There is a huge opportunity to reduce healthcare costs if patients understand the expected costs before receiving services and especially if they can compare providers. One of the many provisions in the Affordable Care Act1 is a requirement that every payer must have a patient cost calculator so that members can get an estimate of their costs before receiving services. Most payers already have some type of patient cost calculator but there are significant variations in the range of estimates and specifics for individual providers.
The best calculators allow the user to compare services (e.g. office visits, MRIs) or episodes (e.g. surgeries that include the surgeon, anesthesia, diagnostic tests and facility charge). For episodes they allow the user to build the total cost by component, adjusting which facility and physician(s) to use. The leading calculators show alternative providers within the service area radius input by the user.
Quality and satisfaction scores are typically integrated with the calculator so that users can make a complete informed decision. This has been the goal of consumer driven health plans and transparency efforts for a long time. There are a few stumbling blocks that are slowing the process and/or making the calculators less effective than they could be:
1) Confidentiality provisions in payer/provider contracts. Historically many contracts between the insurers and the hospital/physician providers had confidentiality provisions. It should be easy to eliminate these but many payers and providers are still resisting the transparency push. Most current calculators are listing some provider cost data as “not available” but they usually list them in such a way that implies they are the highest cost provider. If members are educated on how to use these tools and they are able to reduce their out of pocket costs that will pressure the “confidential” providers to eliminate those regulations. Alternatively, legislation could be passed to eliminate confidentiality provisions.
2) Hard to compare fee schedules and reimbursement arrangements. Most payers still have a variety of fee schedules for their providers so that even if you find out hospital A is 15% more expensive than Hospital B for a CT Scan, it may be that a different procedure could be lower cost at Hospital A. Payers can use the same fee schedule for all providers with varying multiples to allow providers to be high or low cost which will allow the estimates to still be relevant even if other services are performed. Currently most calculators are limited to the most frequent services and episodes, standard fee schedules will allow the calculators to cover every service. See my article on the Transparent Cost Network for more information. http://insight.milliman.com/article.php?cntid=7927
3) Efficiency comparisons for episodes of care. The variation within types of episodes is still very large. It is difficult to account for all the reasons for variation and have enough episodes for each provider to have a good estimate of their efficiency for every type of episode they perform. This is an area that will continue to evolve and improve.
Currently these calculators are not being utilized very frequently. There is a huge opportunity to engage members in the cost of the care they are receiving and educate them on their options. I believe this will have a significant impact on the level of competition among providers and will reduce costs. Alternative benefit design options that leverage reference based pricing can make this information even more effective. That will be the subject of a future article.
Exhibits A and B illustrate service and episode based estimates assuming 20% coinsurance.