Inside Angle
From 3M Health Information Systems
Industry disruption may finally impact “It’s the pricing” conundrum
One of the most enlightening insights from a recent University of Washington research study is that pricing contributes to ever-escalating healthcare costs. Since 2003, the annual rate of growth of healthcare spending has averaged 4.5 percent, which is more than two and half times the average rate of inflation over that same period (1.9 percent).
The study, published in the Journal of the American Medical Association (JAMA), explores the role of pricing in relation to an aging baby-boomer population, overall population growth, as well as service utilization and disease prevalence. Researchers from the University of Washington’s Institute for Health Metrics and Evaluation seek to explain the $933 billion increase in healthcare spending from 1996 to 2013.
Interestingly, service utilization and disease prevalence together explain only two percent of the increase. Given that it has been a long journey to reduce inpatient utilization and address medical necessity on short length of stay discharges, this is a welcome finding.
Most compelling was the study’s analysis that pricing was responsible for 50 percent of the increase in costs. Specifically, diabetic patients were identified as the single largest cohort with pricing variation, primarily for pharmaceuticals. Separately and not surprisingly, an aging population was a strong influence on rising prices, along with an increase in the overall population.
So, if pricing is a major factor in rising healthcare costs… now what?
First, keep in mind this is not a new phenomenon. Many of us remember a widely publicized article “It’s the prices, stupid” from 2003. Much of economic theory says that healthcare pricing is influenced by true competition, minimum barriers to entry and accessibility. These factors, however, often don’t pertain to our local healthcare ecosystem.
…To understand the changing landscape of healthcare and where we might find opportunity to affect pricing, perhaps we need to consider what is taking shape both within and outside the healthcare marketplace.
In the past six months we have seen two large healthcare merger deals turned down by the federal courts (Anthem/Cigna and Aetna/Humana) as well as the announcement of two strategic partnerships (Amazon/Berkshire/JPMorgan and CVS/Aetna). Larger entities may have opportunity to drive pricing while our economic system is based on free enterprise and minimizing barriers to entry.
…and as costs increase, money is being left on the table, representing an untapped market and undelivered healthcare.
Increasingly, industry leaders must address issues facing members with high-deductible plans where the cost impact is either cash out of pocket or choosing to go without care. It is estimated that nearly eight percent of members do not fill prescriptions due to cost considerations.
… but can we reasonably expect changes in prices in the short term?
It is not surprising that change often does not come from within. How can we engage healthcare stakeholders in changing what is known, familiar and entrenched in current business processes and systems? We can look to other market sectors as examples of the how to successfully respond to disruption and manage change.
At the end of the day, increasing consumer awareness of pricing, escalating costs and an aging baby-boomer population are just some of the pressing forces leading us to a new healthcare ecosystem with different players. Who will be around during this journey of disruption? Those entities (investors, providers, insurance plans) able to look through the prism of change and see opportunity.
Katie Christensen is a healthcare consulting manager within the Population and Payment Solutions group of 3M Health Information Systems.
2 thoughts on “Industry disruption may finally impact “It’s the pricing” conundrum”
Leave a reply
Private: Katie Christensen
Product Manager
As product manager and former health care consulting manager for 3M HIS, Katie is responsible for overseeing value-based products and programs across both the payer and provider communities. She is…
Do you suggest more transparency in doctor/provider offices with regard to a charge amount for a standard visit?
There are so many variations (complexity, insurance, etc.), but is it worthwhile to post an “average” price for visits so patients have greater awareness of the amount?
Yes! …. And I separately/additionally address this in a separate blog: How can we expect rational decision-making when we are ill-informed?
https://hisinsideangle.wpengine.com/blog-post/consumer-directed-health-plans-rational-economic-theory-triple-aim/
“Given the financial considerations, do any of us know what the mid-level E&M charge is for each of our neighboring hospitals? Or how it compares to the urgent care clinic? How about the charge for a stress test? Chest x-ray? CMS charge-level data by HCPCS can be quite illuminating…albeit not readily available in the public forum.
Even the motivated healthcare consumer is confronted with challenges to understand price. The exact CPT code is oftentimes not specifically known prior to the date of service, and furthermore, it is not a straightforward process to efficiently evaluate price and quality across the provider community.”
There are a few ways to handle it of course … but it is in all of our interest, and in the interest of triple aim, that consumers have a greater appreciation of their exposure, options and coverage if we are expecting that we act as rational consumers. Of course all the more relevant to folks on a high deductible plan.