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April 1, 2012
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Cost Competition for Care Providers

Kentucky firm markets software tool allowing price comparisons for healthcare bargain hunters

By Robert Hadley

SUPPOSE during your routine annual physical, the doctor says it’s time to schedule a colonoscopy. Traditionally, the next step would be to arrange the procedure with a specialist, typically one recommended by your primary care physician and who is also in your insurance carrier’s preferred-provider network (PPO).

Instead of this somewhat cut-and-dried process, imagine being able to sit down at your computer and comparison shop for the best price for a colon exam or for dozens of other routine medical procedures. You log in to an online database that not only provides historical
data on the prices charged by area physicians for medical procedures, but also lists patient-satisfaction ratings in categories such as staff professionalism, cleanliness and other parameters.

That’s essentially what HealtheReports, a new software tool developed by Lexingtonbased IF Technologies, provides to preferred-provider networks and employers that subscribe to its online service. According to the company’s founders, Jim Freedman and Mike Issac, the four-year-old company’s goal was to help patients become better healthcare consumers.

Continually increasing medical costs, which employers pass along to their workers as higher deductibles and larger co-payments, created the need for this software, they said.

“Several years ago we recognized the impending crisis facing the healthcare industry in terms of how out of control costs were,” Freedman said. “We saw that as healthcare costs continued to rise, sooner or later the individual member was going to have to take more responsibility.

National statistics back up Freedman. Data from the U.S. Census Bureau show personal healthcare expenditures jumped from $1.2 trillion in 2000 to $2.1 trillion in 2009. That continues a trend that began in 1960 of costs either doubling or tripling every decade.

At the same time that healthcare costs are rising, the number of people with insurance is decreasing. In 2009, the U.S. Centers for Disease Control released the National Health Interview Survey, which reported on the prevalence of health insurance for children, adults and senior citizens.

The findings showed that between 1980 and 2007 the number of adults younger than 65 with health insurance declined 1.2 percent annually for most of those years. (There was a slight increase between 1996 and 1999.) The report also states that fewer adults are covered by health insurance at work, with employer-sponsored coverage declining from 71 percent in 1980 to 62 percent in 2007.

Local price disparity can be 300-400 percent 

HealtheReports is set to capitalize on a little-known fact among healthcare consumers:
Price disparities exist among doctors, clinics, hospitals and surgery centers in most major markets across the country.

“Doesn’t make any difference who your insurance company is, what health plan you’re using, what market you’re in or what the procedure is,” Freedman said. “Doctors and hospitals negotiate significantly different prices with health plans and insurance companies for the same procedures.”

According to the trade journal Health Leaders Media, the disparity can be as much as 300 to 400 percent among providers for the same procedure.

So why do such disparities exist? Experts blame it on a variety of factors, including a facility’s market share, location and reputation.

One of the country’s largest and most highly rated HMOs, Massachusetts’s Tufts Associated Health Maintenance Organization, has testified about the cost differences among providers. Tufts said, “Our efforts to contain unit cost increases have been constrained by provider market leverage driven by system size, reputation, service uniqueness and geographic location. Our efforts also have been constrained by market preferences dictating that we maintain as broad a provider network as possible.”

Last year, the 1 million-member Tufts HMO was ranked second on a list of the top 20 private health insurance plans by the National Committee for Quality Assurance.

An educational video on Humana Inc.’s website sheds additional light on the economic reasons behind the cost disparities among providers (See Doctors, hospitals and other providers are able to join health insurance networks that enable them to leverage higher patient volume in exchange for offering discounts to members of health insurance plans, according to the Humana video. Independent doctors who do not join such networks are unable to offer lower prices because their patient volumes are lower. Doctors who join the insurance network must maintain their medical credentials and accreditation, according to the video, which enhances the perception of quality care.

No correlation between cost and quality
But IF Technologies co-founder Issac cautions that quality of care and cost of care are rarely linked.

“Every national study we’ve seen says there’s no correlation between cost and quality,” Issac said. “It’s mostly tied to the negotiating position of the entity.”

HealthSpan, a Cincinnati-based PPO that is IF Technology’s flagship client, confirmed that it also sees cost disparities among equally qualified providers, said Diane Oliver, HealthSpan sales director.

HealthSpan operates in the partially self-funded healthcare industry, where employers purchase access to HealthSpan’s PPO — which negotiates discounted prices with a network of hospitals, physicians and ancillary providers — and use stop-loss insurance to protect themselves from catastrophic claims, Oliver said. This made it a natural fit for IF Technology’s software, which allows HealthSpan’s customers to comparison shop for medical care from among 137 hospitals and 16,400 physicians that belong to its network.

“We’re strong proponents of transparency,” Oliver said, referring to the Catholic Health Partners-owned PPO. “There needs to be more of that in the marketplace.”

Many competitors of the HealtheReports system use the published or list price quoted by hospitals for medical procedures, Oliver said.

“No one pays list price in this industry, so it kind of gives a false impression of what the actual cost is,” she said.

Instead, HealtheReports bases its prices on historical claims data, which has been scrubbed of any personally identifiable information to meet HIPPA requirements.

Because the cost for a given operation may have many components, such as price for the hospital, the surgeon, the radiologist and/or anesthesiologist, Oliver said HealtheReports quotes prices including all of those costs – “the episode of care” – so there are no surprises
when the bill comes.

Although cost-conscious comparison shoppers may initially benefit from HealtheReports because it allows them to choose less-expensive providers, the ultimate value may occur down the road when providers begin to compete with each other on price.

“It’s an integral part of consumerism,” Oliver said. “How can you be a good consumer if you don’t know what the price tag is? This software, in conjunction with the robust wellness programs HealthSpan offers, allows people to be good consumers of lifestyle.”

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Lane Report Cover April 2012 In This Issue
On the Road to Growth
Kentucky’s $11 billion travel and tourism industry has a ‘unique’ plan to meet pent up demand

America’s Best-Run Bank?
Steady growth and a conservative approach lead Republic Bancorp to the top of a national listing

An Extended Bottom
Kentucky construction contractors compete hard for jobs; manufacturing, multi-family housing show improvement

Cost Competition for Care Providers
Kentucky firm markets software tool allowing price comparisons for healthcare bargain hunters

Avoiding Future Shock
With utilities’ help, Kentucky business and industry invest in energy efficiency to keep costs competitive

One-On-One: Mary Pat Regan
AT&T Kentucky President Mary Pat Regan discusses the company’s services, future growth and planned capital investment in Kentucky


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