The Truven Health Blog

The latest healthcare topics from a trusted, proven, and unbiased source.


Although Not Typical, Walmart’s Employee Benefit Costs Worth Noting

By Truven Staff
Anita Nair-Hartman imageA recent CNBC article discussed Walmart’s announcement that it will spend far more than anticipated on employee health coverage and have to trim its earnings forecast for the year. The retailer expected more workers to seek coverage under the Affordable Care Act’s (ACA) mandated coverage requirement, but the actual number topped their projections. Although this news has gotten a lot of attention, National Business Group on Health research indicates that most employers aren’t expecting as large of a jump in healthcare costs as Walmart, and Truven Health research supports this. As the CNBC article points out, Walmart’s employee base has some unique characteristics -- including low-wage workers in states where Medicaid expansion didn’t occur, forcing them to chose Walmart (rather than Medicaid) coverage. These aren’t typical employer circumstances.

Nonetheless, after years of low healthcare inflation, employee benefit costs have grown this year, and Wall Street is going to be keeping an eye on the impact to every company’s bottom line. For employers, monitoring benefits spend and strategy is more critical than ever. Equally important will be engaging employees in healthcare decision making, improving health and productivity through wellness programs, and remaining vigilant on fraud and waste.

Anita Nair-Hartman
Vice President Market Planning and Strategy

The Effect of the Charge Master on Price Transparency

By Truven Staff
According to a recent article in The Hill, as part of a new rule proposed by the Centers for Medicare and Medicaid Services (CMS), hospitals will be required to release a standard list of prices for their medical services. This rule is part of the Affordable Care Act, and can also be fulfilled if hospitals allow the public access to the data after an inquiry. As consumers and other entities who play a part in the delivery and payment of healthcare services try to better understand how much healthcare costs, price transparency is increasingly important.

To an extent, hospital prices are arbitrary because they don’t expect to be paid what they charge. Each hospital has a separate payment rate from each payer which tends to be discounted to half or less than the charged amount, or more with government payers, where reimbursement is independent of charges. The hospital receives a legislated amount for a particular service regardless of charge. For each private or commercial insurer (including self-insured employers or their third-party administrator), hospitals must independently negotiate rates, which sometimes include fixed-case rates as with Medicare or Medicaid. At other times, hospitals negotiate a discounted fee for services (e.g. charges discounted 50%), usually with differing discounts for broad types of care (e.g. inpatient, outpatient, emergency and sometimes separate rates for routine care and ancillary services).  However, hospitals with high charges relative to costs or to charges of other hospitals must often agree to a larger discount. So the range of actual payments for services and supplies tends to be much smaller than the charged amounts.

Price Transparency changes graph image

Source: Truven Health ActionOI®

Hospitals often have the leverage in these negotiations. Some hospitals have a unique position in a market, so the insurer has little choice but to include them in its network. On the other hand, most insurers only account for a small portion of a hospital’s revenues, even when the insurer has a large share of the private coverage. So a hospital can benefit from having relatively high charges when insurers with fewer covered lives cannot force them to accept a large discount rate. Thus the smaller insurers must often be price takers. This is an area in which greater transparency could reduce the variability of charges and payments.

The way hospitals set charges differs from hospital to hospital. Each hospital maintains a charge master, a list of nominal prices for services and supplies charged by each unit. Charge master files are difficult to compare across hospitals. The charge master is usually maintained by a committee which assigns charges for new items and periodically reviews charges for existing items. Usually the committee is supported by groups within each major patient care department in the organization that recommend charges. Often charges are set by attempting to mark up estimated costs by a particular factor (1.5x, 2x, etc.). The markup usually differs across hospital service lines, such that services like diagnostics (e.g. imaging, EKG, EEG) and routine supplies tend to have higher markups than routine patient care and clinic visits. Hospitals often have minimum charges (e.g. the legendary $5 aspirin), but also tend to mark up high-price items, such as implantable devices and certain drugs,  by less than lower cost items (e.g. a 50% markup on implantable devices vs. a 250% markup on routine supplies). Since discount rates have been increasing, hospitals have incentive to proactively raise their mark-up factor (“front-run the deductions”). Instead of marking up from costs, some hospitals attempt mark up from expected payments, since they know what proportion will be deducted.

It doesn’t have to be this way. In Maryland, the all-payer hospital payment system establishes, through negotiation, a fixed schedule of payments to all hospitals by all payers. Since each hospital will be paid the same amount for the same services and supplies, regardless of nominal charge, there is no incentive for hospitals to charge an amount appreciably different from what it expects to be paid. By applying these same transparency principles nationwide via the Affordable Care Act, the culture of undisclosed costs and mark ups could be a thing of the past.

David Koepke
Lead Scientist, Center for Healthcare Analytics

Optimism about the Impact of Healthcare Reform

By Truven Staff
Linda MacCracken imageA recent survey of 74 C-suite executives, conducted by Health Affairs, revealed that 93% of hospital executives think that health reform will improve healthcare, and that is a testament to integrated hospital innovation that is already underway. These leaders, whose organizations on average, employed 8,520 workers and saw annual revenues of $1.5 billion, have an optimistic view and this is indicative of the continuing work undertaken by providers to make healthcare more accessible, cost efficient, and quality focused. 

The executives in this study cited three strategies as critically important to address in order to reduce costs:
  1. Reduce the number of hospitalizations
  2. Reduce the number of readmissions
  3. Reduce the number of emergency room visits
By demonstrating better cost controls and adaptations, our hospital clients have seen margin improvement from 3.5% to 5%.

For every Emergency Department (ED) visit that is seen in a physician office, there would be a cost savings of $1171 per visit. 62% of the ED visits are URGENT, and not EMERGENT. This number has decreased annually over the last five years, but room still exists to cut costs further.  By redirecting even 20% of the ED visits nationally, we could save $4.4B; a step forward that has many hospitals very engaged. Use of the ED for urgent care varies – with a range of 42% to 92% by market.  An expanded primary care network, more accessible urgent care and one-on-one patient or prospect engagement are keys to shifting the use of the most expensive outpatient program, while making room for the true emergencies. This is a cost, quality, and access focal point for hospitals to continue their innovation, in addition to benchmarked cost effectiveness and care delivery quality excellence.

Linda MacCracken
VP, Advisory Services

What Do Hospitals Do When Medicare Cuts Hospital Prices?

By Truven Staff
Tracy Yee imageOne of the key provisions in the Affordable Care Act (ACA) permanently lowers the default rate of growth in Medicare prices for hospitals and most other providers by applying a downward adjustment each year equal to the growth in the economy. The Congressional Budget Office estimates that policy change will reduce Medicare expenditures by $379 million from 2012 through 2021. Researchers and policymakers have theorized that this approach may lead hospitals to try to recoup their anticipated losses in a number of ways—one of which would be increasing inpatient hospitalizations in an attempt to “make it up on volume.”

To test this theory, Chapin White, a senior researcher at the Center for Studying Health System Change, and I recently completed analyses to examine whether changes in Medicare prices were associated with changes in Medicare inpatient patient volume. We examined the relationship between market-level price trends and trends in the number of inpatient hospital discharges among the elderly (65+ years of age) across 10 states over a 15 year period (1995-2009).

Overall, we observed that by 2009, inpatient hospital stays were much shorter and patients received much more intensive treatment. Taking a closer look, we found that hospital markets with lower growth in Medicare prices had smaller increases in hospital utilization and greater decreases in length of stay compared to markets with higher growth in Medicare prices. These results suggest that Medicare price cuts lead hospitals to reduce capacity and provide fewer services to the elderly. When we simulated the effect of a 10 percent decrease in the Medicare price, we found that discharges of elderly patients decreased by 4.6 percent and the number of hospital staffed beds decreased by 6.3 percent.

Our findings run counter to the notion that hospitals will attempt to recoup losses from Medicare price cuts by increasing inpatient volume. Rather than leave beds empty, hospitals appear to constrain their scale of operations. In this way, hospitals appear to behave as profit-maximizing firms that increase output when they are paid higher prices and decrease output when the costs of production rise. Considered in the context of the ACA price cuts, findings suggest that Medicare savings may actually be larger than expected due to hospitals volume response. Conversely, if the Medicare provisions in the law were repealed, Medicare spending might increase by more than has been projected. Our findings also point to important questions for future research – in particular, examining the impact of Medicare price reductions on the quality of care beneficiaries receive, as well as their overall health outcomes.

Tracy Yee
Research Leader
Behavioral Health and Quality Research Division

Helping the Uninsured Navigate the Complexities of the Healthcare Marketplace

By Truven Staff
Matt Collins imageIn the article titled “Obama: Healthcare as easy as online shopping” from the Los Angeles Times, the idea of a experience is touted as the way that the new healthcare marketplace is going to work for the millions of Americans who will seek health insurance in the next several months. There is a key element of personalization missing from this concept of point, click, and shop experience that the White House is promising. They are stating that an uninsured person will now have the ability to compare plans and determine which plans will “work for your family.”  I believe only half of this to be true. The fact is that users of the marketplace will indeed be able to view premiums and plan designs of the available plans. However, will this really mean anything to a person that has possibly never had health insurance?

The key component that is missing is a personalized experience to help the user understand what his or her out-of-pocket expenses might be. Health insurers have been showing individual shoppers monthly premiums for comparison purposes for years, so, this is really nothing new. What would be new and progressive is if these sites also helped the user understand what the total, annual out-of-pocket expenses (in addition to the premium) could be. By answering a few simple questions about chronic conditions, planned procedures and overall planned healthcare use, a user could be given a rough estimate of total out-of-pocket expenses. This could show the differences between a traditional PPO plan and a high-deductible plan. Without this shopping experience, the vast majority of these healthcare neophytes will elect to choose the plan with the smallest premium. This could cause financial woes once the medical bills start arriving.

In addition to the missing element of personalization, the marketplace is having a tough time handling the volume. The government was expecting a trickle into the marketplaces during the six month enrollment period. After visiting the evening of October 1 and the morning of October 2, I was greeted with the following message:

“We have a lot of visitors on the site right now. Please stay on this page. We’re working to make this experience better, and we don’t want you to lose your place in line. We’ll send you to the login page as soon as we can. Thanks for your patience!”

Based on my experience it appears they weren’t ready for the volume they are receiving. It should be an interesting next six months to say the least…

Matt Collins
Director of Product Managemen