Does anyone “shop” for health care? Do patients compare prices for procedures or read quality reports about services from doctors or hospitals? Do health care consumers even know what questions to ask? Probably not – the task is daunting.
Eric Bricker, M.D., describes health care today as going into a grocery store where there are no prices on anything and at check out customers are told they’ll be sent a bill in a month. Bricker is Chief Medical Officer of Compass Professional Health Services and he started Compass to help employees know and understand the price and quality of what they are buying from their doctors and hospitals. Compass is a concierge service – a personal assistant for employees – paid for by employers to navigate the complex health care system.
Bricker sees the Affordable Care Act (ACA) as the game changer in health care for employers, hospitals and doctors with the changes coming from the confluence of three key elements: the Cadillac Tax, Medicare reimbursement for doctors and hospitals, and the rise of consumerism.
Connecting the Dots on the Cadillac Tax, Medicare Reimbursement & Consumerism
The Cadillac Tax is part of the ACA – it’s a new employer tax (starting in 2018) to be paid when employee benefit costs exceed $10,200 per individual or $27,500 per family. According to June 2014, statistics from the U.S. Bureau of Labor Statistics, the average health benefit amount averages $4,888, or $2.35 per employee hour. That number varies widely based on whether it’s the public or private sector, union or non-union employees, management or non-management staff. Union employees, for example, average $11,523 or $5.54 per hour.
The tax will be a 40 percent excise tax including the cost of premiums, plus employee reimbursements. Reimbursements include those from health savings accounts, or HSAs; health reimbursement arrangements, HRAs; and flexible spending accounts, FSAs. HRAs are funded by employers only, and HSAs and FSAs can be funded by either the employer or employee.
The Cadillac Tax will apply to both self-funded and fully insured plans and is expected to apply to 60 percent of employers, according to a Towers Watson study. While increases in the cost of health care have averaged 5.4 percent over the last 60 years, in 2013 costs rose at a lower than average two percent and the forecast for 2014 is in the 2-2.5 percent inflation range. Still, for the remaining 40 percent of companies, getting to $10,200 in individual benefits costs by 2018 is possible.
“Those firms who offer rich benefits, like municipalities and organizations with unions, are looking at how those plans are structured and it’s changing the guidelines for employers,” said Bricker.
The second big thing Bricker sees is the financial reimbursement reform for doctors and hospitals. Quality-based reimbursement is determined by patient outcomes – not just a fee for a service – and it’s a big change. “Fee-for-service is exactly what you think it is – you get paid for the service provided, which means you don’t necessarily get better outcomes,” stated Bricker. “You get a service for the fee you paid.”
Instead of providers being paid by the number of visits and tests they order (fee-for-service), their payments are now based on the value of care they deliver (value-based care) with the quality of patient care part of the equation for reimbursement. Hospitals are facing the challenge of transitioning from one to the other and it’s proving to be a financial challenge.
Hospitals bring in anywhere from 25-35 percent of their overall revenue from Medicare patient reimbursement, primarily for patients 65 and over – a big chunk of revenue. Yet, hospitals often lose money on their Medicare patients (in 2011, the average loss was five percent per patient) because the reimbursement they receive is below their costs. The fact that revenue is no longer going to be fee-for-service, but rather tied to quality or a bundled payment, puts the hospital’s profitability at risk.
Some of the metrics for determining the quality of care include: health outcomes, clinical processes, patient safety, efficient use of health care resources, care coordination, patient engagements, population/public health and adherence to clinical guidelines. Beneath each of these broad sectors are detailed specifics based on the type of procedure performed. Determining quality becomes complicated because each insurance payer has their own sets of measurements required before the provider is reimbursed. If a hospital or doctor works with eight different payers (UnitedHealth, BCBS, Medicare, Medicaid, etc.) the data has to be extracted, measured and reported eight different ways.
How, then, do hospitals make money if they lose money on their Medicare patients? Hospitals cross-subsidize their privately insured patients to pay for their Medicare patients. In other words, for those who have employer-based insurance, the hospitals use that higher reimbursement from United Healthcare or Blue Cross Blue Shield to pay for those who are over age 65 and on Medicare. “If hospitals are already losing money on Medicare patients, they will lose even more when the reimbursement goes down,” said Bricker.
All of this is causing massive horizontal and vertical consolidation. Vertical consolidation has hospitals buying physician practices so the hospitals can keep their volume of patients high. “This is happening not only all over Texas, but also nationwide,” said Bricker. “Medical practices are very valuable to hospitals because hospitals live off of patient volume.” Hospitals have very high fixed costs in equipment and personnel and need a constant flow of patients coming through – and not Medicare patients. Bricker said doctors are scared of the paperwork demands and hospitals are offering a back-office solution.
In Texas, horizontal integration looks like the 2013 merger between Baylor Health Care, based in Dallas, and Scott & White Health, based in Temple, creating the new consolidated Baylor Scott & White. The combined resources include 43 hospitals, more than 500 clinics, 6,000 affiliated physicians and 34,000 employees with annual revenues of $8.3 billion.
The third trend Bricker identified is the rise of consumer directed health plans. “Employers are seeing their health care costs likely rising – and rising substantially – because with more provider consolidation, providers will have more bargaining power with the insurance networks,” observed Bricker, “and they will use that power to increase rates to employers.” Texas is at the national forefront of consumer directed health plans. Bricker noted there are more employers and employees in Texas who have consumer-directed plans than any other place in the country.
What Is a Consumer-Directed Health Plan?
Consumer-directed health plans (CDHPs) place greater responsibility for health care decision-making in the hands of consumers. CDHPs are intended to reduce health care spending by exposing consumers to the financial implications of their treatment decisions.
According to the Robert Wood Johnson Foundation, CDHPs have grown in popularity since their inception, and now enroll about 17 percent of people with employer-sponsored insurance. CDHPs tend to attract higher income, more educated enrollees. CDHPs have higher deductibles – $1,000 – $2,000 for an individual. As a counter-balance to the higher deductible, employers put money on an HRA, HSA or FSAs debit card for employees to spend on services.
With a CDHP, the cost reduction for benefits can be significant. “If you’re spending $1 million a year, you can knock $250,000 out of your costs. Instead of costs increasing every year by eight percent or more, it goes up between two to four percent, instead,” explained Bricker, and costs become more stable as employees adapt to the new plans.
A RAND Health study, done in conjunction with the Robert Wood Johnson Foundation, which advocate for consumer-directed health plans, contends that consumers will have a greater incentive to make prudent, cost-conscious decisions about using health care, which in turn should drive down overall health care costs. Critics have concerns that consumers lack the information necessary to reduce spending without also reducing the quality of care.
In the most comprehensive study on this topic done in late 2013, researchers reviewed claims and enrollment data for more than 800,000 households insured through 59 large U.S. employers in a study funded by the California HealthCare Foundation and the Robert Wood Johnson Foundation. The analysis shows clear cost reductions, but with potential areas of concern for the long-term health of enrollees.
If CDHPs are bringing down health care costs for employers, and critics say consumers lack the information to make smart decisions about choosing doctors and hospitals, what are the employer and employee to do to navigate the health care system to make smart choices? To cover that gap in knowledge, Compass was launched.
The Informed Health Care Consumer
Dr. Bricker took an unusual path to becoming a physician – his undergraduate degree is in economics and before he made the final decision to go to medical school, he volunteered as an ER orderly one summer. Every doctor Bricker spoke with during his internship discouraged him from going into medicine because of the paperwork, billing procedures, lack of independence and lack of time spent with patients.
Instead of backing away, Bricker decided to go into medicine with his eyes wide open and before entering medical school, he went to work for a hospital finance consulting group that worked with clients on billing and coding for medical procedures for reimbursement from insurance companies and Medicare.
After getting his medical degree and doing his residency at Johns Hopkins, Bricker began formulating an idea to start a business to help patients get through the challenges of the medical system. One of his first attempts focused on working with individual patients to help them collect their medical records – his first client was a woman who had been seen by 32 doctors. “As we were helping out this lady, we discovered health care is primarily from employers and we should be talking with employers to help with their employees,” Bricker said.
Bricker launched Compass in 2007, just as consumer directed health plans started to take off. “Especially in Texas, we’ve found that employers who moved employees from a $500 deductible to a $2,000 deductible needed to give employees something back,” stated Bricker, and that “something” was the services of Compass.
The first Compass customer was a woman who went in for a routine mammogram screening and her tests showed something abnormal. Her next step in treatment was a diagnostic mammogram and a breast ultrasound. “She didn’t know what it would cost and would have to find someone to handle the additional tests,” Bricker said. Compass helped her find the place to get the procedures, sharing both cost and quality information with her in advance, while making sure her results got to the right physician, then Compass helped coordinate her subsequent care. To date, Compass has had over 500,000 instances, supporting 480,000 employee lives and works with companies with thousands of employees to those with as few as three.
The majority of employers Compass works with have a two-pronged strategy when it comes to keeping down health care costs: improve employee health, and use the health care system more effectively and efficiently with better outcomes at lower costs. Bricker sees consumerism and consumer-driven health plans, in conjunction with a concierge service like Compass, making health care navigable for employees.
“We’ve found that having a conversation is a great opportunity to identify members who have not necessarily met their screening requirements, or they have basic health care needs,” said Bricker. What does that mean? It means employees get gentle reminders for preventive care like mammograms, colonoscopies and screenings for high blood pressure and high cholesterol.
“My advice to employers is to continue on with your wellness strategies, but you have to have a strategy for your employees to be better stewards of both their own resources and your resources,” noted Bricker. “That’s where a service like Compass fits into that employer strategy.”
Employers hire Compass, which charges $5 per employee per month and that fee includes support for the entire household for medical, dental and vision benefits. Insurance brokers who want to help clients control costs often make referrals to Compass, as part of benefit plan design.
Getting employees the price of a service before going to the doctor or hospital is part of the Compass concierge service and it is part of the larger movement in health care – price transparency.
Research shows price transparency can drive down costs. In a post on the Modern Health Care website, business school researchers at the University of Chicago last year found government regulations forcing providers to reveal their prices resulted in an overall seven percent reduction in the cost of common elective procedures.
“The reason transparency is important is because the price of a health care service within a local area is dramatically different,” said Bricker. The New York Times has done several articles about price comparisons in services with examples ranging from knee replacements done at one facility costing $15,000, while across the street the cost is $75,000. Or, there’s the MRI where the cost is $250 at Facility A and $2,500 at Facility B.
Prices, however, aren’t the only type of information needed to make smart choices under consumer-directed care. Data on individual providers’ performance on quality of care measures also are essential because evidence shows more expensive providers may not be better quality-wise than less-costly providers.
When it comes to determining quality, Bricker says there’s a lot of public information available through the federal government, state agencies, lawsuits, independent board certification groups, and through providers themselves. Compass has taken the public quality information and consolidated it with the pricing information and all of it is shared with their members before a procedure.
Bricker and his partners, COO Cliff Sentell and CEO Scott Schoenvogel, have seen the number of RFPs they’ve gotten go up seven-fold in the last year as companies recognize their employees need help from a concierge service. Bricker’s view? “We’re just getting started.”