The Great Transparency Movement?

The ability of consumers to shop for healthcare services based on price and quality won't take hold until innovative providers take some risk and a dose of faith.

This article appears in the May 2015 issue of HealthLeaders magazine.

Why can't it be easy to shop for healthcare services? All too often, it is a Kafkaesque experience. There's no single place to go.

As a patient, you can't easily compare prices for services as you would when buying a TV. You can call your insurer—which really sets the prices—and you might make some headway, only to then run into brick walls. When you're pointed back to your physician's office for a code in order to continue discussions with the insurer regarding your obligation for, say, a colonoscopy, you'll circle back into discussions about codes and preventive and elective care. You might get it resolved before your scheduled procedure. You might not. For most patients, that is the world of healthcare billing as it is.

All this despite the fact that each of the three key players in the healthcare transaction—the payers, providers, and employers/patients—agrees that patients should be able to receive accurate price estimates for healthcare services prior to consuming them. But bringing that vision to reality is considerably more complicated than it may seem.

Complexity of healthcare procedures and coding, along with a system of misplaced financial incentives and a populace that's traditionally been shielded from the details about the cost of care or even the decision-making around care (relying on the judgment of others) are just a handful of the historical reasons few have wanted to dedicate the time, effort, and expense to make the process easier.

Increasingly, however, it is possible to manage those variables. The tools to discover value are getting sharper as the pressure for transparency mounts.

How should smart hospital and health system operators position their organizations to compete in this rapidly changing environment? They must start by accounting correctly for their own costs, then figure out how to work with payers, partners, and third parties to position themselves for value. Their organization's place on the bell curve measuring price and quality might mean the difference between success and failure for the entire organization, and this work needs to begin urgently.

How Data Transparency is Driving Analytics to Drive Value

What's your cost?

Patients have always had to pay some share of their medical bills, but that amount historically has been so insignificant that it did not enter into the decision on where to access services. But that's changing.

The percentage of the cost of care borne by the patient is increasing dramatically as more employers drive their employees to health savings account–qualified high-deductible health plans—plans that place a greater share of out-of-pocket payments for healthcare services on the patient. Those plans have grown an average of 15% a year since 2011, and nearly 17.4 million patients have them, according to a survey by America's Health Insurance Plans released in July 2014.

Payers have tried, with varying degrees of success, to link payments to outcomes, while the federal government has introduced several pilot programs that introduce financial risk based on clinical outcomes. It plans to do much more in the future, going so far as to set a timeline that calls for at least 50% of all Medicare payments to be made through alternative value-based payment models by 2018.

That puts pressure on providers—whether critical access hospitals or giant multistate healthcare organizations—to quantify their own costs so they can start the process of reducing them in what many envision as a more competitive price environment.

"If you're an individual health system and you don't know your costs for an encounter or episode of care for which those prices are public, you are in an undesirable place to understand where this is going," says Robert Pendleton, MD, associate professor of medicine at the University of Utah and chief medical quality officer at University of Utah Hospital and Clinics in Salt Lake City.

The system, which operates 770 licensed beds and had $1.04 billion in patient revenue in 2013, unveiled its value-driven outcomes costing tool in 2013. The tool has been lauded for its ability to measure the system's healthcare delivery costs at the granular level. Furthermore, the VDO tool is able to break down those costs over the full cycle of a patient's care and to compare those costs to outcomes in a Web-based format. The tool is intended for use by consumers, but a critical piece of its functionality is for internal consumption to enable the organization to understand the cost of inputs necessary to deliver care across a wide variety of procedures.

"VDO is the underpinning of our data infrastructure to really understand our care delivery costs down to the patient encounter level," says Pendleton. "Understanding costs at that level helps us learn from variation. It allows us to really prioritize and direct improvement efforts on a system level and imparts a sense of ownership for individual providers in context of their peers."

Until recently, most healthcare delivery organizations have managed their business quite differently. Under fee-for-service, inputs don't matter as much because of a direct relationship between activities and revenue: More inputs have meant more revenue. But that relationship is breaking down quickly.

Most healthcare organizations "don't have a handle on activity-based costing, and they don't understand what it costs them to deliver a service," says Rita Numerof, president of St. Louis–based Numerof & Associates, a healthcare consulting firm. "We are moving toward a more capitated system, so they need to understand those costs in a more horizontal way."

Over the past several decades, most systems have focused on their biggest cost—personnel—in a vacuum as opposed to looking at and rethinking care delivery processes, she adds.

"So part of the reason they haven't made these care delivery changes in the past is they haven't had to."

Do they have to now?

Some hospitals and health systems are moving faster than others, usually dependent on their market, but competition will force the issue, and large employers and entrepreneurs are adding to that pressure. "Together, those things will make it such that you'll see more movement in this direction for several years," says Numerof.

What about quality?

Knowing your true costs is only part of the equation.

"The issue going forward is, if you're really higher-quality, how do you demonstrate to the world that you deserve a higher price?" says David Newman, executive director of the Health Care Cost Institute, a nonprofit that aims to create a comprehensive national claims database with information on public and private sector healthcare utilization and costs.

He observes that the quality measures in use today are a grab bag of metrics that vary from organization to organization. In other words, there's no standard definition for quality care and, thus, no easy way to measure one provider against the other, which makes it difficult, if not impossible, for providers to compete on a common metric and, ultimately, to receive higher reimbursement than lower-quality competitors.

Historically, there hasn't been a general consensus about what to measure and how to measure it, Newman says, and unless a consensus is reached, consumers, and to some degree employers and even payers, generally will lean more heavily on price in determining networks.

"The onus is on [HealthLeaders Media's] audience to rally around measures development for quality and consensus," Newman says.

When HCCI launched in 2011, says Newman, he had many conversations with healthcare provider executives about how to go about measuring quality and what measures to include in any future tools. "But what some people were really doing was trying to convince me to adopt measures on which they look good," he says. "That's going to be a problem going forward."

When it comes to consumer comparison shopping, both price and quality measures really matter for certain discretionary services: imaging, elective procedures, and other nonemergency services. But that narrow range may be enough to cause major disruption. HCCI data shows wide variability in prices for many services; prices for the same service can range from $10 to $1,000. Besides, even if consumers won't shop for very expensive services—under the theory that they will meet their out-of-pocket maximum anyway, so why shop?—employers will and increasingly are doing exclusive deals directly with hospitals or health systems for certain procedures.

Many healthcare leaders depend on an increasingly outdated argument that high prices for a few popular procedures can subsidize the cost of money-losing services. "What we hear from some hospitals is that 'I can charge whatever I want for my MRI because I have a captive audience,' " says Newman. "But what they don't understand is that patients don't have to be able to shop for every service. If they shop for even a few, the ability to cross-subsidize will be reduced."

Pendleton says University of Utah Health Care's VDO tool helps with understanding outcomes, as well as internal costs, to help present a full picture of the value of obtaining all possible healthcare services from that organization. As a provider, it wants loyal patients, not one-and-done customers. As the organization reviews inputs and outcomes on clinical conditions, part of the analysis helps its leaders understand variation by mapping and measuring complications and outcomes.

"We map out a composite of outcomes with the provider input and define what we call perfect care," Pendleton says, describing the term as a positive clinical outcome delivered in the safest, most economical way. "What are outcomes we should avoid? What we've found very consistently is when you deliver perfect care your costs are always lower. What we don't want is being more efficient and cost-effective to be at the cost of clinical outcomes."

Disruption by data

The industry has been roiled in recent months by the disclosure from the Centers for Medicare & Medicaid Services of the prices paid to hospitals, outpatient facilities, physicians, and other suppliers. The disclosure was intended to provide greater transparency about what hospitals are paid, along with discrepancies in such payments based on geographic and other differences around the country.

Commercial payers have been slow to release price data; this information has traditionally been part of confidential negotiations between hospitals and payers. But Blue Cross Blue Shield of North Carolina may be at the head of a new trend of such disclosures. In January, the payer released a tool that allows consumers to research prices and their likely share of those costs depending on the provider. Critically, it reveals the actual payment levels for a wide variety of services that each institution charges.

The decision surprised many hospital and health system executives in the state, among them Linda Butler, MD, vice president of medical affairs and chief medical officer at Rex Healthcare, a member of UNC Health Care in Raleigh, North Carolina, which reported net patient service revenue of $2.35 billion in 2013.

Butler, who had no advance notice of the disclosure, says the numbers can be misleading and don't always present the complete picture of what goes into the price listed. For instance, a search for colonoscopies will list prices, but the procedures have different CPT codes, she says. "Giving you a defined price is much more complex than just giving you a range, and sicker patients will cost more," she says.

Continuing with the colonoscopy example, outpatient centers can perform procedures on only a certain subset of healthier patients. A patient might be able to get the procedure at one of these facilities for $2,000, whereas if one comes to a hospital, it might cost $5,000. Butler says the difference is attributed to capability to handle the increased complexity that the hospital-based procedure may require.

"If you're sicker, [outpatient centers] won't do you," she says. "Here, we'll have the morbidly obese, the diabetics, people who have had a surgery or two. Outpatient centers will not touch them." Hospital-based procedures will involve more equipment, two nurses instead of a tech, and "you're paying for all that complexity," she says. "The way a patient might search it, they might not be aware of that being the reason it's more expensive in the hospital."

In other words, quality, and in this case, potential quality, is hard to quantify.

Complicating the issue, says Butler, is that hospitals and health systems don't set their own prices. "Blue Cross and other payers are the ones who negotiate these rates," says Butler. "We at UNC Health Care don't have latitude to pick numbers out of the air and say, 'This is what you'll pay us.' We've always met their quality targets and sometimes get quality bonuses for doing that. But on the other side, they're telling patients, 'Here are the ones who are most expensive,' and yet there's nothing about quality or the context on why. I can only speculate the reason they did this was to pressure hospitals to be willing to negotiate lower rates and drive customers to lower-cost facilities."

The North Carolina data release is an example of why hospitals and health systems need to try to get ahead of these disclosures. Consumers want specific information on their own situations.

"There are about 8,000 diagnostic codes, about 13,000 CPT procedure codes, and hundreds of thousands of plan designs," Newman says. If a consumer wants to know ahead of time, and obtain a price relative to where he or she is with respect to the deductible in the course of a year, "you need a fantastically large, thick data set."

For now, Butler says the BCBSNC action has had little effect on patient volume, perhaps partially because Rex sees many patients transferring in from other hospitals.

"We have a very busy surgical program, and we're blessed with good volumes in oncology and heart and vascular," she says. "As an industry, we are trying to reduce costs, eliminate waste, and there's opportunity and we own that. People are going to shop but they tend to want to stay local unless their employer negotiated a contract for their specific condition."

Massachusetts is a hotbed of transparency efforts, at least with price, thanks to a law that forces physicians and hospitals to provide cost information for patients who request it. The law took effect in October 2014. Anticipating a call for transparency, Tufts Health Plan (which has more than 1 million members and reported 2013 revenue of about $4 billion) started working on price disclosure in 2012, when it was approached by Castlight Health, a publicly traded healthcare information company that has developed a cost information tool available under a business-to-business subscription model. Traditionally associated with large employer groups, Castlight was the vendor Tufts eventually chose to provide the information and its tool for Tufts members.

Athelstan Bellerand, director of commercial product strategy at Tufts Health Plan, says Castlight saw Massachusetts as being on the leading edge of transparency efforts and saw health plans as a growth opportunity.

"We were primarily interested because more members have transferred from copay-based insurance, where out-of-pocket is largely easy to predict, to others where what's most relevant is their share of the cost," he says. "That said, there was no groundswell of members asking for this."

Tufts Health Plan sees transparency as the future, and wanted to be at the leading edge, Bellerand says.

He says Tufts, in the past, has had tools that attempted price transparency, but that those did not take into account members' specific plan design, and sometimes used regional or national data. There was no connection to actual, real-time amounts for members.

"For a lot of our members, it was a pure guessing game, and that's not really how it should be," he says. "For years, members have had to wait for a bill in the mail. That will be completely unsatisfactory going forward, and we wanted to get out in front of it."

One complexity for Castlight that it doesn't face in the employer world is the number of plan designs an insurer administers. While an employer might offer up to three or four health plans, a payer such as Tufts has hundreds, making the attempt to provide a customized accurate estimate more difficult.

"The complexity of that offered a major learning opportunity for Castlight. We needed to build something that our consumers could rely upon," Bellerand says.

The tool, called EmpowerMe, has been live for a couple of months now, and members have been using it, Bellerand says. With "extensive testing," 90% of estimates have been within 10% of the real price.

Despite this big step toward transparency, Bellerand says he does not believe it gives Tufts Health Plan any competitive advantage. The tool is simply a cost of doing business going forward. "The reality is all the plans in Massachusetts are required by state law to do something like this," he says. "One of our major competitors is using same vendor and tools that are virtually identical."

A critically important aspect, he says, is that Tufts' member services department also has been trained to work outside the tool to provide estimates for the small number of procedures the tool can't handle, if necessary.

Though it might not be a competitive advantage for the health plan, it could conceivably be one for providers, assuming they stand out from the competition on price and quality metrics.

For its part, Castlight casts a long shadow among healthcare executive leaders. They know many employers use its tools, and those of competitors, to make healthcare choices. Leaders are less sure about its impact on revenue. Until recently, most of Castlight's efforts have been toward price transparency, but it's positioning itself to use predictive analytics to further help customers manage their healthcare spending. Already, the company uses prompts, based on the levers that employers want to use, such as reference pricing or centers of excellence.

An example: If a patient searches his or her employer's health site for what to do about a sore throat or stuffy nose, he or she might get an alert that offers other options than for a physician office; by clicking on the prompt, the patient can schedule an online appointment quickly.

"But without transparency we can't do that stuff," says Jennifer Schneider, MD, Castlight's chief medical officer.

Castlight helped design a solution for Kraft Foods Inc. for a problem it didn't necessarily know it had. A large portion of its employees in one geographic location used the emergency room inappropriately, for minor ailments. "Nighttime shift workers did not have access to regular doctors' office hours," says Schneider. "That was the reason. There was nowhere else to be seen."

Castlight offered the option of telehealth for such workers. Since added, this approach has saved both the employer and its employees significant costs, she says. Hospitals and health systems are also large employers, so Castlight has a number of them as customers, too, including Cincinnati Children's Hospital and Providence Health & Services in the Pacific Northwest.

"Those groups have learned a lot about their own systems by working with us," says Schneider. "They might not understand all their pricing structures in all their markets, for example."

How should providers prepare?

Schneider recommends three areas in which hospitals and health systems should concentrate as transparency becomes a staple. First, they should analyze their costs of providing an array of services and make those figures available internally. Second is something many hospitals are already doing: measuring, tracking, reporting, and acting on quality metrics. Third, "think about the other value you bring to the healthcare arena, such as in patient satisfaction, ease of appointments, or care coordination. Make sure you're driving value for the end user in helping them make better and more informed choices."

Pendleton says one of the critical building blocks of a transparent organization—one where people can rely on price estimates and quality ratings—comes from creating a physician culture that embraces transparency as a key driver of change. One result of that focus at University of Utah Healthcare has been external transparency, whereby comments and reviews from patients are posted for all to see, which is fairly common in the consumer retail sector.

For example, the website shows Marisa R. Adelman, MD, receiving scores ranging from 4.6 to 4.8 (on a five-point scale devised by patient-experience consulting firm Press Ganey Associates, Inc.) across nine dimensions of care, along with dozens of verbatim comments from patients. A sampling:

• I always enjoy seeing Dr. Adelman. She is friendly and thorough, goes over whatever I have questions on and clearly explains the details of the plan we form together.
• Not my normal dr. I didn't know I was going to be getting a shot. I would have liked a warning and more information to make me feel better about it (why it is necessary, etc.).

Adding patient reviews in this public forum didn't happen right away, but came from more than a year of internal debate and measurement. That interim gave physicians time to "recalibrate" after comparing their patient experience and satisfaction scores with internal peers, Pendleton says.

"That allowed us to create external transparency. If we had not done that, would we have still had this same broad embrace on moving along the value equation? I think we probably would not have been able to move as quickly."

Pendleton is grateful the process started years ago because of the speed of change now.

"Some of the things that concern me a little bit is if third-party payers unleash price transparency," he says. "Such as when Medicare released their price data for physicians, because there was not that time frame for providers to understand, compare, or self-direct improvements."

Matthew Heywood, president and CEO of Aspirus Inc., the parent company of Aspirus Wausau (Wisconsin) Hospital, a 220-staffed-bed hospital serving patients in 14 counties, says the state's progressive attitude toward putting quality and price information in front of patients has spurred the health network to post pricing and quality information on the state's website. It does not have all the functionality of a Castlight tool, but the site does provide estimated average prices for many common adult procedures. But that's as far as his system is willing to go at this point, because he doubts that the effort and expense necessary to provide deeper information will influence people to have their care at Aspirus.

Heywood recognizes the need to establish a standardized definition of quality, and says the hospitals in Wisconsin are getting close to that. "Starting with quality as the most important driver, you have to have a common definition," he says.

From his perspective, price is more difficult, "because charges are nothing but a number that gets discounted by the payer." Charges may help decision-making on some level, but not at the patient level. "It's hard for us to offer that capability if we have insurance as the middleman," he says. "It's one of those questions about how much resources and time you have versus the outcome you're going to get for it."

Instead, he says Aspirus is trying to offer proof of both high quality and low cost compared to peers and to manage the care of the population. As part of that philosophy, in the short term, the organization has to do a good job getting the quality information out in an accurate and clear way. He cites high ratings or awards from the usual complement of quality rating providers, including Healthgrades, Truven Health Analytics, and U.S. News & World Report.

"We have a lot of traction with ratings. If we continue to provide low-cost service and keep our charges down, over time, we're going to be able to market that and illustrate that in many ways," Heywood says. "Right now, posting charges and letting people know we are lower cost in general and continuously improving ourselves is our start."

In a state of Wisconsin analysis on cost and quality (measured by market), Aspirus ranked among the lowest cost while maintaining upper-quadrant quality scores in the region. Heywood's leadership team used that data to find like-minded organizations to form a collaborative alliance. Heywood calls it a "super-ACO" known as AboutHealth, with initial members Aspirus, Bellin Health in Green Bay, ThedaCare in Appleton, Gundersen Health System in La Crosse, UW Health in Madison, Aurora Health Care in Milwaukee, and now ProHealth in Waukesha.

While the group's members do not yet contract as a single entity with payers or employers, its members see that as an eventual main function. For now, they collaborate on cost reduction and quality improvement programs. Eventually, Heywood says the ACO will provide "one-stop shopping" for employers and patients.

"Purchasers will be able to go to our Aspirus ACO and won't have to worry about separate contracts for care," he says. "We have 80% of what patients need, and for the rest, we would work with UW or one of our other partners for care that we cannot provide."

The key question for leaders is how to get tied into a network that offers that one-stop shopping. If you're the lowest cost, employers will want your organization in their network and will help sell it, says Heywood.

"If you're a major employer like Menards [a chain of 280 home improvement centers in 14 states, headquartered in Eau Claire, Wisconsin], you don't have to go to us individually; you've got the state covered in one contract," he says. "We are a strong believer that you don't have to be a $3 billion revenue organization to survive. About a billion dollars is large enough to make capital investments to provide for the future state of the organization."

As hospital and health system leaders consider the infrastructure necessary to support their transparency efforts, they have to consider how far down this road they want to take their organization.

In building the value-driven outcomes tool at University of Utah Healthcare, "we took an unusual approach with budgeting in that we did not add cost to our system," says Pendleton. "We reprioritized the work of the entire development team to allow them to be successful. Our costs were taking these data people offline to build VDO with a keen understanding on how we would manage their absence in our daily operation."

It was more a leadership than a cost function, he adds, in contrast to a lot of organizations that look at "how many thousands or millions we need to hire a consultant to do this."

The organization pulled 25 data and design specialists off their daily tasks for between three and six months to create the VDO tool. A large core working group was formed from an eclectic group of data warehouse architects, finance experts, biomedical informatics experts, and, of course, clinicians.

"The catalyst was a belief in embracing the responsibility to deliver high-value care within our organization," he says. "That really resonates. We were also looking around the corner and seeing that this is a necessary thing for us to do to prepare for the future."

For smaller organizations like Aspirus, focusing on cost and quality improvement is a big enough bite. "Right now, it's not just money; you can't get enough IT people to throw at the problem," says Heywood.

Getting to true transparency

Transparency in healthcare is at its infancy, so investing major dollars in public-facing price and quality ratings is an uncertain bet at best for providers.

"Anyone who says they can predict how changes in healthcare will exactly play out are fooling themselves," says Pendleton, notwithstanding University of Utah Healthcare'sown investments. "I think we're still in an era where patients' No. 1 determinant for getting care at a particular place is convenience and trust in that provider. Those trump everything else."

In part, that's because patients have a hard time understanding and choosing care. He points out that CMS' Hospital Compare website, for all its positive aspects, hasn't led to consumer shopping. Consumers may want information beyond price and quality indicators, as difficult as those are to obtain.

"We do know that if you provide information that resonates with the patients, you can get their interest," says Pendleton. "For example, by posting our patient satisfaction statistics and the unedited comments, our Web traffic to our provider profiles goes up exponentially. That makes sense. People want those ratings."

The payer role in transparency remains a key unknown.

"As a healthcare system, it's not clear to us how insurers attribute a patient to our system versus another," Pendleton says. "To look at cost or price to the patient, that becomes really muddy water. Selective transparency makes it challenging for a hospital or healthcare system."

Heywood says he welcomes transparency for Aspirus, as long as it's true transparency that doesn't obscure the payer's role in the price for healthcare services.

"The challenge for payers is, once they release what the prices are, they have to be ready to answer questions about their margin and what value they're bringing to the table for what they're charging their customers," he says. "You can die by the same sword you're using."

Trying to create something like a pricing tool that takes into account plan differences and patient copays and coinsurance is best left to insurance companies, he argues, and is duplicative and costly for hospitals or most health systems to develop.

"When we have more direct linkage to the purchaser, which will happen in the future to eliminate that middleman, it will make more sense," he says. "Right now, a big chunk of our business is going through insurance, and it's not the best strategy to duplicate it."

He says measuring care and design improvement should be driven exclusively by what's right for the patient rather than doing things in response to changes in the market. "If you have that aspirational view of this, you avoid the pitfall of needing perfection in measurement," he says. "If you can avoid those pitfalls, you can move in a direction that will allow you to be successful no matter how the dominoes fall from a payer level."

But from the payer perspective, the path ahead is unclear. Transparency will be driven by consumers, says Tufts Health Plan's Bellerand.

"We can illuminate some of the price differences, and they can be very significant," he says. "Patients have to make a decision on the quality as they perceive it, but the truth is these are the types of decisions consumers will have to grapple with. As there's more visibility and providers are curious about how they stack up against each other, they will feel some pressure to moderate their prices. To the extent that happens, it's a good thing for the market. How soon, and to what magnitude, is unclear at this point."

Reprint HLR0515-2