March 21, 2016
Why Healthcare Costs Bleed Firms Dry
by David Berg
Many employers are rising up about soaring healthcare costs. The secret is to write your own checks for your employees' healthcare.
“It is impossible to prove something to someone whose salary depends on believing the opposite.” – Upton Sinclair
Today’s overpriced healthcare system is hurting American businesses and job creation, eating into profitability and, quite frankly, bleeding companies dry. What’s worse, the lack of cost control and price transparency have created a culture of helplessness and even resignation.
But employers have had enough. Many are rising up and demanding change. They want lower costs and better care for their people and will no longer tolerate the status quo.
In 2007, I made it my mission to put an end to overpriced healthcare when my own companies’ healthcare costs were cutting dangerously into the bottom lines. At the time, I operated numerous healthcare clinics throughout the Phoenix metro area. We found our best hourly employees were leaving us for jobs at larger corporations with better health insurance, and we couldn’t attract replacements with the same level of training. Productivity and efficiency plummeted. It was an absolute mess, and I felt like a failed CEO.
But we discovered a secret that no one else seemed to know – or at least nobody seemed to be saying aloud. It’s a secret we uncovered when we started doing something I had never heard of anyone doing: writing our own checks for our employees’ healthcare.
See Also: When a Penalty Is Not a Penalty
It seemed strange that the cost of giving birth at one hospital was $6,000, while the cost at a neighboring hospital was $17,000 – even though the same doctor had attended both births! Strange that an ankle X-ray could cost $1,200 in a hospital emergency room but only $35 at my own clinics. Stranger still that a simple antibiotic could cost $900 at one pharmacy when Walmart sold the exact same drug for only $12.
Those observations helped lead to the secret to not overpaying for healthcare.
Controlling PLACE OF SERVICE is all that really matters
In the vast majority of cases, my employees could receive the right level of care in a setting that provided the same service (with the same or even better quality) at a much lower cost than in another setting.
Of course, sometimes a hospital emergency room visit is absolutely necessary. On occasion, an urgent care is the right option. But qwe saw that many medical expenses were needlessly incurred in hospitals and other expensive settings. MRIs, X-rays, blood tests, specialists consultations and other common procedures were costing my companies five to 20 times more than the exact same services performed across the street in an imaging center, lab or doctor’s office not owned by the hospital.
Why would someone choose to get a $3,600 MRI or $1,200 X-ray at a hospital instead of going to an imaging center across the street for an equally good, $400 MRI or $35 X-ray? Why would anyone get a procedure at one hospital instead of paying 40% less for an identical procedure at another hospital around the corner? It’s not that people don’t care. THEY DO! The answer is that they simply don’t know – and the system is designed so that it is very hard for people to uncover this truth.
It seems crazy, but this sort of thing happens systematically all the time. When employer health plans work well – when prices are transparent and employees are protected and guided away from overpriced services – then common sense prevails and costs stay in check. But if people are part of a health plan that benefits from keeping costs hidden – and most do – business owners and their people simply don’t know they’re being duped.
Why is this is happening?
- Hospitals with the greatest market share negotiate much higher reimbursement rates from insurance companies. A December 2015 study by researchers from Yale, University of Pennsylvania and Carnegie Mellon University analyzed billions of hospital clams paid by commercial insurance companies to hospitals. The study concluded that costs at hospital systems with significant market share were as much as 12 times higher than other, smaller hospitals – with no difference in quality. It was an important and revealing study, yet it failed to evaluate the even bigger differences in price for routine procedures performed at a hospital vs. outside a hospital – procedures that never needed to be done in a hospital in the first place. These price differentials and subsequent overpayments are even more shocking and have the biggest impact on overall healthcare cost.
- Hospitals are “buying” doctors so they can fill beds and price excessively. Even though hospitals lose approximately $165,000 each year for every primary care doctor and about $300,000 for each specialist they hire, this strategy has proven effective; it increases market share and allows hospital systems to negotiate higher prices with insurers. What’s more, these doctors are obligated to refer their patients for services or specialty care in an exorbitantly overpriced hospital setting. Of course, emergency procedures are occasionally necessary, and of course hospital infrastructure costs are always higher and will need to be taken into account when assessing fair pricing. But when millions of dollars are used to market elective services that are arbitrarily priced much higher than what is fair – well, this just shouldn’t feel right to the unknowing business owner and employee. After all, they trust the healthcare system to guide and care for them.
- Urgent care centers are now owned by hospitals. It’s no surprise, then, that urgent cares are owned by hospitals, providing a perfect entry point for funneling services and profitable patients to hospitals and the doctors who are employed by those hospitals. Following this same line of thinking, urgent cares also help hospital systems gain market share, negotiate higher rates and “mine” the sickest people from among those patients.
- There are huge price differentials in prescription drugs. This problem is rampant in the healthcare industry, even extending to runaway prices in common prescriptions. The costs of medications vary dramatically depending on the pharmacy, the insurer and the way the doctor writes the prescription. The cost of a simple generic antibiotic can range from $12 at a grocery store to more than $50 at a widely known national pharmacy – and to more than $900 for the brand name that legally gets substituted when the pharmacy chooses. You might think the answer is obvious – just stop overpaying – but many people simply aren’t aware of the pricing tricks.
- High-deductible health plans partner with hospital systems. Often, such plans require that services be performed exclusively at a particular hospital’s health centers or affiliated urgent cares, imaging centers, doctor’s offices, etc. In other words, the hospital system that has negotiated higher rates with insurers now requires health plan participants to use their overpriced services. They say they have negotiated lower prices, but we see that costs are much lower when a patient pays cash outside the hospital.
In the case of high-deductible plans, it’s employees who get stuck with much of the bill. The premiums are cheaper upfront, but employees and their families are charged for services until their deductibles are met, often paying inflated prices for procedures performed in a hospital or affiliated setting. When they can’t afford to pay the deductible, employees often direct their frustration at their employers for providing this sort of coverage. And, sadly, many low-wage people will decide to forgo needed care.
See Also: Why Healthcare Costs Soar (Part 6)
What if brokers could help their small business clients by providing the negotiated fee schedule with the hospital system employees will be required to use? Or at least educate them about the dangers of using hospital facilities for services that could be performed outside a hospital? This is especially important for people with high deductibles.
Though it’s not common to request the price list – and insurance companies won’t grant the request – it’s certainly common sense. Shouldn’t employees understand the costs before choosing a doctor or facility? Simply providing the fee schedule would at least give them and their doctors a fighting chance to make care decisions based on both quality and value.
Increased transparency in an industry of hidden costs and unexpected medical bills would be a powerful step toward saying “NO” to the overcharging that the biggest healthcare facilities get away with every day.
The Importance of Data
Educating and guiding employees to the best places for service will have a huge impact on moving the cost needle. And, using data to identify the sickest employees and understand where they are getting their healthcare services is a great multiplier that brokers can use to help their business clients achieve more cost savings.
If an insurance company will not agree, in writing, that all of the company’s data belongs to the business owner – regardless of whether they’re certain to renew – the business owner should walk away.
Most traditional insurance companies will tell business owners they can’t give them this data because of privacy laws or HIPAA. The real reason is that they don’t want their clients to share the data with competing insurers and potentially lower their healthcare costs. In reality, business owners can own their data. Nothing in the law says otherwise. (Employers should never directly look at employees’ personal health information. This is just common sense.)
We encourage business owners to push harder and challenge the status quo way of thinking. We want them to demand cost transparency so they can control their own costs and still take great care of their people. Owning their employees’ data will enable the employer and their broker to negotiate fair pricing and educate their people about place of service more effectively. Brokers who rise to this challenge will find great opportunities to grow their business and create undying loyalty among their clients.
Status quo healthcare costs are bloated with unnecessary administration, waste and overpricing, but businesses and brokers who understand how to choose the right place of service can save money and easily fund healthcare. The worst thing we can do is pay more.