New report: Patients and insurance companies in the United States pay higher prices for almost everything healthcare-related

• The latest guide on the international cost for common medical services by the International Federation of Health Plans shows patients and insurance companies in the U.S. pay higher prices for medications, imaging tests, basic health visits and common operations, according to an article in The New York Times.
• The Times article uses the example of a typical angioplasty, where the average U.S. price is $32,200 compared with $6,400 in the Netherlands.
• HFMA’s Chad Mulvany says to expect more research reports calling into question hospital pricing (both within and across geographies and comparing HOPD pricing for the same services provided in the freestanding setting) in 2020.
• More purchasers are expected to pursue aggressive strategies to steer their members to the lowest-cost site of service, forcing hospitals to match freestanding prices to remain competitive.

The New York Times is reporting that, “the International Federation of Health Plans, a group representing the CEOs of health insurers worldwide, publishes a guide every few years on the international cost for common medical services. Its newest report, on 2017 prices, came out [in December]. Every time, the upshot is vivid and similar: For almost everything on the list, there is a large divergence between the United States and everyone else. Patients and insurance companies in the United States pay higher prices for medications, imaging tests, basic health visits and common operations. Those high prices make health care in the U.S. extremely expensive, and they also finance a robust and politically powerful health care industry, which means lowering prices will always be hard. For a typical angioplasty, a procedure that opens a blocked blood vessel to the heart, the average U.S. price is $32,200, compared with $6,400 in the Netherlands, or $7,400 in Switzerland, the survey finds. A typical MRI scan costs $1,420 in the United States, but around $450 in Britain. An injection of Herceptin, an important breast cancer treatment, costs $211 in the United States, compared with $44 in South Africa. These examples aren’t outliers.”

“The international survey focuses on prices paid by private insurance companies; in many countries, public health programs pay less, meaning the gap in prices for many countries may be even larger if it took account of every patient,” The New York Times article continued. “The survey doesn’t have information from every country, nor detailed prices for every medical procedure. Drug prices do not include rebates. But the report’s overall message is clear. Prices in the United States are higher for nearly everything — by a lot. Researchers at Harvard conducted an exhaustive study last year of things that make health systems in developed countries different from one another. They determined that the United States is distinct in a few ways. But the clear finding of those researchers was that it’s this huge gap in prices, more than any other single factor — not the number of doctors’ visits or hospitalizations, not the quality of medical services, not differences in social service spending — that helps explain why the United States is such an expensive place to be sick.”

Takeaway:

• The scrutiny and pressure are just starting: This isn’t a particularly hot take, but we’ll see more research/reports calling into question hospital pricing (both within and across geographies and comparing HOPD pricing for the same services provided in the freestanding setting) in 2020. I also think 2020 is the year we see acceleration in purchasers efforts to do something about this price variation. With the aborted attempt in North Carolina, Medicare reference pricing hasn’t moved beyond Montana for the moment. However, I would except to see larger employers in some markets attempt to use it in conjunction with narrowed networks (or in the case of state employees coupled with a quid pro quo on some other payment policy issue – e.g. Medicaid expansion) to reduce their spending. 

We’re also going to see plans further their efforts along two dimensions. First, they will engage their employed and aligned physicians with data and provide economic incentives to refer patients to the most clinically appropriate lowest-cost site of service. And, for good measure, they’ll continue to expand prior authorization requirements to cover more services that can be safely provided in a freestanding setting.

Finally, regardless of who wins the White House, we’ll continue to see an emphasis on price transparency. As evidence of this, New York Governor Andrew Cuomo announced the launch of a transparency tool for hospitals as part of his proposed 2020 agenda. According to Cuomo’s  State of the State report,  the tool will also “provide consumers with educational resources designed to help consumers know their rights including financial assistance options, what to do about a surprise bill and more.”

It’s reported the planned New York State tool will be based on charges, which will greatly reduce its value to consumers. However, CMS efforts are focused on prices and require plans to provide out-of-pocket estimates and for providers to make the plan-specific prices of common shoppable services publicly available.

While there are potential legal issues with CMS’ approach, the concerns specific to out-of- pocket estimates may be overcome by pending legislation. Language (section 209) in one of the latest iterations of surprise bill legislation (agreed upon by four of the House and Senate Committees of jurisdiction) would require providers and health plans to provide their members with out-of-pocket estimates in advance of service. The bill could be voted on as early as January or February, but any action will probably be delayed until May, where the surprise bill language will be packaged with other healthcare focused legislation that is timeline sensitive.

• The cost to deliver care has to decrease: With hospital operating margins in the low single digits,  it’s not like these higher prices are falling straight to the bottom line. For hospitals, those prices reflect both the underlying utilization and per unit cost of key inputs like labor, drugs, supplies. And as more purchasers pursue aggressive strategies to steer their members to the lowest-cost site of service, hospitals will need to match freestanding prices to remain competitive.

Beyond addressing the cost of inputs like labor, supplies and drugs, there is also a significant opportunity in administrative costs, which is estimated to be the largest component of “waste” in the healthcare spending. Plans and providers should be able to come together to address a range of administratively costly (but low-value items) like duplicative credentialing and prior authorization requirements to reduce the overall cost of healthcare. And given that reducing cost by eliminating unnecessary administrative expenditures is one of the most-commonly cited arguments by proponents of single payer, it would behoove plans and providers to make this a priority.