Deflating the health care cost balloon without bursting anyone’s bubble

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Anthem BlueCross BlueShield recently announced that in several states it will no longer pay for MRIs and CT scans performed in hospital outpatient settings. Instead, as a cost reduction measure, Anthem is directing its members to free-standing imaging centers that are not owned by hospitals. Though this approach may not be popular with some, Anthem has made a bold leadership choice to address a critical problem.

Site-of-service – referring to the price differential that frequently exists for the same health care service delivered at different places – has been getting increasing attention over the last several years. Nationwide, as studies show, fees for imaging services at non-hospital-owned free-standing facilities are often one-half to one-third the cost of the same services performed at hospitals. A number of other health care services show similar differences, stressing how site-of-service is an important health cost issue to all of us.

It’s also important to understand the hospitals’ perspective. Hospitals are businesses. They have employees to pay, lights to keep on, facilities to maintain, technology to operate and many other sources of expense. Hospitals also may have overhead that the free-standing facilities don’t have, such as 24/7/365 staffing requirements and service availability. They also can’t totally schedule their imaging machines – which free-standing facilities can do very efficiently – in case they’re needed for emergencies.

With all these operating expenses, if I were a hospital executive and I lost revenue in one area, imaging in this example with Anthem, I’d have no choice but to raise the cost of other services to recover the loss. In today’s model, health care costs are just like a balloon – you squeeze a bit over here and it simply expands over there.

We need to apply some new approaches to address escalating health care costs that have so far resisted the moderating efforts of point solutions. What we have today – such as the service-by-service approach of trying to lower costs (or squeezing the balloon) – has not worked.

In most sectors of the American economy, products and services are bought and sold in a marketplace. Marketplace competition is amazing. It drives prices down and quality up because of what a market does – it makes sellers accountable to buyers. This competitive dynamic does not exist in our health care system.

Injecting competition into health care could achieve dramatic results and be a fascinating proposition for employers who provide health care coverage to more than half of Americans – about 160 million people. Employers who want to attract the best talent could use health care as a competitive differentiator. For employer-sponsored plans, a competitive health care marketplace could look like this:

· Supply Side Competition: Health systems that combine doctors, other care providers, hospitals, ambulatory care centers and more, compete for membership in a transparent marketplace when consumers go through annual Open Enrollment.

· Patient Loyalty: Families shop and choose a particular health system for their care during the plan year.

· Deeper Clinical Relationships: Outperforming health systems – those that can demonstrate the best combination of cost and quality – win patient loyalty and build two-way, data-rich relationships between doctors and patients.

· Ongoing Clinical and Economic Value: Outperforming health systems and their doctors also grow their businesses, increase their total revenue, and enjoy an optimized clinical environment while delivering greater value to patients and plan sponsors. This encourages them to continuously improve the patient experience and total cost of care – exactly what we all need.

In this model, the goals of all stakeholders align. Consumers receive better care, plan sponsors offer more affordable and higher quality benefits, employees save money, and the best providers earn loyalty and engaged patients. By receiving their care from their chosen health system, consumers no longer have to navigate the free-standing facility versus hospital facility site-of-service maze or anything else like it.

The best deal worth making is often the one where all parties benefit. I see a competitive point-of-enrollment marketplace as a powerful way to ensure a sustainable future for health care.

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Healthcare industry Healthcare benefits Healthcare costs Healthcare plans