How employers can get higher value healthcare

The adage “you get what you pay for” rings true for items such as cars, clothing and homes — often with a direct correlation between higher cost and higher quality. This is not the case for healthcare where bigger prices don’t often translate to better quality.

Just as one would expect to have data available before purchasing a car, the same insight into quality and cost should be readily accessible for both employers and consumers to make good healthcare decisions. While progress in public reporting on the quality of care has been ongoing for a decade and a half, it’s only more recently that efforts to make prices transparent have begun to take hold. Recent research from the Healthcare Cost Institute underscores how important this transparency is given the dramatic variation in prices for medical services both within and across communities throughout the country.

For example, in Minnesota there is a wide range in prices for orthopedic and obstetric care in hospitals, according to a new report from the Minnesota Department of Health. The study looked at the variation in facility costs for total knee and hip replacements and vaginal and Caesarean deliveries. For knee surgeries, the lowest average price statewide was about $6,200 at one Minnesota hospital and more than eight times greater at another hospital — an average of almost $47,000. This wide discrepancy is often due to variation in market power across healthcare providers — the more market power they have due to size or reputation, the more they can charge. And sadly, the range of prices has no correlation to the quality of care.

So, what’s an employer to do?

Increasing access to information on provider cost and quality is a big first step and recent progress in this area is due in large part to the demand for it from employers and other healthcare purchasers. And while this traction is encouraging, it’s more important than ever to step up efforts to expose the variation in price and quality as it is likely to grow. So, here are some strategies and resources employers can use in the quest for buying higher-value healthcare:

Arm yourself with data so that you have actual pricing information for more focused and informed conversations with your brokers and health plans. Take advantage of existing price and quality transparency tools such as HCCI’s Healthy Marketplace Index which enables communities to compare healthcare prices for inpatient, outpatient and physician services, relative to a national average, within their local market.

Educate and engage employees and offer consumer-oriented tools. As they take on more financial responsibility through high-deductible health plans and other health insurance products, consumers need to understand value (price and quality) when making healthcare decisions and that higher cost doesn’t translate to higher quality.

Consumer transparency tools — websites with price and quality information about different healthcare providers — have become readily available from most major health plans and independent third-party vendors, but each one takes a different approach to conveying information to consumers. Purchasers need to think carefully about which design will best meet the needs of their population.

Adapt benefit designs and provider network designs to encourage consumers to seek care from higher value providers. This includes offering narrow or tiered networks at open enrollment, giving consumers the tradeoff between choice of healthcare providers and more affordable premiums and cost sharing. Additionally, reference pricing can encourage consumers to shop around for a lower priced provider of a specific service. Reference pricing establishes a standard price for a drug, service, or bundle of services and require plan members to pay any allowable charges above this price. This strategy, especially when paired with transparency around healthcare prices and quality, can help consumers make higher-value healthcare decisions and put high-priced providers on notice that they stand to lose patient volume.

Leverage a shared agenda with other purchasers by asking health plans you might contract with to answer a standard set of questions and to agree to common contract language outlining your expectations for their support of your transparency agenda. The more purchasers who ask these questions and demand the same kinds of support, the more responsive the health plans will be.

It’s critical that we continue to make progress to ensure patients get the best value for their healthcare spending and for providers increasingly to feel the pressure to demonstrate that their care is worth the price. By educating consumers about the variation in cost and quality, and integrating price and quality into benefit and network design, purchasers can push for a healthcare market place where consumers have a fighting chance.