Out-of-pocket costs rising even as patients transition to lower-cost care settings

https://www.healthcarefinancenews.com/news/out-pocket-costs-rising-even-patients-transition-lower-cost-care-settings?mkt_tok=eyJpIjoiWldZeVlXTm1aVEF6TVdKbSIsInQiOiJjbWFzeVA2TGlWZkNkXC9odGxcLzdLczFZSDYxd1hoYW04b0wxY0ljQ25zblpYN1VWc2FMWFFCQWpmc2tCYmE4d1Z3eVdMd2htY3JiSjZ3N2Urek43SHFJbWFsckdRbUNycFJoQjhzZm5VcGpJUUhKUDlBMWF2eGJzRUhmZGFlUUx0In0%3D

Patients saw increases of up to 12% in their out-of-pocket responsibilities for inpatient, outpatient and ED care in 2018.

A new TransUnion Healthcare analysis has found that most patients likely felt a bigger pinch to their wallets as out-of-pocket costs across all settings of care increased in 2018. The new findings were made public yesterday at the 2019 Healthcare Financial Management Association Annual Conference in Orlando.

The analysis reveals that patients experienced annual increases of up to 12% in their out-of-pocket responsibilities for inpatient, outpatient and emergency department care last year.

In 2017, the average inpatient cost was $4,068; the average outpatient cost was $990; and the average emergency department cost was $577.

In 2018, the average inpatient cost was $4,659; the average outpatient cost was $1,109; and the average emergency department cost was $617.

FUELING THE TREND

There are certain factors that are influencing this trend, according to Jonathan Wiik, principal of healthcare strategy at TransUnion Healthcare.

“Patients are becoming more aware that emergency care is expensive and somewhat inefficient,” Wiik said. “No one wants to go to the emergency room unless we have to, because we don’t want to deal with the time there or the expense. They aren’t the best place to get primary or even urgent care.”

Another factor, he said, is that providers realize the emergency department is a care setting of last resort for many. Providers want to make sure that have room in the ED for cases that are real emergencies, so they’re essentially curating their patients, steering patients to the most cost effective settings possible — often primary care, which is the least expensive setting.

Noting that the biggest annual increases were in inpatient and outpatient care, Wiik said that was largely a function of utilization and just a general wariness, in addition to the fact that most EDs have pretty flat contracts. Financial communication with patients is also an issue.

“Most people can’t afford the average out-of-pocket, so providers are really trying to educate patients as early as they can about those costs,” said Wiik. “Emergency care is a really hard place to educate people on finances, let alone collect on them.”

RISING COSTS

The analysis found that, during a hospital visit, patients are likely experiencing cost increases that continue the trend of higher out-of-pocket costs. About 59% of patients in 2018 had an average out-of-pocket expense between $501 and $1,000 during a healthcare visit. This was a dramatic increase from 39% in 2017. Conversely, the number of patients that had an average out- of-pocket expense of $500 or below decreased from 49% in 2017 to 36% in 2018.

And with out-of-pocket costs increasing, the trend toward consumerism is growing as more patients, payers and providers transition to lower cost settings of care.

One example: Inpatient care, traditionally the most expensive healthcare option, has seen a leveling off with the percentage of price estimates remaining at 8% between 2017 and 2018. The percentage of outpatient services estimates, generally about one-quarter of the cost of inpatient services, rose in that same timeframe from 65% to 73%.

“Patients are likely seeing more providers and payers recommending that they take advantage of cost-effective healthcare options, which brings down costs for all parties,” said Wiik. “This is especially important as costs continue to rise in all areas of healthcare, particularly in inpatient, outpatient and emergency department services.”

This is having an impact on providers, payers and patients, he said.

“Let’s pretend Joanna had an MRI in her head, and that ran $3,200. That might have been paid by Blue Cross Blue Shield, and $100 out of Joanna’s pocket. Now Joanna’s paying $300. Most patients don’t look up how much the MRI’s going to be. They just get the bill later and try to figure it out. I think the patient portion of the bill is going to be in the 35, 40% range very soon. What that means is we’re quickly approaching half of the bill coming from the patient and half from the payer. That’s not insurance anymore, that’s a bank account.”

A recent Kaiser Family Foundation study indicated that 34% of patients are finding it difficult to pay their deductible before insurance kicks in. In addition to patients being challenged to make payments, the trend is that providers are also feeling the pressure of increased denial rates and write-offs, which is increasing bad debt.

Considering these factors together — increased out-of-pocket expenses, a patient’s challenge to make payment, and increased denial rates — collecting payments from all payers is critical for providers. In order for providers to ensure they receive payment for the patient-care services rendered, it is vital that they implement strategies that maximize reimbursements.

 

 

Medical costs projected to increase 6% by 2020, says PwC

https://www.healthcarefinancenews.com/news/medical-costs-projected-increase-6-percent-2020-says-pwc?mkt_tok=eyJpIjoiWldZeVlXTm1aVEF6TVdKbSIsInQiOiJjbWFzeVA2TGlWZkNkXC9odGxcLzdLczFZSDYxd1hoYW04b0wxY0ljQ25zblpYN1VWc2FMWFFCQWpmc2tCYmE4d1Z3eVdMd2htY3JiSjZ3N2Urek43SHFJbWFsckdRbUNycFJoQjhzZm5VcGpJUUhKUDlBMWF2eGJzRUhmZGFlUUx0In0%3D

Utilization is still being dampened by high deductibles and other cost sharing, but at the expense of employee satisfaction.

Medical costs are rising, and by this time next year costs will likely show a modest increase of about 6% over the past two years, according to a new report from PwC, PricewaterhouseCoopers.

After figuring in health plan changes such as increased employee cost sharing and network and benefit changes, PwC’s Health Research Institute, which conducted the study, projects a net growth rate of 5 percent. Even with employers’ actions, market forces likely will still overrun the efforts to quell them.

Prices, not utilization, are continuing to fuel healthcare spending. Utilization is still being dampened by high deductibles and other cost sharing, but at the expense of employee satisfaction with their health plan. In response, employers are inserting themselves more forcefully into the healthcare delivery equation.

WHAT’S THE IMPACT

Beyond market forces, HRI identified three “inflators” that will, influence the medical cost trend.

One is that drug spending will grow faster. Between 2020 and 2027, retail drug spending under private health insurance is projected to increase at a rate of 3 percent to 6 percent a year as the impact of generics on spending plateaus, biosimilars continue to see slow uptake, and costly new therapies enter the market.

Chronic diseases will also be a major issue. Obesity and Type 2 diabetes continue to produce high rates of hypertension and cardiovascular disease. Sixty percent of adults have a chronic disease, with 40 percent managing two or more. For employers, per capita health spending on someone with a complex chronic illness is eight times that of a healthy person.

Lastly, employers are beginning to recognize the importance of helping their employees manage their mental health and wellbeing. Nearly 75 percent of employers offer mental health disease management programs, the report found. Anytime access is expanded, costs will go up in the short term, though it may have the opposite effect long-term.

And speaking of the opposite effect, there are a few “deflators” HRI recognized that will likely slow down the medical cost trend.

HRI predicts that in 2020, more companies will take action to make sure healthcare is accessible to their employees, opening and expanding clinics as a strategy to control the cost trend. Thirty-eight percent of large employers offered a worksite clinic in 2019, up from 27 percent in 2014.

Also, payers are designing plans to encourage members to choose free-standing facilities and in-home care rather than more expensive sites. How those benefits are designed, and how employees perceive the costs, will shape the effectiveness of site of care strategies. Payers and employers are aiming to grow the role of telemedicine as employees grow more comfortable with it, especially if out-of-pocket costs are lower and the quality doesn’t suffer.

WHAT ELSE YOU SHOULD KNOW

The trend has implications for employers, payers, providers and even pharmaceutical and life science companies.

For payers, it becomes important to  benchmark the prices paid commercially against a common reference point such as Medicare. With this information it’s possible to pursue value-based arrangements with high-performing and lower-cost providers, in addition to negotiating better contracted rates on existing fee-for-service arrangements.

For providers, a value line strategy is necessary as employers and consumers look for high quality care for a low cost. Providers armed with a value line strategy are more likely to be included in health plans’ high-performance networks, and are better positioned to directly contract with employers.

Providers should also understand what risk they can take on to guarantee a health outcome, and the cost structure needed to make them profitable in doing so. Providers should understand and manage both the risk inherent in their ability to deliver care and the risk of the population they’re managing — from health status to the social determinants impacting their health — to help them design appropriate clinical interventions and non-clinical support services.

For employers, it becomes imperative to understand their role as the purchaser of healthcare for employees and join the ranks of employer activists, pursuing new solutions to lower costs, improve access and enhance quality. Pharmaceutical and life science companies, meanwhile, should go beyond the basic outcomes-based arrangements currently in place and consider exploring and expanding alternative financing arrangements, such as subscription models for unlimited access to a product for a set period of time, or a mortgage model to finance expensive specialty drugs over time.

THE LARGER TREND

The PwC study loosely mirrors the findings of an October report from the Altarum Center for Value in Health Care, which found prices and spending in healthcare growing steadily, but at a moderate pace.

The country’s healthcare spending habits are at a level nearly double that of similar countries. Spending per capita in the U.S. is more than $9,000, compared to just over $5,000 in other Western nations, and because prices are growing slowly but steadily, spending is doing the same.

 

 

When a hospital wields monopoly power

https://www.axios.com/newsletters/axios-vitals-1b40c794-c913-4681-b2ac-7a6e9746718f.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

Illustration of a giant health plus on top of a pile of cash, the ground underneath is cracking.

NorthBay Healthcare, a not-for-profit hospital system in California, recently gave a candid look into how it operates, telling investors it has used its negotiating clout to extract “very lucrative contracts” from health insurance companies.

Why it matters: This is a living example of the economic theories and research that suggest hospitals will charge whatever they want if they have little or no competition, Axios’ Bob Herman reports.

Details: NorthBay owns two hospitals and several clinics in California’s Solano County. Kaiser Permanente owns the only other full-service hospital in the county, and Sutter Health operates some medical offices. (A NorthBay spokesperson argued the system is “more akin to the David among two Goliaths.“)

Three health insurers have terminated their contracts with NorthBay over the past couple years. During a June 19 call with bondholders, executives explained why this has happened.

“We’ve been able to maintain very lucrative contracts without the competition. And what the payers are saying is, they would like us to be like 90% of the rest of the United States in terms of contract structure.”

Jim Strong, interim CFO, NorthBay Healthcare

Between the lines: NorthBay’s revenue has increased by 50% over the past few years, from $400 million in 2013 to $600 million in 2018, due in large part to its natural monopoly and oligopoly over hospital services.

  • This is exactly what we should expect to happen when sellers have the upper hand over buyers, economists say.

NorthBay also serves as a cautionary tale for price transparency, the policy fix du jour.

  • If the health care system is consolidated, consumers don’t have anywhere else to go,” said Sunita Desai, a health economist at NYU. “Even if they see the prices of a given hospital, they’re limited in terms of how much they can ‘shop’ across providers.”

 

 

 

The drug pricing debate is stuck in the past

https://www.axios.com/drug-pricing-debate-stuck-in-past-10ba315e-0ddf-4013-8c5a-f8ee89c2f530.html

Illustration of falling pills and coins

There’s a scientific and economic revolution happening in medicine, and the political debate over drug prices isn’t keeping up. Not only are policymakers struggling to agree on solutions, they’re mostly talking about yesterday’s problems.

Why it matters: Medical innovation is already hurtling toward a new era of highly specialized drugs — some are even tailor-made for each individual patient. They may be more effective than anything we’ve seen before, and also more expensive. But the drug-pricing debate is more focused on decades-old parts of the system.

The big picture: “We haven’t really contemplated how we’re going to absorb some of these things,” Food and Drug Administration Scott Gottlieb said. “These are good problems to have…but they are policy challenges.”

Where it stands: Congress is mainly squabbling over proposals to reduce prices by boosting competition — by making it easier to start developing generics, or by changing patent protections that help pharmaceutical companies keep their rivals at bay.

Yes, but: Those regulatory tools were designed for a world in which pharmaceutical companies develop relatively simple drugs and try to market them to a big group of people. But science is rapidly moving away from that world.

  • Gene therapy, for example, is the new wave in cancer treatment. It helps patients’ own immune systems fight off cancer — which means each dose is custom-made for each patient. It’s a highly promising approach, but treatment can come with a price tag north of $1 million once all is said and done.
  • The old dichotomy of a brand-name pill followed by a generic version of that pill doesn’t really hold up for custom-made drugs.
  • So tools that try to promote competition simply may not work as well. “I don’t think they’re solutions for gene therapies because I think you’re ultimately going to have to figure out ways to capitalize those costs,” Gottlieb said.

Even without being custom-made, many new drugs are still trying to treat smaller groups of patients — like people with the same specific genetic mutation.

  • “Generic entry might not prove to be as successful for addressing this problem as it has historically been, and I think it’s because we fundamentally have shifted into these other types of products where competition is just more challenging,” Vanderbilt’s Stacie Dusetzina said.

Most of these new drugs belong to a class known as biologics. They’re more complex than the drugs we’re used to, and therefore have the potential to be more precise in the way they interact with your body.

  • “The way drugs are produced and made now is quite different from the way they were produced and made in the early ‘80s, and that’s both because…you have a lot of these drugs being made for small populations, and for biologics the science is so much more complicated,” said Rachel Sachs, a professor at Washington University.
  • Biologics don’t have traditional generic versions; the equivalent are products known as “biosimilars.”
  • The Affordable Care Act created a pathway for the FDA to approve biosimilars, but that market has been slow to take off, and at least in the early going, biosimilars often don’t offer the same steep discounts as traditional generics.

Promoting competition isn’t the only idea in the world, but more muscular price controls are much more controversial.

  • Most of these new, complex drugs are administered at a doctor’s office, not picked up from a pharmacy. The Trump administration has proposed tying Medicare’s payments for that class of drugs to the lower prices that other countries pay, and Democrats support direct Medicare price negotiations.

The bottom line: “One version of ten years from now will have very limited competition in certain types of markets, either because the market has eroded it to be that way or because the drugs that are coming out will by definition have limited competition,” said Rena Conti, a professor at Boston University.

 

 

 

Federal Reserve Report on the Economic Well Being of U.S. Holdholds in 2018

https://www.federalreserve.gov/consumerscommunities/files/2018-report-economic-well-being-us-households-201905.pdf

2018 Employer Health Benefits Survey – Section 7: Employee Cost Sharing

Figure 7.10: Average General Annual Deductibles for Single Coverage, 2006-2018

Shot: Almost 40% of Americans would struggle to handle a surprise expense of $400, according to a new Federal Reserve report.

Chaser: The average deductible today among all workers is more than $1,300, according to the Kaiser Family Foundation.

 

 

House Subcommittee Takes Dim View of Healthcare Consolidation

https://www.healthleadersmedia.com/strategy/house-subcommittee-takes-dim-view-healthcare-consolidation

Lawmakers and witnesses alike cited the ill-effects of hospital mergers and acquisitions in a long list of industry behavior they find troubling.


KEY TAKEAWAYS

An economics and health policy professor from Carnegie Mellon suggested lawmakers should give the FTC more power to review nonprofit mergers.

Lawmakers from both sides of the aisle expressed dissatisfaction with the healthcare industry’s consolidation trend and voiced support for legislative action.

A hearing of the House Judiciary Committee’s antitrust subcommittee would not have been a comfortable place Thursday for any healthcare executive touting the benefits of a planned merger or acquisition.

Lawmakers and witnesses took turns criticizing rampant consolidation among hospitals and other healthcare companies. While the public is often told these deals will lead to improved efficiency and higher quality care, those purported benefits frequently fail to materialize, they said.

Since the hearing grouped payer and provider consolidation with anticompetitive concerns about the pharmaceutical industry—an area that both major parties have expressed interest in addressing through congressional action—the discussion could signal how lawmakers will approach any legislation to address the problems they perceive.

Rep. Doug Collins, a Republican from Georgia and the committee’s ranking member, said hospital consolidation has had an especially detrimental impact on rural communities in his state.


“These communities often already have few options for quality care, so as hospital consolidation has increased over the past 10 years, rural communities like my own have been hurt the most,” Collins said.

“At times, these mergers and acquisitions can help rural communities by keeping facilities open, but often they result in full or partial closures and shifting patients from nearby facilities to those hours away,” he added.

Some problems caused by consolidation, such as increased travel times for emergency services, can “literally mean the difference in life and death,” Collins said.

Jerry Nadler, a Democrat from New York and the committee’s chairman, said there’s no question that the recent spate of mergers has contributed to the industry’s problems.

“It is well documented that hospital mergers can lead to higher prices and lower quality of care,” Nadler said.

Martin Gaynor, PhD, an economics and health policy professor at Carnegie Mellon University and a founder of the Health Care Cost Institute, said in his testimony that there have been nearly 1,600 hospital mergers in the past 20 years, leading most regions to be dominated by one large health system apiece.

“This massive consolidation in healthcare has not delivered for Americans. It has not given us better care or enhanced efficiency,” Gaynor said. “On the contrary, extensive research evidence shows us that consolidation between close competitors results in higher prices, and patient quality of care suffers for lack of competition.”

Since hospitals that have fewer competitors can better negotiate favorable payment terms, this consolidated landscape “poses a serious challenge for payment reform,” he added.

“Our healthcare system is based on markets. That system is only going to work as well as the markets that underpin it,” Gaynor said. “Unfortunately, these markets do not function as well as they could or should.”

Gaynor recommended several possible policy changes, including an end to policies that make it harder for new competitors to enter a market and compete and an expanded authority for the Federal Trade Commission to review potentially anticompetitive conduct by nonprofit entities. He also said lawmakers should consider imposing FTC reporting requirements for even small transactions to enhance the tracking capabilities of enforcement agencies.

To support his claims, in his written testimony, Gaynor pointed to research he completed with Farzad Mostashari of Aledade Inc. and Paul B. Ginsburg of The Brookings Institution.