Health Care Proxy Shoppers

Over the weekend, I was listening to some health policy podcasts while gardening, as one does, and the surgeon and medical waste researcher Dr. Marty Makary was interviewed on Freakonomics. He mostly didn’t talk about surgical techniques or hardcore quantitative measures of wasted health care dollars, though. Instead, he outlined his mother’s strategy in grocery shopping. Mrs. Makary is a bargain shopper. While I might just grab a couple of lemons from whichever store I’m in when I think of it, she carefully compares prices between stores and buys the cheapest option. People like Dr. Makary’s mom make up only 10-20% of all shoppers, he said, but they hold down the price of lemons for the rest of us. Economists call them “proxy shoppers.” Just like proxy voters, they make decisions about the cost of lemons for all of us.

Dr. Makary shared this vignette to illustrate how price transparency may help contain costs in medicine. It got me thinking: Who are the proxy shoppers in medicine? Price transparency is increasing, after all, but patients still don’t use it as much as one might expect. And while there are ways to encourage patients to use price transparency, especially as it relates to their out-of-pocket expenses and deductibles, ultimately, the contract they’re working with barely involves them. As Larry Van Horn says in the Freakonomics episode, business-to-business contracts in medicine between a payer and a health system include a third party (the patient) who has no say in the contract at all.

So the proxy shoppers in medicine mostly are not patients. The actual proxy shoppers are the people most likely to be reading this blog post, like the HR professionals and benefits specialists who plan, coordinate, and pay for their employees’ health care. And we should use our power as proxy shoppers carefully.

That’s it. That’s my post. I don’t mean to be a downer. I know you have a lot on your plate already, trying to manage the benefits of dozens or hundreds or even thousands of employees’ benefits. But the next time you sit down to negotiate a contract, I hope this is in the back of your mind: You have a power like almost no one else’s to hold down the cost of medical care in a country where it’s genuinely out of control. You can pick up the lemon that’s closest to you and pay whatever it costs, or you can check the price of that lemon in the grocery store down the street.

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.

Drug prices are getting more transparent, too

We’ve covered the waves of price transparency that are washing over health care the past few weeks in the KBGH Book Club and here in the blog: no more surprise medical bills, new public tools for comparing procedure prices, no more gag clauses on cost or quality, and others. But we haven’t talked about what’s coming in drug pricing transparency. Americans pay far, far more than peer countries for prescription drugs. Drug prices account for almost a fifth of our excess health spending, even more than administrative overhead and salaries. How bad is the problem? Americans make up less than five percent of the world’s population, but we account for 80% of pharmaceutical revenues.

It is easy to cast the pharmaceutical manufacturers alone as the bad guys here; they spend far more on advertising than on research and development, they are far more profitable than any other sector in the economy, they cannibalize profits to gift to shareholders, and they lobby Congress far harder than any other industry. But manufacturers are not the only players. The manufacturers only set list prices, which are publicly disclosed. Manufacturers negotiate rebates with insurers and pharmacy benefit managers (PBMs) in order to move their drugs up the list on the insurers’ and PBMs’ formularies. Rebates and discounts like this have grown to an astonishing extent over the past few years, leading to “net” prices for many brand-name drugs that are lower than list prices. As we’ve pointed out before, insulin has a typical rebate of 66%. Because the process is so opaque, consumers have no way of knowing the actual price paid for the drugs. Payers argue that this “confidentiality” (if you’re charitable; “secrecy” if you’re cynical like me) allows them to more effectively negotiate because transparency would only allow drug manufacturers to get net prices closer to their very high list prices. This is transparently false. If secrecy were such a tool for keeping costs down, the industry would not be fighting transparency rules. Instead, the manufacturers would be demanding more transparency to allow prices for their products to rise naturally. 

Manufacturers and PBMs have reason to be concerned because of the “Transparency in Coverage” final rule that was issued in 2019 as part of the usual flurry of executive orders that precede and accompany any presidential transition. The rule, which takes effect for plan years beginning January 1, 2023, requires that:

1.     insurers disclose the 1) current list price and 2) historical net price for prescription drugs,  

2.     the data be available in “machine-readable” files (that is, not blurry .pdf scans) online to allow for comparisons, and

3.     insurers provide real-time personalized estimates of cost-sharing. 

 Legal challenges may slightly change the final product prior to 2023. But the rule has unusually solid bipartisan support: both Presidents Trump and Biden support it, along with a clear majority of congressional Republicans and Democrats. So it will be difficult to overturn completely. This is all the more reason to make sure our employees are educated shoppers for health services moving forward.

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.

How to Get Your Employees to Take Advantage of Price Transparency

In the KBGH Book Club we’ve gone through the “What’s wrong with this situation?” phase, and we’re just entering the “What can we do about this?” phase. A solution that is proposed again and again in this book and in the benefits world in general for controlling costs in medical care is price transparency.

In theory price transparency works like this: since most of the medical care that we receive is non-urgent, we should have time to compare prices. So if only the price of, say, an elective knee MRI at several locations was published on a website, we could simply compare the different radiology practices, choose the lowest price, and go to that practice for our MRI. There is some evidence to support that this works. My favorite study, which I wrote about in a previous blog post, showed that parents choosing a treatment for their child’s appendicitis still mostly chose the cheaper option when they were given cost information, even though it affected their insurance payment more than their out of pocket cost.

Because of this, and because of an Executive Order President Trump signed on October 29, 2020, CMS and the Departments of Labor and Treasury have issued a final rule that will, for the first time, require most private health insurance plans to do two things:

1. They will have to provide personalized cost-sharing information to patients.

2. They will have to publicly report negotiated prices for specific health care services through an online tool. The tool initially will be required to have the ability to compare rates and out-of-pocket expenses for 500 of the most common labs, visit codes, and procedures (deadline January 1, 2023). Starting January 1, 2024, these tools must report this cost information for all health care services. Legal challenges to these rules will undoubtedly continue (not everyone believes, as we do at KBGH, that transparency = trust). But barring a truly explosive set of judicial rulings, we can expect a great deal more price transparency moving forward than what we have now.

Unfortunately, as Jeffrey Kullgren and Mark Fendrick note in a recent editorial (paywall), transparency tools have not yet been shown to reduce overall spending, even when patients are paying pre-deductible prices, when they should be most sensitive to prices. Multiple phenomena may account for this. Patients may simply have too many choices (the old “too much jam” phenomenon). Some patients may assume that less expensive options are of lower quality. Patients may simply not know when more than one option is available. Kullgren and Fendrick make several suggestions on how to make the new price transparency rule work:

1. Make sure employees know that health care services are “shoppable.” We’ll all have to sell patients on the idea that the information is “trustworthy, reliable, and worth using,” as the authors say. This will mean working with our insurance partners to make sure those things are true. Relying simply on the fantasyland “chargemaster” prices for hospital services, for example, will undoubtedly make employees skeptical or cynical about the process.

2. Many employees will need guidance on how to best use the transparency information. A specific example given by Kullgren and Fendrick is direction on when prices could be most helpful. Planning a knee replacement in a few weeks or months, for example, is a good use of pricing information. Trying to price shop after a diagnosis of a potentially life-threatening cancer requiring urgent treatment, though, is clearly not a good practice, in spite of what my favorite parents-cheaping-out-on-their-sick-kids study above may say.

3. On the provider side, we need to continue moving away from fee-for-service reimbursement models and toward quality-driven, alternative payment models. Much of this movement is happening on the public side in Medicare and Medicaid. On the employer side, a move toward more direct contracting with providers could be a good way to accomplish this.

4. Employers need to work with professional societies (like the Medical Society of Sedgwick County, with whom KBGH is allied) to continue to advocate that cost containment is a core professional responsibility of modern medical providers. Integrating cost information into the medical record like the Veteran’s Administration does for drug pricing may be a good practice.

5. We need to pressure different health systems to adopt electronic health record interoperability standards so that, when patients use price information to seek services at alternate facilities, their care won’t be fragmented between doctors that can’t access the same information.

How do you propose we nudge our employees toward taking advantage of price transparency moving forward? We’d love to hear your ideas!

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH.