Is “unblackboxing” the key to reducing health care costs? The answer to that question was in part the focus of Bill Green, Chief Executive Officer of Homestead Smart Health Plans, in his 2019 OPEN MINDS Performance Management Institute keynote session, Building A New System For Private Insurance: Innovations & Emerging Models For Employer-Sponsored Health Plans.
What is “blackboxing?” It’s the practicing of hiding information that would otherwise let you know how something works. Unblackboxing means bringing transparency to that information – or put another way, seeing inside the black box.
In health care, the focus of “unblackboxing” is in two areas – hospital chargemasters and rebates for pharmaceuticals. Together, spending on hospitals and pharmaceuticals account for 43% of total U.S. health care costs (see National Health Expenditures 2017 Highlights).
The hospital chargemaster is a comprehensive listing of items billable to a hospital consumer or a consumer’s health insurance provider. And traditionally, chargemaster information has not been available to the public, including consumers of hospital services. Tina Rosenberg explained the imbalance in this arrangement in her The New York Times article, Revealing a Health Care Secret: The Price, as:
Chargemaster prices are set by the hospital alone and reflect what the hospital would like you to pay. They are the basis for calculating the discounts given to insurers, and they are generally what’s billed to people without insurance. These charges are commonly three times the Medicare price or more.
As of January 1, 2019, hospitals are required by the Centers for Medicare & Medicaid (CMS) to post their chargemaster fee data. Consumers can now compare the price of services across different hospitals. But how useful this data is remains to be seen. The ruling has largely been touted as symbolic. Critics say that the newly-posted chargemaster rates are hard to understand (see Medicare To Require Hospitals To Post Standard Charges Online, We’re missing the true point of hospital price transparency, and Analysis: Pulling Back Curtain On Hospital Prices Adds New Wrinkle In Cost Control).
Then there are the rebates for pharmaceutical purchases. The rebates are pricing discounts paid by the pharmaceutical company to payers and health plans when they purchase a medication. The actual amount of these rebates is largely unknown (part of the reason for the debate). There are many critics of the rebate system. Dr. Sarah Sachs explained in a Health Affairs blog post that pharmacy benefit managers and payers often negotiate with pharmaceutical companies to receive rebates on drugs after point-of-sale. This means that pharmaceutical companies can raise their list prices, but increase the rebate for better formulary placement. Since consumers often pay cost-sharing on the actual list price of the drug, the higher list price can make many drugs unaffordable (see Trump Administration Releases Long-Awaited Drug Rebate Proposal).
On February 1, 2019, the U.S. Department of Health and Human Services (HHS) proposed a new rule that will eliminate prescription drug rebates between pharmaceutical companies and Medicare Advantage and Medicaid health plans (and/or their pharmacy benefit managers). Instead, those rebates would have to be passed directly to the consumer at point-of sale, who often pays out-of-pocket costs based on the list rate and not the price with the rebate applied (see Fact Sheet: Trump Administration Proposes to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients). The goal of the new rule is to lower the price of prescription drugs to consumers, to slow increases in drug prices year-over-year, and to make pharmacy benefit management more transparent (see Trump Administration Wants To Cut Drug Prices By Eliminating Middlemen’s Rebates and Winners And Losers Under Trump’s Big Plan To Lower Drug Prices).
One reimbursement solution to the challenges of the chargemaster and of pharmaceutical rebates proposed by Mr. Green is a concept called reference-based pricing According to the Commonwealth Fund in Pharmaceutical Reference Pricing: Does It Have a Future in the U.S.? reference-based pricing is:
An emerging health insurance benefit design aimed at reducing health costs. In this model, an insurer establishes a maximum payment that it will contribute toward covering the price of a product or service in situations where there is wide price variation for therapeutically similar drugs, diagnostics, or procedures.
Reference-based pricing is most often pegged to Medicare pricing – but not always, as some services are not covered by Medicare. To address this, prices are often pegged to average commercial costs (see New Reference-based Price Analysis Shows Up to $178 Million in Annual Health Care Savings Possible).
I think we’ll see more reference-based pricing. Donald Trump specifically talked about reference-based pricing and cost transparency in his state of the union (see Trump’s State of the Union includes call for reference pricing legislation). Research also shows that employers are beginning to see reference-based price as a solution to high health benefit costs, even if they have not yet adopted this model (see Employers Are Aware of Reference-Based Pricing Potential but Haven’t Crossed Over to Adoption, Researchers Report in AJMC® Study).
But reference-based pricing doesn’t solve all of the health care cost drivers. It doesn’t address some of the core issues in health care spending like overutilization and lack of care coordination. Mr. Green explained that while reference-based pricing can help bend the cost curve, plans need to consider other benefit plan design changes, utilization review, and other cost containment programs in an overall strategy. (For more on the Homestead Smart Health Plans model, see ‘Back To The Future’ With Self-Funded Employer Health Insurance?.) In tandem, a multi-faceted approach is more likely to bend the needle.
For more of our recent coverage on health care costs, check out:
- Per-Employee Health Care Costs Expected To Increase 4.4% In 2019
- Annual Health Care Costs For Adults With Autism 55% Higher Than General Population
- 14% Of Families Had Out-Of-Pocket Health Care Expenses Exceeding $2,500 In 2015
- Spending For Consumers With Comorbid Medical & Behavioral Conditions At 34% Of Total U.S. Health Care Spending
- Long-Term Care Costs Rise 4.5% Between 2016 & 2017
- Retirement Health Care Costs in 2017 Increase 6% From 2016 To Reach $275,000 Per Couple
- S. Employers Expect Health Care Benefits Costs Will Increase 5% In 2018
- S. National Health Spending Grew At A Rate Of 3.9% In 2017
- 25% Of Medicare Spending In Last Year Of Life; 5% For People At High Risk Of Death
- S. Health Care Expenditures Expected To Grow 5.5% Annually Through 2026
And for even more, join us at The 2019 OPEN MINDS Strategy & Innovation Institute in New Orleans on June 5 for the session, “What Does It Take To Outlast The Disruptors? Building A New Strategy For A New Market” featuring Monica E. Oss, Chief Executive Officer, OPEN MINDS.