Indy hospitals, doctors should start a price war

February 28, 2014
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If I were the CEO of an Indianapolis-area hospital, I’d start a price war.

Right now.

If the executives of Indy’s hospitals chains are reading this, they might be a) still laughing at the phrase “If I were the CEO …” or b) clicking to the next article while thinking, “J.K. just proved why he’s NOT a CEO.”

But they should hear me out.

More and more, I am convinced that the choice for health care providers going forward is binary: either limit patient choice through restricted networks or preserve patient choice by making price transparency real and usable.

That’s the state of play because, as I’ll explain shortly, health insurers and employers are no longer going to allow the massive price variations that are now rampant among health care providers.

And my 35 years of living in this country tell me that Americans go for choice every time.

“Hoosiers, and most Americans, place great value in their freedom to choose the doctor and the hospital which will serve them best,” wrote Dr. John Dietz, a surgeon at Indianapolis-based physician practice OrthoIndy, in an e-mail to me. “Rather than being a source of increased cost, this is the one factor that can both drive down cost and drive up quality.”

So far, however, restricting access is the only truly viable option that insurers and payers have to reduce what have been shown to be sky-high prices among Indy’s hospitals.

That’s because health care prices are either unavailable or available in a form that is not meaningful to consumers.

So while big insurers like Anthem Blue Cross and Blue Shield and UnitedHealthcare are promoting price transparency through their own tools or through services like Castlight Health, they’re spending more time pushing restricted access to providers as a way to save money.

Anthem, as we know, left out the three largest hospital systems in Indiana from the provider network that lies behind its individual health plans. To be in the network, Anthem asked for prices that were 10 percent lower than normal.

Also, UnitedHealthcare limited its Medicare Advantage provider network, while also trying to push a tiered network concept for its employers plans that would have made Indiana University Health more expensive to its customers. (UnitedHealthcare and IU Health are both mum on whether that concept was adopted or scrapped.)

It’s not clear these restricted networks will go down well among employers. According to a recent poll by the California-based Kaiser Family Foundation, 55 percent of Americans with employer-sponsored insurance prefer broader networks, while the roughly the same percentage with individual insurance prefer narrow networks.

But employers are moving to establish private exchanges, in which their employees will pick from multiple insurance plans. Anthem has indicated it will offer a narrow network plan in private exchanges. And odds are that, eventually, so will IU Health’s insurance operation and the Accountable Care Consortium that was established by St. Vincent Health, Community Health Network and the Suburban Health Organization.

These private exchanges would allow employers to still give their workers choice, yet would steer more of them to plans in which they have limited choices of providers.

That’s not good news for providers, because it means their financial success will depend on how well they perform as insurers—pricing risk, controlling medical claims, denying certain kinds of coverage.

That’s a nearly antithetical mindset from what most health care providers have today. It’s like Dr. Jekyll choosing to become Mr. Hyde, the insurance executive, in order to keep Dr. Jekyll in business.

So what’s left to do? As I said at the outset, start a price war.

By that I mean, work with health insurers to develop ways to quote real prices to patients, even before they receive care. That would be especially doable for discrete services, such as imaging, blood testing, physical therapy, etc. And it would be in hospitals' interests if they, rather than health insurers or employers, became the trusted source for price information. They would be less reliant on payers to bring them business.

Then move on to elective surgeries, like knee and hip replacements. Start running ads promising a package deal on such procedures for 20 percent less than the other guy.

Prices for knee and hip surgeries in Indianapolis ranged from $23,341 to $37,349, according to a study released this week. Hospitals offering service for less than that high price could grab business, I think, by advertising against it.

Health systems could also advertise for chronic disease care. Quote a price for one year of care for diabetics or heart disease patients. Make it 20 percent less than the state or national average for such care, and promote that fact.

Such messages will, I think, start to gain traction in the marketplace. That’s because patients are more and more exposed to the cost of care. That’s true for individual customers, where deductibles in the Obamacare plans reach as high as $12,700 for family coverage. It’s also true in employer-sponsored insurance, where one out of three workers in Indiana now has a high-deductible health plan.

This exposure to costs is only going to grow, as employers try to keep costs in their health plans low enough to avoid triggering Obamacare’s Cadillac tax in 2018. Also, the tax subsidies that make the Obamacare individual plans cheaper will soon start to grow in line with wages and then inflation, which makes it likely that consumers will have to gravitate to higher-deductible plans to still afford coverage.

For all those reasons, I think, hospitals and doctors that come out as price leaders—whether they really are the cheapest or not—will reel in additional customers. And as any CEO learned in business school, those marginal customers will be highly profitable customers.

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