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Cost-Shifting of Hospital Prices to Private Payers

Many of us are lulled into the rhetoric coming from hospitals and health systems that they must increase their prices for private payers because of inadequate reimbursements from public payers, such as Medicaid and Medicare. To some degree, this may well be the case. After all, hospitals and health systems need to generate enough revenue to offset costs to keep their doors open.

But this argument may not be as iron-clad as we were led to believe. Case in point: A recent report by the RAND Corporation about hospital prices paid by private health plans and how they compare with Medicare payments.

Findings of RAND Corp. Study

This is the third consecutive year that RAND Corp. has analyzed medical claims to determine how much private insurers pay for inpatient and outpatient hospital services. The most recent year of claims data analyzed was from 2018, which is about a two-year data lag.

Due to lack of medical price transparency, the sad commentary is that for private hospital prices to be discovered, hospital claims must be thoroughly analyzed to determine the ‘game of horseshoes’ on the prices being charged and paid by private health insurers and large self-funded employers who voluntarily share their claims data with RAND. In return, RAND then compares these prices to similar medical procedures that are paid to the same health providers by Medicare. With this information, private payers can attempt to negotiate better deals with the provider community.

This most recent report concluded that private insurers paid hospitals on average 247 percent of what Medicare would have paid for the same service in 2018. This gap is up from 230 percent in 2017 and 224 percent in 2016. To put this another way, if private payers from this study had paid hospitals at Medicare rates, they would have paid $19.7 billion less between 2016 to 2018 – a potential savings of 58 percent.

Here’s the Kicker

The RAND study’s lead author, Christopher Whaley, indicated that if hospitals are truly up-charging based on being shorted by Medicare and Medicaid, he would have expected to see hospitals with more Medicare/Medicaid patients charging private payers more, and those with fewer public patients charging less. But he found no correlation. His assessment is that “…sometimes hospitals charge high prices because they have the reputation or the quality or the market dominance to charge high prices…”.

All good reasons on why hospitals desire to keep prices opaque from private payers.

In addition to prices, the RAND Corp. also determined whether higher prices correlated with higher CMS star ratings and better safety scores from The Leapfrog Group. The findings show that high-quality hospitals with low and medium prices do exist, and it’s up to employers to implement tactics like narrow networks or reference pricing to steer employees to these high-value facilities.

Criticism by the American Hospital Association (AHA)

The AHA issued a Fact Sheet in January 2020, indicating that in 2018, Medicare paid hospitals 87 for every dollar that hospitals spent treating Medicare patients. For Medicaid patients, the AHA said that hospitals received 89 cents.

As frequently as the RAND Corp. releases studies on private hospital prices, the AHA equally releases statements refuting these findings.  AHA Executive Vice President Tom Nickels recently stated that the RAND report “again perpetuates erroneous suggestions that Medicare payments should be used as a benchmark for private insurers…”. Nickels also suggests that the claims analyzed represents a “handpicked sample of employers and insurers” that are minuscule compared to the entire hospital claims in the U.S.

Nickels does have a point, yet the AHA does little to nothing to equip private payers with information needed to determine whether or not the money being paid to hospitals are reasonable and demonstrate high value. But why would they? The AHA represents hospitals, desiring to perpetuate their members’ best interest at the expense of private payers who cover nearly 150 million Americans enrolled in employer plans or through individual market insurance.

Quite frankly, insurers are not immune from this problem either. They can avoid gag clauses that require secret prices and arrangements with hospitals and health systems. Employers, at a bare minimum, expect transparent behavior from their insurers and must insist that insurers eliminate backroom ‘deals’ with health providers.

The opaque pricing methods we have historically allowed must be relegated to the past. It’s time to open the doors and turn on the lights to expose the truth. Past pricing practices, convenient for some but detrimental for most, must be replaced with honorable and sensible pricing practices.

This is my take on the latest RAND report.

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My Office in a Treehouse? Pandemic Reflections

Over the years, I have had the luxury of working from home when inclement weather or other circumstances dictated that I do so. Other than making sure that I had my laptop and a reliable internet connection, I was good to go.

This past February, my wife had her knee replaced, requiring us to make necessary changes within the living space at home to ensure a safe and convenient recovery. During this period, I worked remotely without any hiccups. A few days a week, I would stop by the office – just 12 minutes away from home – to pick up the mail and water a few plants.

On March 11, the World Health Organization declared the relatively little-known coronavirus outbreak to be a worldwide pandemic. Two days later, President Trump declared the pandemic a national emergency. Within days, our state and country ground to a halt, profoundly altering our personal and professional lives. ‘Social distancing’ became the new norm. Businesses shut down and our once-busy streets resembled something out of an old western movie, minus the tumbleweeds.

We all painfully know the story since March: Millions of Americans lost their jobs or were furloughed. Those employees fortunate to continue working were relegated to finding new ways to operate out of their homes. For many of us, working remotely continues to this day – and will likely continue into the foreseeable future.

During the last seven months, I have had ample time to reflect on whether or not working in an office – along with its’ associated costs – made economic sense. Much of the work I do revolves around research and analysis – some is outsourced to trusted partners. In short, my work requires a quiet workspace with internet access, a coffee maker and a phone for periodic conversations. Being tethered to a formal office space is optional.

Over time, I have found that phone calls were becoming about as frequent as using the fax (remember that relic?).  Prior to the pandemic, most in-person meetings were conducted over coffee or lunch. It really was that simple.

After weighing the pros and cons, the necessity of having a separate office suite became a very easy decision. Paying office rent and utilities, phone and internet, renter’s insurance and, to a minor extent, fuel to commute to and from the office, was a personal preference – but not a business necessity. All of this can be accomplished from home – or perhaps a slightly advanced treehouse.

In the not too distant past, I may have confused my work-based livelihood with where I worked rather than what I did at work. For me, I have sorted out this seemingly razor-thin difference and have reconciled what is most desirable. I can easily perform this same work in the confines of my home and not skip a beat on my output. The pandemic has proven to be a helpful audition, guiding me to feel more comfortable with this eventual change of converting to a full-time remote workplace.

I recently spoke with a local commercial realtor who told me that office space may become more plentiful because of the pandemic. This glut of office space, however, has not hit the commercial market quite yet, primarily due to the Paycheck Protection Program (PPP) helping offset payroll costs, rent, interest and utilities for small businesses. But with a prolonged pandemic, decisions similar to mine will likely follow. A Des Moines Register article on September 3 approached this topic, using some interesting national statistics.

My office conversion has already begun, and in about eight months when my lease expires, I will be sitting in my home den, lakeside or in other locations – performing the ‘what’ regardless of ‘where.’ I’m very comfortable knowing that making ‘sausage’ in the backroom will be no different from home versus an office suite some 12 minutes away. The treehouse idea, however, may need to wait.

Working remotely will be seamless, while wearing pajamas has yet to be decided!

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Meager Spending on Behavioral Health Treatments Appears to Result in Higher Healthcare Costs

Since the Covid-19 pandemic began this past March, we have all been forced – seemingly on a week-by-week basis – to adapt to whatever the ‘new normal’ has been prescribed for us at work, home and in our respective communities.

For many of us, change from the status-quo has been difficult to confront and accept. In fact, living in a perpetual ‘snow globe’ that is constantly shaken keeps us from digging out of a never-ending blizzard of newness. ‘Taking things day-by-day,’ a commonly-used phrase, is perhaps an understandable approach for each of us during these uncertain times.

It is no surprise then, that our behavioral health has been adversely impacted during 2020.

This Should be Important to Employers because…

A direct result of people with behavioral health conditions – such as anxiety, depression or a substance abuse disorder – can relate to low job performance, whether it be through absenteeism, presenteeism, or negatively impacting relationships with co-workers and peers.

Employers know that anxieties – regardless of the source – cause stress in the workplace and can negatively affect the entire business operation. Some undesired effects of this stress include:

  1. Higher Employee Turnover – Chronic stress may lead to high employee turnover because job satisfaction is compromised, and employees don’t feel fulfilled or satisfied with their work. Hiring and training of employees is expensive, both in time and money.
  2. Missed Deadlines – Low job performance equates into missing key deadlines, which can reduce overall organization effectiveness with customers, etc.
  3. Overall Company Reputation Suffers – An organization’s highly-regarded image – carefully earned over years and decades – cements the treasured trust given by the public. However, having a high rate of employee turnover may taint the perceptions of prospective employees, who may question if the organization is deficient in offering the ‘right’ kind of engaging and collaborative workplace culture.

Pandemic, Civil Unrest and Political Divide

According to a Boston University study published in the medical journal JAMA Network Open, anxiety and depression are rising among Americans due to the Covid-19 pandemic. Half of U.S. adults surveyed reported at least some signs of depression, such as hopelessness, feeling like a failure or getting little pleasure from doing things. For many, the problem is considered mostly angst rather than full-blown psychiatric illness, but it still requires genuine professional help.

Feelings of isolation and interpersonal concerns related to physical distancing fuels anxiety and depression. The study found the symptoms to be most common in young adults, low-income study participants and those who lost jobs or experienced Covid-19 deaths of friends and relatives. Even though the study was performed prior to the recent spike of civil unrest beginning in late May, other research suggests that racial unrest also contributes to angst and depression symptoms.  Additionally, the lack of civil discourse found in our political system causes anxiety for a growing number of Americans.

A New Source of Concern for Employers – Being Penny Wise, but Pound Foolish

Consulting firm, Milliman, recently analyzed commercial insurance claims for 21 million people and determined that employers and commercial insurers spend meager amounts of money on behavioral health treatments, even though people with behavioral health conditions tend to have higher healthcare costs from other medical conditions.

Is this a causality dilemma also known as the ‘chicken or the egg?’ Which comes first, the behavioral health condition(s) or other non-behavioral medical condition(s)?

At least with the Milliman study, there appears to be little consensus.

A key finding from the Milliman report was that 27 percent of the people who had a behavioral health condition (e.g. anxiety, depression or a substance use disorder) in addition to other medical problems accounted for 57 percent of the total annual healthcare costs across the entire study population. In other words, the annual costs for people who had a behavioral health condition were about 3.5 times higher than costs for people WITHOUT those conditions.

Under this context, it was determined that spending on behavioral health treatment was a mere fraction (4.4 percent) of total healthcare costs for the 21 million people. In fact, half of people with behavioral health issues had less than $68 of total annual costs for behavioral health treatment. Another 25 percent of behavioral patients had very limited spending on behavioral treatment, amounting to $68 and $502 per year.

The study’s findings may suggest that to reduce total healthcare costs, payers must ensure that people with behavioral health conditions receive appropriate treatment. Oftentimes, behavioral conditions exacerbate medical conditions, causing the cost for medical conditions to increase much greater than for those without behavioral conditions. Effectively coordinating treatment for those who have both behavioral and medical conditions may significantly help reduce the overall costs.

Most health insurers include behavioral health as a covered benefit, but according to a 2019 study by the Congressional Budget Office, commercial insurers and Medicare Advantage plans pay in-network behavioral health providers lower rates than Medicare – about 13 percent less for common mental health services. Because of this, behavioral health providers are inclined to stay out-of-network, making treatment more expensive for insured patients, who may forgo seeking appropriate care. A shortage of behavioral providers certainly contributes to the problem, but telehealth can help increase the availability of care.

It certainly does not help that, due to the pandemic, more employees are working remotely making it difficult to gauge their behavioral needs and deficiencies.

This study was commissioned by The Path Forward for Mental Health and Substance Use and funded by the Mental Health Treatment and Research Institute LLC. The National Alliance of Healthcare Purchaser Coalitions was one of the groups that launched the Path Forward initiative, and you can learn more about this study here.

Going Forward

Employers should work with their insurers and community health providers to explore new ways for employees and their family members with behavioral conditions to receive the most appropriate care from the provider community.  Perhaps consider using the collaborative care model in which primary care clinicians work closely with care managers and psychiatric consultants to care for patients and to monitor their progress over time.

Making your workplace less stressful can include keeping your lines of communication open.  Perhaps offer ‘lunch and learn’ sessions to talk about how to manage work tasks effectively, help set boundaries to separate work from family life, and develop an overall culture of wellbeing for all employees.

Carefully bridging the gap between mental and physical health is certainly worth the effort.

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