What We Can All Do About Rising Healthcare Costs

By Michael Evans and Kevin Fleming

In a striking shift of healthcare costs, patient payments now account for 35% of provider revenue, the third largest source of provider income behind only Medicare and Medicaid. By comparison, in 2000 patients paid just 5% of healthcare provider revenue. This trend is expected to continue, with patients bearing a growing portion of the financial responsibility for their care.

The reasons for this shift are complex and varied: high-deductible health plans, providers’ rising operating and regulatory costs, employers’ desire to offer a health benefit while managing their own costs, and the opaque pricing and payment structures maintained by healthcare insurers and other payers. The result of this shift is that too many Americans are struggling to afford the care they need and many providers are suffering financially due to the difficulties of collecting from financially stressed patients.

In principle, healthcare coverage should make it possible for a covered individual to seek the care they need with the knowledge that their treatment will be within their means financially. In reality, healthcare consumers are instead avoiding or delaying needed care, or abandoning treatment because of concerns about their ability to pay. Yet, communication about patient financial issues often occurs when the patient receives a bill after the service is performed. In no other industry does a buyer buy a service without knowledge of the cost and the relative benefit of the product or service. Would you buy a car or clothing and not look at the price tag before you bought them?

The growth of healthcare and insurance costs

Most workers with company-provided healthcare insurance face additional out-of-pocket costs when they use health care services.  Eighty percent of covered workers have a general annual deductible that must be met before services are reimbursed by their health plan. Even workers without an annual deductible often face other types of cost sharing when they use services, such as copayments or coinsurance for office visits and hospitalizations which can run into thousands of out-of-pocket dollars.

The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) recently announced that healthcare spending costs rose 9.9% in the first quarter of 2014, which was the largest quarterly increase in more than 30 years.

In 2015, the average annual premiums for employer-sponsored health insurance were $6,251 for single coverage and $17,545 for family coverage. Each rose 4% over the 2014 average premiums. During the same period, workers’ wages increased 1.9% and inflation declined by 0.2%. Premiums in 2016 increased by an additional 7% on average. This trend shows no sign of reversing. Healthcare is expensive and patients will need to cover more of the cost themselves.

The emergence of high-deductible health plans

Much has been publicized recently about the rising deductibles under the Affordable Care Act (Obamacare). High-deductible health plans (HDHPs) are simply a health insurance plan with lower premiums and higher deductibles than a traditional health plan. HDHPs were traditionally considered and used as a form of catastrophic coverage, which was intended to cover the high level of expense associated with catastrophic illnesses.

By choosing an HDHP over a traditional health plan, there is a tradeoff for the consumer: a lower health care insurance premium on a month-to-month or annual basis, but a higher deductible and an increased financial burden should one become ill. In exchange for a relatively low annual or monthly premium when compared to the traditional health plan, the insurance benefits do not kick in until the consumer has met their annual deductible, which is much higher than the traditional health plan, sometimes exceeding $10,000.

Patients are now becoming more sensitive to healthcare costs since so much of the cost is coming from their own pocket. However, the industry has not changed to provide patients with financial transparency so that a patient can evaluate treatments and assess the relative costs and benefits.

Because of the increased financial burden consumers bear and its growing impact on healthcare providers’ revenues and profitability, consumers have never been better positioned to lobby for financial consideration that measures up to the practices established by other retailers of goods and services. The following 10 principles represent reasonable best practices for a healthcare industry that relies on patients for a significant portion of its revenue:

1. Pricing transparency

The lack of pricing transparency in healthcare makes intelligent decision making impossible. It disempowers consumers and allows for wide pricing disparities among payers. Most consumers are comfortable with the notion that you get what you pay for and are happy to spend more when they see greater value. Healthcare can no longer be exempt.

2. Flexible payment options

The healthcare industry can learn from companies in every other industry in which price and the methods of payment are fundamental to the company value proposition. For many consumers, accessibility of care is directly related to the affordability of care. Discounts for prompt payment, short-term interest-free financing, and longer-term financing all work for other industries. It’s time for the healthcare industry to do the same.

3. Better, more understandable billing

Medical billing can be alarmingly confusing. The result is that many consumers don’t even attempt to understand their financial obligation. Patients should be able to see all of the costs associated with their treatment and what their personal obligation for that treatment is in one place. And they should be able to see it in real time as costs are incurred.

4. Financial care that measures up to the quality of clinical care

Most providers and payers (e.g., insurance companies) devote considerable attention to the quality of clinical care. So why isn’t the same standard applied to the financial dimension of the care experience? When one considers that consumers are avoiding, delaying, and abandoning care because of concerns about cost, neglecting the financial dimension of the patient’s experience compromises the overall quality of care to patients and the community.

5. Interactions that recognize patients as individuals

Individual consumers are unique. Their circumstances, cultures, and behaviors are as diverse as the afflictions for which they seek medical care and their attitudes about how to afford it. Providers must embrace technology to deliver patient-appropriate information and communications in a style that conforms to patient expectations. This “personalization” has become the standard in modern commerce. It’s time for healthcare to catch up.

6. Reasonable financing options

As in other industries, healthcare providers need to partner with lenders who understand the healthcare receivables market and whose interest rates are commensurate with the risk they bear. They must also adapt to the patient’s ability to pay and conduct their collections in a way that honors the patient-provider relationship.

7. Better communication

As patients, the information we’re waiting for is infinitely more important than the real-time status of our pizza delivery, but too many caregivers don’t use even the most basic communication channels to keep their patients informed. Providers should tell us what’s going on, what’s next, and whether they’re planning to make any changes that could affect our lives or our finances.

8. Solid financial backup plans

A diagnosis can change. Treatments can change. When these things happen, concerns about the possible impact on cost can have a serious effect on a patient’s approach to treatment and to their relationship with physicians and medical staff. When additional costs have to be incurred, patients need to be engaged early and openly, with options for how to deal with the extra costs. That way, they can relax about paying and concentrate on getting better.

9. Doctors, nurses, and staff who aren’t distracted by financial minutiae

Clinicians and their patients should be able to concentrate on one thing and one thing only: maintaining and restoring health. Providers should have the financial systems and technology to keep patients informed and shield caregivers from financially related distractions and conflicts.

10. A relationship you can count on

A patient’s relationship with their healthcare provider is probably the most important institutional relationship they have. Providers need to be attentive to every dimension of the experience, clinical and financial, during and between care episodes.

Under the consumer-driven healthcare model, providers, employers, payers, and patients all have a role to play in ensuring that patients get the care they need and providers are fairly compensated for it.

By asserting their expectations for a higher standard of financial care, patients will gain access to vital information they need to seek healthcare intelligently, without the added stress associated with concerns about what they will owe and how they will pay. At the same time, forward-thinking healthcare providers that embrace these standards will deliver better patient experiences, enjoy higher patient satisfaction, and achieve better operating results.

 

Michael Evans is the Northern California Managing Director of the Newport Board Group. Kevin Fleming is the Chief Executive Officer of Loyale Healthcare, LLC, located in Lafayette, Calif.

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