Analysis: UHC calls out price variation for commodity services

United Healthcare Group recently released a report highlighting significant price variation paid to providers across its contracts for seven common diagnostic procedures. The report found:

• If high-price providers were paid at the 40th percentile (instead of their current rates), it would reduce spending by $18.5B (approximately 50%).
• Quality nor geographic area had significant impact on the price. As an example, prices for an echocardiogram, ranged from $210 to $1,830.

Takeaway

Another week, another report highlighting the variation in rates paid across commercial contracts. It’s starting to feel like a drumbeat is building.

In a recent meeting with HFMA, a representative of a coalition of large purchasers commented that his members are starting to understand for the first time how poorly served they’ve been by brokers and other intermediaries. And many large employers are looking for opportunities to become actively engaged in the process of purchasing care for their employees like Walmart, GM or 32BJ SEIU in New York.

I think we’ll hit a tipping point when we start to see state and local governments move from passive to active purchasers of healthcare. Montana may be at the vanguard of this with other states like North Carolina, Indiana and Colorado exploring the concept to some degree.

And for smaller employers, the change will likely occur if they have access to lower-cost options. One example to watch is Humana’s pilot product built around virtual primary care that’s being rolled out in select markets in Texas and Florida. Early expectations are that premiums will be half of those for the most popular commercial products, which should be more than enough of a discount (typically what we hear is 15% to 20% for a narrow product to get employers to switch) to move market share).   

A recent interview with the CEO of Doctor On Demand highlights the fact that their members who need to see a specialist or require diagnostic services will be referred to “their (Humana’s) network of in-office specialists and retail facilities for imaging and labs and all the other things that need to be performed in person.”

Based on recent conversations I’ve had with folks in the health plan space, high-cost providers will only get the referral for these services as a last resort. The algorithm making the referral will (as suggested by the quote) choose in descending order:

1. A Humana employed specialist if available in the market.

2. A non-Humana employed specialist who practices conservatively/efficiently and has good outcomes.

3. Anyone else contracted by Humana.

Very few patients are likely to trickle down to option three, with even fewer leaking out of the contracted network for this product. Finally, when patients need imaging services or other diagnostic testing, they’re going to be referred to the lowest-cost option that provides the service at an acceptable level of quality.  

Further, what may accelerate this is if an “all-or-nothing” contracting provision, similar to what’s included in the Senate HELP draft surprise bill legislation (Lowering Health Care Costs), makes it into a final package on surprise bills. While the prospects for such a provision are dim in the near-term, as more data highlighting pricing differentials for relatively standardized services becomes available, the pressure for Congress to act will grow.

Health systems and providers need to prepare for potential changes by either Congress or employers on these price differentials. Providers who are prepared will ensure they have the capability to, and are, delivering care in the lowest-cost setting.

For providers whose cost structure is higher, and therefore reflected in their pricing, they need to be able coordinate care across a network of providers so that they can deliver high-quality outcomes at the lowest total cost.