Consumer defense against high deductible insurance: Embrace Transparency

Re: “Unable to Meet the Deductible or the Doctor” by Abby Goodnough and Robert Pear, the NY Times, Oct 17, 2014

Consumers of healthcare are being pushed to the limit.   High deductibles, co-insurance, and narrow networks are the leading strategies of third party payers to control the rate of spending by consumers.  Unfortunately, these obstacles result in reduced access to care  – already a shameful deficiency of the American healthcare system.  What benefit do patients derive from coverage that is unusable?

Patients deserve basic consumer protections before deciding on a course of care.  This includes an understanding of the risks and the benefits, knowledge of the costs and the alternatives, and having some measure of quality about the providers.  Armed with such information, consumers with high deductibles can select low cost care rather than no care at all.  They can even select providers based on high value rather than on convenience.

Several insurance companies will be sharing their fees through the Health Care Cost Institute in early 2015.  Consumers need to embrace transparency and begin shopping for healthcare the way they do everything else.

Part of this letter was published in the NY Times

A Poor Prognosis for the ACO Model

The results of the Pioneer ACO program were released by CMS after completing its second year.   This is not a front page news story for good reason.

The Pioneer program attracted 32 of the most confident and motivated medical centers that were willing to take on full downside risk if they failed to spend less than their target amount.  After year one, 9 centers dropped out of the program.  Three more did so this past August.

14 of the remaining 20 centers saved money in year two for an average of 3.11% below the target.  Six of 20 centers overspent their target in year two by an average of 1.97%.  The net result for the group of 20 centers was a 1.59% savings under the goal set for them by CMS.  Again, these are the most highly motivated medical centers trying to reduce costs by going after the “lowest hanging fruit”.

The US spends more than twice as much on per capita healthcare as all other countries in the world.  Every statement about waste within the US healthcare system indicates that 30% of our expenditures are unnecessary.  Therefore, a 1.59% savings by this group of medical centers sends one clear message:  the ACO model is not likely to be the answer for our broken healthcare system.  We can do better than this!

Strategies to Reduce Low-Value Care

In response to article by Carrie H Colla, PhD, N Engl J Med. 2014; 371:1280-1283, October 2, 2014.  “Swimming against the Current – What Might Work to Reduce Low-Value Care?”

Controlling healthcare spending in our broken fee for service model is certainly comparable to swimming upstream.  Fee for service is not the primary force behind that current.  Until recently, patients have not been concerned about costs, and providers as well as third party payers have had incentive for higher spending.  How could we expect anything other than out of control spending?

Dr Colla concludes that the best solution for our broken system lies in educating the patients with tools such as “Choosing Wisely”, and putting providers on the hook with risk sharing models such as accountable care.  In this construct, costs are not open for discussion, and patients are left out of the decision making process.   From the consumer standpoint, ACO is “prix fixe” healthcare.

Alternatively, educating patients and doctors about cost (since neither one knows much about this now), putting the patient on the hook for some of the costs (this is already happening with cost sharing insurance policies such as high deductible and co-insurance), educating patients with “Choosing Wisely”, and rigorously measuring quality, is a more patient-centered strategy.  Consumers will learn to distinguish between providers that guide them toward high value, and away from low value care versus those that do not.  Quality  scores of wasteful providers will tell the story.

Transparency of cost is coming and will be needed to define low vs high value.  An MRI may be a high value for a given condition at $400 but low value at $4000.  An honest assessment of value cannot be made without full disclosure of costs. Let’s start swimming with open eyes.

Learning from the UK on Pay for Performance

“Success and Failures of Pay for Performance in the UK”,  Martin Roland and Stephen Campbell.  NEJM,  May 15, 2014.

Paying for performance tinkers with quality of care by selecting areas of focus by healthcare providers.  Incentives improve some areas of care but hinder others.  The unintended consequences created by shifting provider attention need to be better understood.   There was no mention in this article about the impact of P4P on cost of care.  Not an issue in UK as it is in the US.

UK spends 8.4% of its GDP on healthcare.  Per capita costs of care are about $3000.

US spends 18% of its GDP on healthcare.   Per capita costs of care are about $7300.

Perhaps the US needs to look elsewhere to address its pressing problems of extremely high costs and low quality.  Transparency of cost and quality in a competitive marketplace where consumers pay a fraction at the time of service…..or a single payer system.  In the US, we do not have the luxury to tinker.

The $100,000 Remicade Infusion…how is this possible?

On April 5, 2014, the NY Times published another article by Elisabeth Rosenthal on the extremely high costs of healthcare in this country.   This article focused on the escalating costs of type 1 diabetes care – now in the range of $26,000 per year for medication and equipment.  She also told the story of a science teacher who had been getting Remicade infusions for psoriatic arthritis every 6 weeks at NYU – he stopped going when he discovered that his insurance company was paying almost $100,000 for each infusion.  As long as the fees paid for virtually all healthcare services remain a secret, this kind of misguided use of insurance premiums will continue.  Consumers need access to the fees paid for healthcare services before they receive care.  This is particularly important now that 40% of consumers have a high deductible.

Here is the article.

Here are the letters to the editor.

Doctors are migrating to salaried positions

On February 13, 2014, the NY Times published an article by Elisabeth Rosenthal entitled “Apprehensive. Many Doctors Shift To Jobs With Salaries”.   She describes how healthcare providers are joining larger medical practices and often take salaried positions.   Physicians join hospital-based practices primarily for two reasons.  First, because the complexity of running a cutting edge healthcare practice, with all of the technologic and regulatory challenges, requires tremendous effort and expense.  The second reason is that hospital-based practices are paid substantially higher fees than smaller independent practices.

When fees for healthcare become transparent, it will be clear that the rapid consolidation of healthcare providers that has been occurring over the past decade, has come at a hefty price. Until we understand the impact that consolidation has had on costs of care, we cannot do a meaningful analysis to determine if the benefits justify the costs.

Many of the contracts that salaried physicians are signing include incentives to those that give cost-effective care.  If doctors spend less on patient care than a fixed benchmark (set by the organization), they are eligible for a bonus.  In theory, this will reduce the wasteful spending estimated at 30% of current healthcare costs.    Accountable Care Organizations (ACOs) are also designed to work this way to reduce healthcare spending.   However, it has not yet been shown that such incentives can bend the cost curve.   In fact, after a five year pilot study, and one full year in practice, the most enthusiastic medical centers that signed up for the ACO program in year one have managed to reduce spending by less than 1%.

The current trends in our healthcare system appear to be exacerbating the cost conundrum.  At the very least, we need an assessment of the costs of consolidation and an honest review of the flaws inherent in the ACO model.  A better solution lies in a competitive marketplace where transparency of cost and quality allow consumers to drive down the costs of care.

Anatomy of the World’s Most Expensive Healthcare System

Many leading healthcare experts believe that fee for service is the root cause of our extremely expensive healthcare system.  While there is an element of truth to this position, it is only part of the story.  Meanwhile, multiple fundamental design flaws that drive healthcare costs upward are not being given the credit they deserve.

Top 5 reasons that Healthcare costs are so high:

1.  Insured patients have not been concerned about the costs of healthcare.  Until recently, a third party payer has covered most healthcare costs and the percent paid by healthcare consumers has been steadily falling from 50% in 1960 to 12% in 2010 (1).   Without skin in the game, the healthcare consumer has had no incentive to reduce costs and the provider has had no constraint from offering high cost care.  The landscape is changing with the cost-sharing insurance strategies that are placing more financial responsibility with the consumer. High-deductible and co-insurance policies are forcing healthcare consumers to learn about cost and value.

2.  Patients and providers are unaware of the costs of care.  Unconcerned about the costs of care, consumers have engaged in healthcare without any knowledge of the costs. Consumers get an MRI of the brain for $3900 when they could have one for $425, or an endoscopy for $7700 when they could have had one for $500.  Neither consumers nor providers have had access to the information about cost (2).  Several organizations around the country have been striving to introduce cost transparency but, thus far, patients have been slow to access the data.  Leaders in this space include Castlight, Healthsparq, Robert Wood Johnson Foundation, Healthcare Blue Book, Clear Health Costs, Costs of Care, Catalyst for Payment Reform (CPR), Health Care Incentives Improvement Institute (HCI3). Health Care Cost Institute (HCCI), Change Healthcare, and FAIR Health.  Cost data without meaningful and reliable quality measures will be very difficult for consumers to interpret.

3.  Private insurance companies have been able to increase premiums annually and , therefore, have had little incentive to hold down the costs of care. This trend has reached its limit as businesses have been shifting more of the costs of insurance coverage to employees.  For many low and middle class families, costs have hit a breaking point with deductibles in the range of $4000-$8000 per year.  Consumers can no longer ignore costs when choosing their healthcare providers.   AHIP (America’s Health Insurance Plans) recognizes that it is time to lower healthcare costs and is supporting the idea of fee transparency.(3)

4.  Providers have incentive to spend more – resulting in more income and more protection from malpractice claims.  Elimination of the fee for service system is the most widely touted solution for controlling healthcare costs.  The proposed solution is designed to remove the provider’s incentive for more healthcare spending either by making all physicians employees, or by creating a financial incentive to spend less (ACO, bundled care).  However, salaried physicians working for large institutions that retain their profit motive, and may still be pushed to think of profits first.(4,5).  Physicians are now gravitating to salaried positions in large institutions where the contracted fees from private insurance carriers are substantially higher (6).   It is unlikely that any cost savings from this model will balance the cost increases that accrue from consolidation….particularly since ACOs, to date, have only managed to save about 1% of costs. (7)

5.  We do not have enough primary care providers.   The US has the highest ratio of specialists to primary care providers in the world – driven largely by the lack of medical student interest in primary care.  The lower earning potential of primary care in the face of very high college and medical school debt, leads most new physicians to choose specialty care.  More specialists leads to higher costs of healthcare.(8)   Reforming the relative value payment scale to recognize the benefits of primary care would help to alleviate this imbalance.

Making consumers aware and concerned about healthcare costs will drive them to seek high value providers.  Combine this with incentives for providers  to be more efficient with healthcare resources, and the mechanisms for real cost reduction will be in place.  Failure to address all of the flaws in our current system will limit the success of healthcare reform.



1.  Baicker, Katherine, and Dana Goldman. 2011. “Patient Cost-Sharing and Healthcare Spending Growth.”  Journal of Economic Perspectives, 25(2): 47-68.

2.  Michelson, Dan,  “Doctors don’t know or care about cost?  That’s half right.”  Healthcare IT News, 2/20/14

3.  AHIP web site: “Rising healthcare costs”

4.  “Hospital Chain Said to Scheme to Inflate Bills”, Julie Creswell and Reed Abelson, The New York Times, Jan 23, 2014.

5.  “A Hospital War Reflects a Bind for Doctors in the US”, Julie Creswell and Reed Abelson, The New York Times, Nov 30, 2012.

6.  “Apprehensive, Many Doctors Shift to Jobs With Salaries”,  Elisabeth Rosenthal, The New York Times, Feb 13, 2014.

7. “ACOs Saving Some Money, But Medicare is Short on Details”, Jenny Gold, Kaiser Health News, Jan 31, 2014.

8.  “What’s The First Step in Transforming American Health Care”  Robert Pearl, Forbes, Feb 20, 2014.