Oh, the Places They'll Go: Employers Add Hospital Data to Their Cost-Control Tactics

New price transparency data reveals long-standing payer-provider maneuvers—and new ones for employers.

News flash—not: A healthcare market's competitive concentration affects who wins the contract war: payers or providers.

The real news flash? Employers are now dealt in.

A new Health Affairs study, Insurer Market Power and Hospital Prices in the United States,  found that leading payers pay hospitals 15% less when they control a market. That difference is often larger when the hospital is for-profit.

The study was based on new data made available through the federal Hospital Price Transparency initiative. While the study authors note that this data could help employers bargain for premium savings from their health plans, others—including HealthLeaders—see broader possibilities.

How employers can use price transparency data

"Employers can also use this new research to better understand the total cost of care across various plans and markets and determine where they might have opportunities to control costs."

This from Hassan Azar, a member of the Health Affairs Council on Health Care Spending and Value who commented on the study in the organization's Health Spending Newsletter.

Azar mentions total cost of care [TCC] with caution: "It is not accurate to evaluate the price of anything by looking at the individual parts."

To TCC management, HealthLeaders adds other cost-control strategies that could make of use transparency data—part of our ongoing coverage of the employer as healthcare payer. The strategies include direct contracting with providers or ACOs and defined contribution tools like Individual Coverage Health Reimbursement Arrangement (ICHRA), where companies give their employees a pot of money to buy their own coverage and help pay for deductibles and coinsurance.

The challenge and opportunity of more data

"There is a lot of work yet to do with these data," says Azar and every professional who has ever tried to turn Big Data into Big Solutions.

Other insights from the Health Affairs study include:

• Health plans with more than 71% commercial lives share pay hospitals nearly 15% less than in other markets.
   

• The difference is lower—7%—in less-concentrated markets.
   
• In the most competitive health plan markets, the difference is higher with for-profit hospitals versus nonprofits and government-owned hospitals.

In some markets, providers are more concentrated and have the upper hand in contract negotiations. In addition to cost transparency and other data, employers can use the Herfindahl–Hirschman Index (HHI), which measures how concentrated markets are in general based on who does business there.

Market realities and myths

The HHI definition and other Health Affairs analysis include tidbits worth paying attention to.

HHI is based on "the market share of each firm competing in the market," emphasis added to highlight healthcare's worst-kept secret: payers and providers are competitors. The prize? The healthcare dollar. Employers compete too, making the impact of market concentration on price and the use of cost transparency data even more vital.

As the Health Affairs study noted, the data "revealed considerable variability in procedure pricing across the country…Large employers have been aware of this for a while as they see the differences in employee health costs across the country."

Health Affairs Forefront has noted that "well-functioning markets should not have the amount of price variation observed within and between commercial markets in the US.

As employers search for new tools, the question looms: where exactly are these well-functioning markets in the U.S. economy, past or present? Banks continue to fail due to oversight errors, just as failed IPOs spring from valuation errors.

"Employers do not purchase health care services in an efficient market," says Azar. Another reason why new pricing transparency data will help them parry-and-thrust with their other "healthcare competitors."

The passing of the healthcare buck

If all of this sounds like a game of hot potato, it is: when the healthcare buck gets passed, who pays the bill and how much?

Some interesting moves by employers include the fees they charge the general public to help pay for their employees' healthcare (e.g., restaurants that add an extra charge to your avocado toast bill). Some interesting moves upon employers include directing insurance members to their Employee Assistance Programs before their paid benefits to direct resource use.

There are just a few additions to the already complex chain of supply and demand.

Returning to the Health Affairs study, Azar notes: "Employers have long desired an ability to impact the supply-side of health care services.

In addition to tacked-on fees and data-powered negotiations with payers, employers can also use the new transparency data to negotiate prices directly and at the point of care.

Darrell Moon, a Forbes Business Councils Member, suggests that employers pay providers upfront to get the cash-discount for their employees' procedures .

All of that is visible is the new data, says Moon. He downloaded the gross and negotiated prices for a procedure at one of his large local hospitals and reported the following: "If I'm admitted to that hospital for that procedure and present my employer-provided insurance card, the average price is discounted by 30%. On the other hand, if my employer pays up front through a cash pay strategy, the discount is 75%. By studying the hospital's chargemaster across all procedures, I found this same level of discount applied to almost all procedures."

Moon adds: "The point is, we live in a new world thanks to new regulations. Employers can now hold the healthcare system accountable and, even more importantly, be better stewards of their employees' money."

Expect them to.