So far largely unseen and unfelt, the effects of making provider pricing data public are about to impact hospitals and health systems in a big way. I'm not going to lie to you—this is going to hurt.
The rise of services that attempt to compare prices in healthcare is hurtling toward disrupting your revenue cycle and your margin.
Are you ready?
It's an exceedingly difficult question for hospital and health system executives to answer for a couple of reasons. One is that most of them, at least based on my informal surveying, have seen little evidence of comparative shopping for healthcare services. They may get a phone call every once in a while from someone shopping for an MRI price or a hip replacement surgery, for example, but those are few and far between.
But I don't think you can gauge the momentum behind this trend by individual patient phone calls. Eventually, leaving quality out of the equation for a second, you'll be able to gauge it by seeing patient volumes going to competitors because your organization has higher prices, or vice-versa.
I predict that many healthcare senior leaders won't realize this search for transparency in the name of cutting healthcare costs is affecting them until it affects them radically. In that sense, to borrow a phrase from the Black Power movement of the 1960s, the revolution will not be televised.
Leaders are wary of its power, however, and they should be. Employers are demanding better transparency and the ability to compare prices among a wide variety of organizations, and they're putting big money behind that desire.
Betting on getting a slice of that big opportunity, plenty of startups, as well as established health plans, are ramping up their technology and their sophistication to help patients choose wisely based on price.
But how can you prepare for and react to something that's currently not affecting you? It's not as if there's a shortage of things to worry about as healthcare reform reaches toddlerhood.
During an impromptu discussion among CFOs at a HealthLeaders Media event I hosted a couple on a different topic, the panel members worried about these services to a strong degree, despite the fact that they haven't seen much impact from them—yet.
All agreed there will be ever more pressure on the organization's bottom line in the medium-term future.
Enter the Facilitators
Castlight Health, a pure-play company that offers health information over the Internet to help people figure out their medical options, with much of the information aimed at lowering the veil on price and encouraging patients to choose lower-cost options, completed an initial public offering in March.
Despite the fact that the company had only $13 million in revenue (not profit) last year, the IPO valued the company at about $1.4 billion! This for a company that currently loses money on relatively paltry revenues. Growth prospects, many investors are saying with their precious investment capital, are sky-high.
Of course, we've seen this before with potentially disruptive technology companies. Many don't deliver on their promise. But Castlight is not alone. Other early-stage tech companies also have stratospheric valuations that may or may not ultimately be realized.
This is an underserved niche and smart investors think if a company can figure out how to peer through the opacity and complexity behind healthcare pricing, there's big money to be made.
Patients increasingly don't need much pushing to use these tools. At least for those insured by their employers, the share of their healthcare costs that is coming out of their own pocket is growing and will continue to grow, so they're as eager to lower their own costs as their employers are.
What Castlight is doing has the investment community extremely excited, perhaps irrationally so. But that one example shows how eager employers are to get a handle on one of their most variable and unpredictable cost vectors—healthcare spending.
Castlight says it has helped its corporate customers save as much as 10% a year by using its technology. And though its valuation seems crazy, its stock price has only dropped slightly since March when the shares debuted.
It is far from the only player in this game. There's also Change Healthcare, and Healthsparq, and others, and big insurers are experimenting with these technologies themselves, with an aim toward offering such tools to their customers as a value-add?that is, free.
What that means for the prospects of early-stage pure play companies is uncertain, but some comparative decision-making on healthcare based on cost seems here to stay.
Effects of Price Transparency
Other efforts, such as Medicare's recent data releases about hospital payments for certain services, are making headway in this area as well. Big corporations have signaled they are believers that this type of transparency works.
Lowe's, Wal-Mart, PepsiCo, and other large corporations already ship patients around the country to deliver them for procedures at specific organizations. The initiative is not solely based on price, but it's a big component.
There are ways to prepare, but in many cases, unless you already provide relatively high quality at a competitive price, the preparation may be painful. What hurts hospital leaders is that they don't necessarily know in detail how their offerings stack up against their competitors.
And competitors aren't just local anymore. They're national and in some cases, even international, which belies the old saying, "all healthcare is local." Hospital leaders owe it to their organization to look at some of these comparisons themselves, and understand how they stack up against the competition.
Some hospitals and health systems, finding they can't compete well under their current cost structure, will be forced to lower prices, and that will impact their ability to continue to fund services that already lose money, or curtail their activities on community benefit, or even lower their charity care, both activities which produce little, or even negative financial return for the organization.
Tough decisions will be required as hospitals and health systems with higher relative prices find they have to adjust to retain business.
Those adjustments, for some, will be extremely painful.
Philip Betbeze is the senior leadership editor at HealthLeaders.