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No Going Back to the $20 Office Visit

By Michael L. Taylor/Thursday, January 2, 2014

Mike Taylor imageWhen I started my private medical practice, I priced an office visit at $20, because that was the prevailing rate in my town. I really had no idea of my cost structure, patient volume, or even practice viability. As we grew to a five physician practice, we updated our charges annually without any projections of the effect of the price increase. My patients had no interest in the cost of healthcare, and often requested unnecessary tests, knowing insurance would cover the cost. The hospital where I admitted patients had a sign in the emergency department listing the prices of various tests. That was price transparency in the early 1980s – very little transparency, very little understanding, and even less interest.

Fast forward to 2014 – the cost of healthcare is approaching 19% of GDP in the U.S., and we are all aware that per capita healthcare costs in the U.S. are more than twice the average of OECD countries. Payers have tried for years to control healthcare spending:

  • Employers started by including deductibles and co-pays in benefit plans. They tried HMOs, utilization review to limit services, disease and case management to control high-cost claimants, and wellness programs to decrease the need for services.
  • High-deductible health plans started several years ago, shifting more of the cost to consumers, and now payers are looking to exchanges to cap their portion of the healthcare spend.
  • Efforts by the Centers for Medicare & Medicaid Services (CMS) to control costs led to the sustainable growth rate (SGR) concept and to DRG-based payment in the inpatient environment. Now CMS is looking at bundled payments in both inpatient and outpatient settings.
  • Medicaid managed care plans are growing, and evidence suggests they may be cost effective for the Medicaid population.

Today, many plans require consumers to pay 25-30% of the cost so it’s not surprising that they are becoming very interested in healthcare costs. Consumers want to know the cost of suggested tests and treatments, and are starting to ask questions about the need for services.

Uwe Reinhardt, a well known and respected health economist, has noted the need for price transparency, and I would point out that transparency is becoming important not just for consumers, but also for hospitals and payers. Employers are not willing to continue writing “blank checks” without knowing what they are getting for the money. They view health benefits as an investment in workers, and want information about the price, but more importantly, about the value of their investment. Some employers are studying the idea of narrow networks to improve value, and hospitals are watching this move carefully as they begin to compete on value. The changes brought by the Affordable Care Act are accelerating the trend toward value.

At Truven Health, we have long recognized the need for, and support the notion of, price transparency. To serve this need, we have developed tools to help consumers. Our Informed Enrollment tool gathers a patient’s most recent year’s actual claims, inputs the elements of available benefit plans, and helps estimate the patient cost of each plan. The Truven Health Treatment Cost Calculator loads actual price data from the Truven Health MarketScan® database, and allows the user to compare prices based on actual data, not estimates. As an example, if I wanted to see the price of an MRI in my city, I could go to the Treatment Cost Calculator to learn the cost, location, and, when available, the relative quality of each option. I can even get directions. Both these tools use the patient’s real data, not estimates or models.

As the U.S. migrates from a fee-for-service environment to a value-based approach, health system and hospital costs and quality are being publicly measured and compared. As patients, we should be able to see the prices. As employers, we need to understand the cost. Price transparency is here to stay, and this is driving change for doctors, hospitals, the government, and all of us. There is no going back to the $20 office visit.

Michael L. Taylor, MD, FACP
Chief Medical Officer
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