Anthem’s offer that hospitals can’t refuse

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Like Don Corleone in "The Godfather," Anthem Blue Cross and Blue Shield is making hospitals an offer they can’t refuse.
The Indianapolis-based health insurer has persuaded 63 hospitals to chop their prices for blood and tissue testing by a range of 50 percent to 80 percent as part of its “reference lab network."
That’s 50-80 percent off the discounted price Anthem had already negotiated with the hospitals.
This is nearly unheard of.
Anthem will change its web site in mid-May to promote the latest prices offered by the labs participating in its reference lab network. The facilities include all the blood testing locations operated by the Eskenazi Health and Indiana University Health hospital systems, as well as some locations operated by Franciscan St. Francis Health.
Later this year, those prices will also start showing up in Castlight Health and other price transparency tools.
And the UAW Retiree Medical Benefits Trust has agreed to promote the reference lab prices to its 15,500 pre-Medicare members around Indiana.
“The hospitals and the other higher-cost providers, certainly can stay with the contracted rates we have with them,” said Dr. David Lee, Anthem’s vice president of provider engagement and contracting. “But they are increasingly likely to see patients go elsewhere if they stay with their contracted rates. That was basically the discussion we had with them.”
OK, so that’s not as dramatic as waking up to a severed horse head in your bed.
But that is a big threat these days, when hospitals have lost revenue as patients, shouldering more of their health care spending than they have in decades, have sought out independent providers of blood tests and imaging scans.

Larry Heydon, CEO of Johnson Memorial Hospital, told me last year that his hospital’s patients were increasingly going to non-hospital providers for blood tests, imaging procedures and other “ancillary” services.

“What’s hurting the hospitals are those baseline procedures: those imaging procedures, those lab procedures,” Heydon said. “Niche providers are coming in and providing those services at much lower cost.”

That was happening because employers and insurers had made a concerted effort to give workers information on the cost differences between hospital-owned and non-hospital facilities.
In June, researchers used data from the UAW health plans to show how some health care providers (read: hospital systems) were charging prices for lab and imaging procedures that were six to nine times higher than those charged by independent providers of those services, such as the national chains LabCorp and Quest Diagnostics.
That hospitals were making a killing on lab tests wasn’t exactly a secret, but to see the difference in dollars and cents made it particularly stark.
The growth of high-deductible health plans has given patients financial incentives to use that information.
But Anthem’s latest move escalates those efforts considerably.
Anthem has actually had a reference lab network in Indiana since 2011, and also has them in Kentucky and Ohio. But it started adding more hospital systems about a year ago due to demand from employers. Now Anthem has nearly 500 different places, including many physician offices, Hoosier patients can go to get their blood or tissue drawn for a test that qualifies for these much cheaper rates.

IU Health announced in March that it had joined Anthem's reference lab network, becoming the first hospital system with statewide reach to do so.

"Consumers are rightfully demanding convenient access to high quality care at an affordable cost," said Dr. John Eble, IU Health's chief pathologist, in an e-mail. "IU Health continues to lead on this front through such initiatives as same day appointments, patient self-scheduling and the future launch of urgent care centers throughout Central Indiana. Our participation in the Anthem lab referral network is yet one more example of these ongoing efforts to reduce the cost of healthcare and invest in initiatives that will make world-class care more accessible and affordable for the patients and communities we serve."

Back in 2013, IU Health also slashed its imaging prices by 60 percent to 80 percent on 38 imaging procedures.

The press release announcing that decision included this example of how the reference lab network pricing could work for patients insured by Anthem:

"A lab service that might cost $400 at an out-of-network lab and require 30 percent co-insurance, or member cost share, would result in an out-of pocket payment of $120. The same service might cost $200 at an in-network lab and only $45 at a participating reference lab. For a plan that has a 10 percent cost share, the member would pay just $4.50 out of pocket at the reference lab compared to $20 at a regular in-network lab."

Here's my translation of that: Anthem has already negotiated a hospital-owned lab provider's price down by 50 percent, from $400 to $200. Now, with the reference lab network, it has chopped prices down by another 78 percent, from $200 to $45. That's 89 percent lower than the original charge.

Those numbers were music to the ears of Mary Beth Kuderik, chief financial officer of the Detroit-based UAW Trust. The Trust, which is separate organization from the UAW that provides health benefits to eligible retirees, will make the reference lab pricing available to its Indiana members on July 1.
“We’re very supportive of Anthem in this,” she said.  “We’re going to be sending each member in Indiana a letter that will encourage them to talk to their providers about the network, explain what the network is, explain how the network could be of benefit to them and to the plan, and then encourage them to use it."
Kuderik said the UAW Trust would like to see Anthem try to stamp out the dramatic price variation that exists in other medical services too.
Anthem’s Lee said the insurer is working to do exactly that, including with programs that have shown success steering patients to lower-cost providers of imaging scans and of joint replacement surgery.
“We’ll not only do that with more and more services, but also overall with health care,” Lee said.

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