area where consumers are ready and able to make smart purchasing decisions is pharmacy.  So we thought it was important to invest in a new capability to allow consumers to make decisions right after they’ve left the doctor’s office with their mobile device or when they’re searching on the Internet.

Consumers are very focused on how much drugs cost.  And many patients are trading off drug costs against their weekly budget.  So we thought it was important to invest in this capability and roll it out quickly because we knew that patients and consumers needed it now.

Williams:  Pharmacy, as you said, is an area that consumers are really ready and able to engage in it.  It seems like that’s partly because it’s a discrete product that they identify as opposed to going to a hospital and not knowing what set of services they’re receiving.  But it also is maybe because it’s an area where there’s been some focus both from health plans and from PBMs.  I know you spent some time in that industry.  So can you distinguish what Castlight is doing from what’ already out there?

Driscoll:  It’s clear in other categories where we are providing cost information for the first time to patients.  But even in the pharmacy world, even with all the information and tools that health plans provide, they’re not focused on providing real time information at the point of decision in a way that impacts consumers immediately.

That’s probably a function of the fact that at Castlight we have a major focus on consumer behavior. Frankly, this is all we do.  We provide the best tools with the best information. So much of how you get a consumer engaged and keep them engaged is providing simple consumer-oriented tools that are as sophisticated as a consumer needs.

It could be as simple as making sure they know the difference between branded and generics and home delivery versus a local pharmacy.  Those basic choices –and providing them in a way that consumers can act on– extends the value of their benefit at the point where they are given a script.

Those tools really don’t exist in the marketplace in a way that really engage the consumer.  There’s an art to putting together the consumer interface and the product and then making sure that we’ve got real time information that is directly relevant to where the people are in their benefit.

Williams:  Unlike with medical benefits, there seems to be a fair amount of competition at the retail level on drug prices. So you have Wal-mart, which kicked things off with the $4 generic program and you see it extended into some pharmacies that offering low priced Lipitor or free antibiotics.  Can that information be integrated into Castlight pharmacy or does that stand outside of the system?

Driscoll:  What we are focused on is what’s covered under the insured benefit. Any part of the benefit that employers are paying for is integrated into the tool.  And it’s integrated in a simple way to enable the consumer to make a decision at the point of shopping.

Williams:  Is there a connection between what you offer on Castlight Pharmacy and the medical part of the benefit or are they standalone tools that are used separately?

Driscoll:  They’re really standalone tools, but the great thing about pharmacy is the richness of the data and the fact that the consumers are ready to comparison shop. What’s hard is integrating in a simple way that enables the consumer with limited time to make a decision.  And that’s really what this component of the product is.  It sits on top of the traditional Castlight transparency product.

Williams:  Does Castlight Pharmacy serve the Medicare Part D market or is this more for commercially insured patients?

Driscoll:  Today, our pharmacy product is focused exclusively on the commercially insured, but we absolutely are going to be looking at Medicare and Medicaid, because there are opportunities for consumers to save in every market.

Williams:  My understanding is that with Castlight, a consumer would need to have their employer be a customer of Castlight in order to access the tools.  Is that the case with the pharmacy product as well or is it available to individual consumers?

Driscoll:  Yes.  The employer has to buy it. It’s through the employer purchasing that enables us to gain access to information that powers the tool and allows the employee to understand exactly how much is covered and exactly how much things cost.

Williams:  Let me turn to another topic: health plans. I think about Castlight as somewhat of a competitor or threat to health plans. You may be revealing information to their customers that they perhaps should have revealed themselves.  And yet it seems you’re starting to work with health plans, beginning with Harvard Pilgrim, which is often ranked as the number one health plan in the U.S.

Can you talk about what you’re thinking with health plans and then what specifically is going on with Harvard Pilgrim?

Driscoll:  First of all, I would say that health reform is a team sport. We look at all of the health plans that work with us as partners. We’re all driving better outcomes and lower prices; the vast majority of people in the health insurance industry want to do that.  We feel like we’re all playing for the same cause.

We will partner with health plans in small ways or large to deliver value for their covered lives.  And we’re very excited to be able to adapt the cost estimator, our technology and our approach and to work with such a great partner as Harvard.

We look at the health plan marketplace as a real opportunity for Castlight.  In some cases, we’ll be working with employers. In other cases, we’ll be working directly for the health plan and with employers in that marketplace.

For us, it’s just a variation on what we think is a huge need in the market place – for better information and an empowered consumer.  As it happens, there’s a complete values match between what Harvard wants to achieve in the market place and what we’d like to achieve in the market place.  They are very focused on transparency and may want to empower their approach to have Harvard Pilgrim.

Williams: John, it’s interesting to see that you signed your first health plan in Massachusetts, which is a market that has led the way with health reform. The Affordable Care Act was modeled on the Massachusetts plan.  We’ve also been quite active in transparency.  Did the legislation and the move in the policy sector toward transparency have anything to do with why Massachusetts is the first market you’re entering with health plans?

Driscoll:  There is no question that the health plans in Massachusetts are particularly progressive. And obviously, Harvard Pilgrim is one of the best and the highest-ranked plans in the country.  I think it is no surprise that we are finding great partners in the most progressive markets in the country.  What’s interesting about the Massachusetts marketplace is its employers, its legislators, as well as health plan leadership that are driving a much more transparent system.  And I think where you’ll see transparency not just on cost but also on quality and outcomes.  It’s also a place where there’s a lot of very interesting and enlightened thinking around how to compensate for value and how to measure value.  It’s really a laboratory for the rest of the country in health reform innovation.

Williams:  Yes, it’s interesting.  We also had one of the earlier all-payer claims databases in Massachusetts.  My impression is there’s been a lot of information put into that database. The plans have submitted that information, but not all that much has come out of it.  Does Castlight complement the all-payer claims database?  Is it a substitute for it?

Driscoll:  I think it complements the all-payer database.  There’s still a fair amount of data gaps in every public database that’s been put up, but every time another database is developed and is improved, it’s another step towards having a more transparent system. That means a fairer system, a more accurate system and a system where not just software companies are selling services, but the patients and doctors and health plans and everyone else will gain from having a system where you can measure and then drive better results.

Ultimately, Castlight is more interested in getting access to information that historically folks haven’t had access to, making it actionable for employers and employees in a way that helps them drive better outcomes and lower costs.  And as of today, we need to be able to get more information and provide it in a particularly elegant way and constantly improve it. The bigger Castlight gets, the more we know about the consumers and we can create tools that have meaningful impacts on cost and quality.

Williams:  You talked about health reform being a team sport. Clearly Castlight and health plans and employers are on the team.  Are providers part of that team as well and if so, how do they play?

Driscoll:  They are.  We’re only in the first few innings of transparency for employers and employees, but I’m not even sure it’s the first inning of transparency for providers.  The majority of providers want to do the right thing but don’t have actionable information.  They don’t have tools they can use.  They don’t have tools that are meaningful, that fit their workflow and that can furnish providers with better information on cost and quality.

One of the concerns I have about some of the more progressive markets like Massachusetts is making sure that providers have access to that same information that Castlight currently provides to employers. Without that, to compensate doctors and hospitals on performance metrics seems unfair.  We will only have a fair system that can function and create better performance if providers have access to the same kinds of information that Castlight is currently providing to employees.

Williams:  Obviously, physicians are under a lot of pressure.  They’re being asked to do things that they weren’t asked to do in the past and didn’t learn about in medical school. They’ve got a lot of requirements to adopt health information technology, a lot of compliance requirements, and an imperative to do more with less.  And as I look at a lot of information systems that are out there, the providers really don’t have such great access to the kind of transparency data that you’re describing.

What’s the solution there?  And how long does it take?  And are there ways to see milestones along the way that may indicate longer term success?

Driscoll: Providers are only going to use tools that are meaningful.  They want to save money for their covered lives and the patients they serve and they want to create better outcomes.  But they don’t have information right now and certainly nothing’s been built into workflow. I think the next step is working, these companies life task is working with health plans to provide their network participants better information and to make certain that it is meaningful, simple and doesn’t slow down the hard work that doctors are doing.

The promise of companies like us or the promise of technology is to create this frictionless change where people can actually do more with less hassle. If you can integrate software tools into physician and hospital practices with the kind of information that the health plans have, doctors will make wiser choices.  There’s a real opportunity right now but I’m concerned that without those kinds of tools, that putting doctors on new kinds of performance metrics like bundling, or bonusing them more on value is unfair unless they have the information to make wise choices.

Williams:  I’m a member of a health plan in Massachusetts, a different one than the one you described, and my primary care physician is part of a contract that does pay based on value. I’m wondering what kind of information would it be useful for her to have that she probably doesn’t now that could help me and could help her?

Driscoll:  I don’t know what information your doctor has access to, but certainly every doctor needs to have better feedback for the covered member that they’re taking care of, what’s covered and what’s not.  For the doctors they refer to, what are their historic outcomes, how frequently have they done certain procedures, how satisfied are patient, and how do they fit into an episode of care? In a fee-for-service world there are informal referral networks.  We want to create a system leveraging information that creates an informed referral.

Williams:  I’ve been talking today with John Driscoll, President of Castlight Health.  We’ve been talking about the new Castlight Pharmacy product and also talking about Castlight’s first health plan customer, Harvard Pilgrim, in Massachusetts.

John, thanks so much for your time.

Driscoll:  Thank you.

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Health care transparency leader Castlight Health has launched a tool to manage pharmacy costs and signed its first deal with a health plan: Harvard Pilgrim. In this podcast interview, Castlight president John Driscoll and I discuss:

• What the new pharmacy tool adds to the offerings already on the market from health plans and PBMs
• Why the first health plan customer is in a market (Massachusetts) that’s already a leader in transparency
• The role of health care providers in the transparency movement

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David Williams interviews Castlight's John Driscoll [ 17:17 ] Play Now | Play in Popup | Download

The Affordable Care Act (aka ObamaCare) requires health plans to spend at least 80 or 85 percent of premiums on medical expenses and quality improvement –80 percent for small groups and individuals and 85 percent for large groups. This minimum Medical Loss Ratio (MLR) rule means that health plans must squeeze all their administrative costs and profits into the remaining 15 or 20 percent.

Health plans are making adjustments. Not surprisingly they are looking at ways to cut administrative costs, just as the law intends. One easy target is commissions for agents and brokers, and those commissions are in fact being cut. From LifeHealthPro:

“The (MLR) requirements contained in the Patient Protection and Affordable Care Act continue to have a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers, as well as on all of their employees and their millions of employer and individual clients,” stated Janet Trautwein, CEO of The National Association of Health Underwriters (NAHU).

Trautwein explained that the MLR requirements significantly and negatively impact access to health insurance agents and brokers at the very time our economy is the weakest and health care consumers need the most help.

She noted that the Congressional Budget Office (CBO) reported that agents and brokers often serve as de facto human resources departments for many small firms — negotiating premiums, processing claims and enrolling employees.

Brokers are pushing to have the MLR rules exclude agent compensation and they’ve picked up some allies in the Senate.

I totally understand why agents are unhappy and why NAHU is pushing for this change, but I don’t believe a change is justified. The current compensation structure has brokers working on behalf of the health plans to sell coverage. If agents and brokers are really working as HR departments for small firms –as Trautwein contends– then those firms would be better off paying for such services directly rather than paying a health plan to pay a broker to do the work.

The easiest short term path for the broker community will be to keep pushing to change the legislation. But in the long term it will be healthier for all if employers rather than health plans pay for brokers’ consultative and HR services.

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Yesterday’s Boston Globe article (Hospital charges bring a backlash) was spot on. Reporter Liz Kowalczyk nailed the topic:

• Hospitals are adding facility fees in the hundreds of dollars for many visits to hospital-owned physician practices, even when those practices are nowhere near the hospital
• Facility fees are becoming more common as hospitals purchase formerly independent physician practices and tack on the fees
• Patients are pushing back. One reason is that more of them have high deductible plans that force the patient to bear more of the cost
• Insurance companies are aware of the issue but have generally been allowing the fees

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Hospital facility fees are getting more attention these days. When hospitals acquire physician offices they often initiate the lucrative practice of tacking on a substantial facility fee to office visits. This has been happening for some time but payers have been asleep at the switch. It’s only recently that the fees have bubbled up in the public consciousness, and that’s largely because more people have high deductible health plans that actually hit them with part of the costs. It’s also more noticeable when an office switches ownership and the only thing that changes is the name on the door and the facility fee on the bill. I’ve written on the topic here and the Boston Globe had an extensive article over the weekend.

But these article don’t capture the whole facility fee story. As AIS Health describes, when patients have infusions done in hospital outpatient departments rather than physician offices the reimbursable amount may be double for the same service.  The facility fee can be an important component of that difference. And we’re thousands of dollars per visit here; it’s not peanuts. Yet surprisingly it’s common for health plans to charge coinsurance for the cheaper physician office setting and nothing for the hospital, thus encouraging patients to take the hospital route.

I chuckle when I hear free-market ideologues talk about how unleashing the competitive forces of commercial health plans is going to drive costs down, when it has clearly failed to do so in the commercial market. Actually the folks who are doing something about the facility fee problem (according to the Globe report) are the Medicare Payment Advisory Commission and Massachusetts’ new Health Policy Commission.

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With ObamaCare the law of the land, employers are facing up to the fact that they will continue to be responsible for providing health care coverage for their staffers. That’s a good thing because it means some will focus harder on innovative ways to get more value for money, and their success will blaze a path for others.

In Cincinnati, several employers have signed up for TrueCost, a simple plan that pays providers 140 percent of Medicare rates.  The idea is to save the trouble and cost of negotiating with providers and pay them a premium over what they already accept from Medicare. But hospitals are angry about the plan and are threatening to “balance bill” patients the difference between hospital “charges” and the TrueCost amount.

Here’s how employers are viewing it:

Employers say that with health care costs skyrocketing out of control, they don’t have a choice but to try something new.

“If this is out there and it’s available, I feel the responsibility to save the taxpayers money,” said Richard Gardner, treasurer of Mason City Schools, which spends about $15 million a year on health care. The district laid off teachers last year to help balance its budget. “We’re kind of on the edge of a different billing structure. But I think its time has come.”

Hospitals see things differently:

Hospitals say Medicare rates don’t begin to cover what they actually spend on medical care.

“Every hospital sets their own prices,” said Jennifer Atkins, vice president of payor contracting and engagement with Cincinnati-based Catholic Health Partners, which operates the five Mercy hospitals and Jewish Hospital. “The discount is the quid pro quo for a group of patients to have access to the hospital.”

The sentence about Medicare rates not covering costs isn’t attributed to anyone, but it really does bear examination. For most hospitals, Medicare is the biggest customer. Medicaid is also usually a big customer and its rates are usually lower than Medicare. Hospitals also have patients that can’t pay or just don’t. So if a hospital isn’t breaking even on Medicare it will have a big gap to fill. Some hospitals have substantial other sources of income (from investments and/or philanthropy) but in general they look to commercial payers for more than 100 percent of their profits.

Costs are a funny thing. If Medicare really was a net negative to a hospital theoretically the hospital could just forego Medicare patients, but somehow no one does so. There are fixed cost and variable costs, and costs that are in between. And because reimbursement is structured so strangely, hospital accounting systems often provide little insight into what services and patients are profitable and which are not.

Historically commercial payers have gone along with paying hospitals way above Medicare rates. But if you think about it it’s reasonable for employers to expect hospitals to accept Medicare + 40%, or even less. After all it’s not the fault of employers that Medicare (and Medicaid) are relatively stingy.

It would be interesting to recalculate the cost of Medicare to include the subsidy from commercial payers. That would show the true cost of the program to be much higher.

Like it or not, the age of transparency and cost consciousness is going to drive hospital prices down toward the Medicare level. And hospitals had better figure out how to deal with it. One way, of course, is to embrace global payments, which allow hospitals to benefit from optimizing utilization.

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