Consumers are gaining access to a true healthcare marketplace as hospitals and physician groups offer discounted bundled-payment services for patients with no insurance or big deductibles.
Patients who need gall bladder surgery generally have time to shop around, and those who have a big out-of-pocket responsibility would be wise to do so.
A consumer in Mount Vernon, Ill., for example, could pay $7,133 for a laparoscopic gall bladder removal at the local hospital. That price includes fees for the facility, physician, anesthesia, and a tissue exam by a pathologist (but not for a pre-surgery visit).
Or the patient could drive 200 miles to Moberly, Mo., where a surgeon will do the job for $5,506, which covers the physician, facility, and anesthesia, but no pre-op visit or pathology.
Or maybe a 60-mile drive sounds better. Scott Hinze, DO, in Red Bud, Ill., offers another bundle option—pre-op visit, facility fee, physician fee, and anesthesia fee, but no pathology—for $6,144. When Red Bud Regional Hospital approached him about its bundled-payment initiative last year, he agreed to participate because he sees the benefit for patients who are uninsured or have high-deductible health plans.
“People who have high deductibles still need to be taken care of,” says Hinze, who serves as the hospital’s medical director and chief of surgery.
Red Bud Regional is one of many hospitals that are responding to the rise in consumerism by offering deeply discounted bundled-payment prices for consumers who pay up front. In doing so, they are introducing essential elements—price transparency and administrative simplicity—that consumers need to make good healthcare purchasing decisions.
As more provider organizations develop and publicize bundled prices, those organizations are also creating something that many consumers have never experienced: a true marketplace for healthcare services.
“We’re going to have to be competitive with prices, we’re going to have to provide the best service around, and we’re going to provide a good customer experience when they come here,” says Todd Kasitz, CFO at Newton Medical Center in Kansas, which recently began offering bundled prices. “We’re willing to create a marketplace.”
Of all the payment reforms being tried, bundled payments may be gaining the most traction.
Nearly a third of hospitals were being paid through bundled-payment arrangements in 2016, according to PwC’s Strategy& Annual Bundles Survey of 261 hospitals, 277 employers, and 1,000 consumers. More than 80 percent of hospital respondents said they were already participating in bundles or were interested in doing so—and bundles appear to be fulfilling their promise of improving value. Of those hospitals already in bundled arrangements, 63 percent said they have saved money and 69 percent reported improved quality.
Indeed, Anne Wong, director of health strategy at Strategy&, says the tipping point is at hand—and all healthcare providers need to find a way to participate. “Bundles are coming, whether you want them to come or not,” she says.
While the vast majority of bundled-payment initiatives are initiated by Medicare or commercial health plans, others operate largely outside of the insurance sphere.
In northeastern Ohio, for example, the term “package pricing” emerged more than a decade ago when community hospitals sought to meet the needs of the state’s large Amish population, which does not use traditional health insurance. In 2005, when Amish patients revealed they were willing to pay for services up front in exchange for a single, all-inclusive bill, Pomerene Hospital in Pomerene, Ohio, introduced prices specifically for that market segment. Consumers call a designated advocate at the hospital to arrange a specific package after a service is scheduled.
Other area hospitals followed Pomerene’s lead, with some extending package prices to all self-pay patients, regardless of religious affiliation, and to those with high-deductible health plans. In Wooster, Ohio, Wooster Community Hospital’s “Self-Pay Packages 2016” reads like a catalog of hundreds of procedures and services, organized by physician groups that have negotiated discounts for the packages. The listings make it easy for consumers to see that a bilateral total knee replacement costs $18,128 if performed by physicians in one medical practice and $20,352 if performed by a different orthopedic group.
Meanwhile, major health systems are also introducing bundled prices for self-pay patients. Integris Health, the largest system in Oklahoma, posts bundled prices—hospital and radiologist charges—for imaging studies and a few procedures at each of its facilities. It also posts hospital-only flat-rate charges for many common procedures through its Cash Pay program. A colonoscopy costs $975, for example, and arthroscopic knee surgery costs $2,994.
Developed for patients with no insurance or with high deductibles, the Cash Pay program requires payment in full at the time services are scheduled, and Integris does not submit insurance claims on behalf of the patient.
Discounted Prices, Up-front Payment
“Most providers can offer cash pricing up front a whole lot cheaper than they can through any insurance product because there’s not the nightmare that you have to go through to get paid,” says Kasitz, the Newton Medical Center CFO.
Newton, Red Bud Regional, and a few dozen other health systems have signed on with a tech startup that posts their bundled prices online, where patients pay up front for the services they need.
Newton started with a few bundled prices for imaging services in late 2016, but Kasitz expects the number and range of services and procedures to increase in the months ahead. The health system competes with two behemoths—a national for-profit hospital chain and the nation’s largest Catholic health system—both of which operate hospitals in Newton’s service area. By posting its bundled prices online, Newton will differentiate itself in the market.
“We’re looking to promote transparent pricing in the marketplace,” he says. “We’re willing to compete with any other provider that wants to compete for the customer based on quality, price, and great outcomes.”
Newton worked with an independent radiologist to develop its initial imaging bundles, and Kasitz thinks other self-employed physicians will be willing to discount their normal fees so they can offer competitive bundled prices in partnership with the health system.
“We expect the physicians, for the most part, to be very receptive to it and to help us through this process,” Kasitz says. “The marketplace and industry are changing.”
Hinze, the Red Bud Regional surgeon, agrees. “There’s an independent gastroenterologist here in our area who will do a flat-rate colonoscopy with an upper endoscopy,” he says. “And I think you’re going to start to see more of that.”
Although Hinze is employed by the health system, he was not mandated to participate in its bundled-pricing program. Because the bundles include discounted physician fees, he is credited with fewer relative value units for procedures performed as part of a fixed-price bundle. He was amenable to that arrangement because it translates into lower costs for patients who might otherwise forgo needed care.
“If the patient is getting taken care of, that’s my ultimate objective,” he says.
Competing on Price
Surgery Center of Oklahoma, a physician-owned facility in Oklahoma City, first posted its all-inclusive prices online nearly nine years ago. Since then, the facility’s 63 surgeons have treated patients from all over the country who are uninsured or covered by high-deductible insurance plans if they are willing to travel for low-cost care.
In remarks to the U.S. House of Representatives Budget Committee last fall, co-founder Keith Smith, MD, said purchasers of high-deductible plans on a health insurance exchange are a fast-growing part of his customer base.
“Shockingly, they have a better out-of-pocket experience paying our full website fee than meeting their deductible and co-pay using their insurance,” he told the committee.
As of this year, Smith expects 100 percent of the center’s revenue to arrive in bundled-payment form, largely because employers that self-fund their workers’ health benefits have become his largest customer category. Surgery Center of Oklahoma extends the bundled prices posted on its website to anyone, prompting several municipalities, county governments, and private businesses to contract with Smith’s organization in recent years. Most recently, the state of Oklahoma, which has a self-funded plan that covers 183,000 lives, signed an agreement for bundled-payment rates. The state incentivizes its employees to choose Smith’s center.
“If their plan beneficiaries have their surgery at my facility, they have no out-of-pocket cost,” Smith says.
Creating a Marketplace
Only a few patients used prepaid bundles to buy procedures from Hinze during the first year of the initiative at Red Bud Regional. He thinks that is because most consumers are unaware of this option.
But the Strategy& survey suggests that, as consumers catch on, they will eagerly grab onto bundles. While only 76 percent of consumers said they have a good grasp of their insurance benefits, 86 percent understood the concept of a bundled payment. Moreover, 80 percent of consumers indicated they would pick an ideal bundle over current care—and 62 percent said they would pick a bundle with reasonable restrictions and “at par” pricing over current care.
The diversity of bundled-payment initiatives and the huge variation in how bundles are packaged suggest the degree of experimentation in this rapidly evolving phenomenon, Wong says. “You can either be a leader and get in front of this and help define the market, or you can sit back and let the market happen,” she says. “Then it’s going to be defined by somebody else.”
Lola Butcher writes about healthcare business and policy topics for several HFMA publications.
Interviewed for this article:
Scott Hinze, DO, chief medical officer and chief of surgery, Red Bud Regional Hospital, Red Bud, Ill.
Todd Kasitz, CFO, Newton Medical Center, Newton, Kan.
Anne Wong, director of health strategy, PwC Strategy&
Keith Smith, MD, co-founder, Surgery Center of Oklahoma, Oklahoma City.