When patients are paid for saving on health care, it adds up fast
If given the choice between paying $15 for an oil change or spending $150, which would you choose, all things being equal?
Now, what if someone else is going to pay the bill? You’d probably go the nearest mechanic and never give it another thought. After all, it’s not your money.
That’s exactly what happens with health care. Different providers can charge a ridiculous range of prices for the exact same service, but that fact is almost never revealed to the patient, who assumes the insurance company will take care of it.
That assumption, and the patient’s decision not to shop for a good price from a quality provider, costs Americans $600 billion a year, according to research published in the Journal of the American Medical Association. If Americans took the time to shop for the best value, they could shave up to 20 percent off the nation’s annual medical bill, but only if they could figure out the prices.
“Health economists and other experts are convinced that significant cost containment cannot
occur without widespread and sustained transparency in provider prices,” the Robert Wood Johnson Foundation found in its study of health care prices.
The good news is that tech companies are helping insurance companies use claims data to pull back the curtain on what we’re paying, to whom, for what, and more importantly, who’s gouging consumers and providing poor-quality care.
The first, and most important lesson, is that price and quality have little to do with each other in health care, according to the Rand Corp., a think tank that analyzed 62 studies comparing price and outcomes. Eighteen studies found that lowquality providers actually cost more because better doctors are more efficient and less likely to make mistakes.
The second lesson is that big hospitals and clinics mark up prices on routine procedures to offset losses in other areas. That has spurred the growth of competitors that offer routine services for lower prices at urgent care centers, specialty imaging facilities and drug infusion centers.
Since a good employerfunded health plan will enroll both the big hospitals and the small specialists into its network, the cost of a colonoscopy can range from $10,942 at a big hospital to $2,541 at an endoscopy center, with no difference in quality. The challenge for insurers and human resource departments is persuading the patient, who will pay the same deductible or co-payment either way, to choose the cheaper, highquality option.
Insurers have hired tech companies to create internal search engines to help patients find doctors and services, but only 3 percent of patients use them, said Mitch Rothschild, founder and executive chairman of Vitals, a data company that operates such databases. To encourage patients to become shoppers, Vitals has developed the SmartShopper program, the first in the country to share the cost savings with the patient when they shop around.
“When you save money, SmartShopper sends you a check,” he said. “Our mission is to make shopping for a doctor as easy as shopping on Amazon.”
Vitals began rolling out SmartShopper in Texas this summer with the state’s largest health insurer, Blue Cross and Blue Shield of Texas. But it’s already racked up $12 million in savings in 2015 for other insurers while paying out nearly $1.5 million to patients.
By shopping for the best deal, insurers and employers saved an average of $1,170 per colonoscopy, $586 per MRI, $508 per CT scan and $61 per mammogram. If the same $508 savings was realized on all 80 million CT scans conducted every year, the U.S. economy would have saved $40 billion.
Vitals charges extra for the SmartShopper program, which includes a marketing campaign to encourage employees to use it. But for every $1 an employer spends on SmartShopper, it sees a $7 reduction in its health care costs even after the patient gets a cut, Rothschild said.
The program is designed to drive patients to good doctors who control their costs, while giving an immediate cash incentive to employees to lower health care costs, he added. Over time, the goal is to slow the growth of premiums. Since Texans spend an average of 12.3 percent of their income on health care, according to the Commonwealth Fund think tank, every little bit of savings helps.
“The only people who are going to dislike it are the health care providers that are overpriced or offer low quality,” he said. Vitals reports that some providers have recently lowered their prices to become more competitive because of SmartShopper.
Rothschild is the first to say that offering cash incentives only works when patients can see that they aren’t compromising quality, which is why provider ratings are critical to the system. That’s also why it works best with simple, routine procedures.
The most revolutionary part, though, is giving patients an incentive to control their health costs, thereby encouraging providers to offer the best prices.
The patient is the crux of our health care system, and the more encouragement he or she gets to choose the best and most affordable care, the better our free market system will work.
Chris Tomlinson is the Chronicle’s business columnist. His commentary appears on Sundays and Wednesdays. He also posts a daily news analysis at HoustonChronicle. com/Boardroom. chris. tomlinson@chron.com twitter.com/cltomlinson