Enabling consumers to know their out-of-pocket costs in real-time when receiving healthcare services

Current state of transparency, the desired future-state, and how we can get there

Objectives of this blog post

• Highlight the trouble consumers have in understanding their out-of-pocket (OOP) costs after engaging with our healthcare system
• Highlight the underlying issues with healthcare systems, processes, and incentives that cause such grief
• Propose a desired future state (a conversation starter that needs to be iterated upon)
• Discuss healthcare fintech solutions that are working towards enhancing transparency; primarily focused on healthcare services, not drug pricing
• Discuss regulations aimed at enhancing transparency

Background

Many of us have gone to hospitals, ER, labs, physicians and specialist clinics and end up dumbfounded with the bills and out-of-pocket liabilities, despite our ambitious and failed efforts to uncover any surprises before any treatment starts. There is an entire podcast dedicated to describing horror stories of various peoples’ billing experiences, a set of investigations by New York Times and Vox, and a Bill of the Month series by Kaiser Health News and NPR. My family recently had the distinct pleasure of interacting with three different health systems, an independent clinic, two diagnostic labs, two pharmacy chains, and two insurers. While the medical care was top notch, the rest of the experience felt like getting hit by a thousand needles. We work in the healthcare industry; despite that, we felt helpless when trying to understand our OOP liability and wasted hundreds of hours on calls.

In discussing the key issues and solutions related to OOP cost transparency, I assume the following status quo will remain unchanged for the foreseeable future.

• US healthcare will remain a multi-payer system alongside thousands of healthcare service providers. That means each payer will continue to negotiate rates with providers for specific services (CPT codes) for each one of its insurance products; e.g. BCBS PPO product for XYZ company’s employees
• Both fully-insured and employer-sponsored self-insured markets will co-exist, even though the employer sponsored insurance creates significant market distortion

Key issues in determining consumer’s OOP liability at each step of their journey

1. Find an in-network provider

• Majority of payer tools/apps provide an inconsistent experience; e.g. not mobile optimized, cannot search for a specific doctor, etc.
• Provider networks can change frequently and payer systems can lag
• Consumers in emergency (e.g. at the ER) often do not have the luxury to determine whether the provider is in-network. Getting care is more critical
• Some service providers can be out-of-network even though a hospital system is in-network (e.g. physician staffing groups)
• Consumers do not have insight into the quality of care or consumer experience

2. Estimate pre-visit out-of-pocket costs for anticipated services

• Significant parts of healthcare services are not “shoppable”. Only 36% of healthcare services and drug spending in 2017 in the employer market was shoppable. Some claim that 60% of medical care is shoppable
• Majority of payers do not have tools to provide estimates. Those that do, require consumers to provide CPT codes for specific procedures and nature of work (preventative, sick care, etc.). For instance, a routine medical visit could be coded with 5 different CPT codes, which can create a significant difference in OOP liability
• Providers cannot provide OOP costs as they do not have visibility into consumer’s deductibles and coverage idiosyncrasies that can come in if plans are tailored for HMO/ACO/SI etc.
• Consumers can get charged for additional procedures, or higher prices than what they originally anticipated due to following reasons:

A) Each patient’s health condition can drive need for more services than initially anticipated

B) FFS incentivizes providers to bill for every incremental procedure; e.g. a clinic during a physical can bill about any other issues discussed during that consultation, without even informing the consumer beforehand

C) Each medical issue can be up/down coded based on documentation available to the back-end coder

3. Receive care

• Providers do not have the incentive to tell you your OOP costs while receiving care as it may drive you out of their system if it is too expensive
• Consumers do not receive a bill with their OOP liability in real-time at the end of an appointment; making it harder for consumers to cross question and understand on the spot

A) Many payer-provider contracts might still not be 100% digitized and clearing house APIs cannot resolve 100% of cases to be real time

B) Providers do not have visibility into deductible etc.

4. Get referred to other services (e.g. specialists, labs, imaging) 

• Clinicians referring have no way to look in real-time [in the EHR] whether the recommended service providers or products are in-network, at what cost, and quality to share options with consumers
• Providers do not have the incentive, or regulatory requirement to refer a consumer outside their system for another higher quality provider at lower costs. For instance, an MRI scan at the hospital might be priced at $3,000 (negotiated price) which may still net the consumer an OOP cost of $600 with 20% coinsurance, versus going to a lab nearby which would have costed them $90 OOP; however, the referring provider is incentivized to keep you in their system
• Many clinicians do not understand the financial side of care and hence do not educate consumers that they may receive bills from other institutions as well after the visit; e.g. lab work done at the clinic might come separately from LabCorp
• Consumers do not know whether those services or products are in-network; e.g. anesthesiologist at the hospital
• Consumers cannot easily comparison shop due to: a) perceived benefits of sticking with the clinician’s recommendation; e.g. affiliated imaging lab, or b) current un-shoppability of certain types of referrals; e.g. cardiologist that may specialize in neonates
• Sometimes, payers do not have visibility to special negotiated rates between the referring provider and the service provider (e.g. genetic testing lab might offer special rates to patients of XYZ health system)

5. Receive prescription drugs and fulfill at the pharmacy

• Providers cannot tell the cost of drugs, whether it is in the plan’s formulary, or whether the pharmacy is in-network
• Consumers have to confirm OOP costs at the pharmacy and call back the clinician for any modifications if needed

6. Receive bills

• Patients receive an EOB from the payer and a separate bill from the provider; both written in foreign language and left to the consumer to triangulate the two. Oftentimes the two don’t match and the onus is on the consumer to call the payer and the provider separately. Some insurers do not even include the name of the actual clinician in their EOB and many providers do not itemize their bill properly
• Billing and coding departments at providers are separate from the clinicians who are unable to help the consumer. Even if a clinician knows the charges are out-of-whack and would like to help the consumer, their hands are tied by the health system’s administration. A coder’s job is to bill as much as legally possible based on clinician’s notes. In addition, coders can have varying degrees of proficiency given the complexity
• When consumers call providers for help with a billing dispute, they get lost in the maze. With so many departments involved, such as coders, clinicians, administrators, prior auth or claims vendors, insurers, collections agencies, etc. it is not clear on who owns the decision to resolve the dispute, ultimately leading to consumers give up, or take matters to the courts
• Unlike truly competitive industries such as retail, providers do not have much incentive to provide a great consumer experience for billing disputes as: a) networks are set by insurers who have no insight into consumer experience, b) providers are paid the same, despite quality of care or consumer experience in FFS system, c) even if you hate the billing department, you may need the clinician’s expertise. See this example where hospitals are bypassing Medicaid on purpose to charge higher prices to patients and completely surprising them with lawsuits
• Payers and providers often make mistakes; for instance: A) Provider may have recently come in-network for the plan, B) Provider may have coded for a treatment incorrectly, C) Many claims are manually processed that is error prone, D) Payers or providers may have inaccurately informed the consumer about the coverage or cost of treatment

7. Pay the bills

• Many providers do not have mobile first solutions to pay bills
• There are no easy options provided to pay the bill in different ways (e.g. e-cheque, Apple Pay, financing options, paying in installments, etc.)
• Most bills are still sent by paper, often going to unchecked mailboxes. Thereafter, collection agencies are involved, requiring consumers to: a) pay much more than a service actually costs (e.g. a $35 unpaid lab copay was raised to $1,300 without any logic), which can be illegal per contract laws, b) negotiate with third party vendor unnecessarily, or file lawsuit in small claims court which requires first getting the CPT code for the actual service from the provider and then determining the “reasonable” costs for that service in that area

Desired future state

Option 1

Knowing consumers are not astute shoppers of healthcare services [avoiding care in many cases to cut costs] and assuming health plans can offer profitable products with the following consumer benefits, or self-insured employers can offer such benefits with manageable costs, ideal solution for the consumer would be:

• Fixed copay for in-network (ideally zero) and out-of-network service
• No co-insurance since that is contingent on the price of each service
• No deductible, as deductibles are confusing (alongside coinsurance and copay), can push consumers to avoid critical care, or can leave many at-risk of financial difficulty

To achieve the above with affordable premiums, the following will need to happen:

• Lowering the crazy high prices for healthcare services in the commercial markets that increase costs of care dramatically. Pricing, not utilization, is the culprit. For instance, the price of a C-section at a health system’s specific location was 3–6x higher for Commercial in-network over Medicaid. Potential causes for high prices include:

A) Uncompetitive provider markets with near monopolies from health systems due to existing regulations that prevent new entrants and lax antitrust law enforcements during M&A that allow systems to merge

B) Lack of real incentive for TPAs / health insurers to negotiate the best pricing with providers for the self-insured employers. Arguably, insurers could negotiate lower prices for their fully-insured business at the expense of self-insured clients, assuming either the TPA market is not as competitive, and/or many employers / HR teams do not fully understand the (poor) pricing they are getting to push for changes

C) Potential underpricing by Medicare or Medicaid, causing health systems to argue for higher pricing on commercial clients to remain afloat. Alternatively, poorly managed health systems with bloated cost structure that require higher prices

• Using data to grade providers on overall value for specific conditions, i.e. health outcomes per $ spent and guiding consumers to “high value” providers
• Managing healthcare costs with the advent of novel costly therapeutics (e.g. gene therapy, cell-based therapeutics, etc.) and the ever expanding scope of healthcare (e.g. nutrition, physical activity, mental health, etc.). Although, we need to first address the pricing issue and see how much that alone can allow offering more affordable basic health insurance to consumers

Option 2

Assuming consumers will continue to pay coinsurance and have large deductibles (per the ongoing trends), ideal solution(s) alongside supporting regulations would enable the consumer to do the following:

Before the visit

• Find an in-network provider easily on any device, or by calling the payer with the option to filter the search by distance, consumer ratings, number of reviews, number of patient visits, value (health outcomes per $ spent in long-term), sub-specialization (to the most granular level possible), etc.
• Get recommendation from the payer on a provider that provides best value (optimal health outcomes per $ spent in the long-term)
• Determine the exact OOP costs for a specific CPT code in plain English, or a drug; compare different providers on cost and quality of care
• Know the median OOP costs by provider for a specific condition that typically requires a bundle of procedures (CPTs); e.g. median OOP costs for a BCBS PPO consumer for bypass surgery at XYZ health system

At the visit

• Receive (or confirm) exact OOP costs for “known service charges” at check-in to eliminate surprises after consultation, including the ER (e.g. facility fees)
• Receive no out-of-network charges from contracted physicians, or any referred service such as imaging labs when visiting an in-network hospital system, or in cases of emergency
• Receive real-time bill at the end of the visit written in plain English, akin to an itemized check at a restaurant, including charges from initially unanticipated services, or separate labs and clinicians that may have been consulted during the patient visit. No separate bill from pathologists, or anesthesiologists practicing in the same hospital (i.e. no surprise medical bills). No separate EOB from payers
• Have the ability to dispute any line items in real-time at the provider. Ensure provider has a dispute resolution process and team in place with decision making authority
• OOP liability, after applying the plan’s negotiated rate and consumer’s deductible and coinsurance, cannot be higher than the cash price that the consumer could pay for the same service at the provider; e.g. let’s say an MRI has a $3,000 negotiated rate for that plan and 20% coinsurance. The consumer’s $600 OOP liability cannot be higher than the hospital’s all cash / no insurance price of $500
• If getting referred to different providers / labs / drugs, receive OOP costs and quality on the different options in real-time from the referring clinician, including options that may be outside the provider’s own system. If a providers would rather keep the consumers within their system, then they need to compete by providing better value

After the visit

• Payer to provide the ability to dispute any charges later; e.g. issues with deductibles, contracted rates, unnecessary charges by providers. Payers become consumer advocates protecting them during dispute resolution similar to credit card companies

To achieve the above, the following major transformations would be required:

• Converting all CPT codes into consumer-friendly language; categorizing related / most similar codes to be able to show costs for them as well (e.g. MRI with or w/o contrast)
• Incentivizing both payers and providers to make investments in enabling OOP cost transparency and ensuring payers become true consumer advocates
• Using data to grade providers on overall value for specific conditions, i.e. health outcomes per $ spent
• Real-time automated coding, claims submission, and adjudication that can work across different payers and providers

Healthcare fintech solutions

There are three categories of solutions here and highlights of some notable companies that have been in the limelight and have a unique approach.

1. Third party healthcare fintech companies partnering with providers and payers to enhance transparency; e.g. Cedar, OODA Health, Mcsquared Health, Healthcare Bluebook, Turquoise Health, Zeamed, Castlight

Cedar

• Cedar Pay is providing health systems with a solution that helps patients:

Understand their bills in plain English

See all visits itemized appropriately

Consolidates professional and facility bills all in one place

Provides the ability to pay bills in different ways that they can choose from; such as Apple pay, credit card, ACH, payment plans, etc.

Provides an easy to access mobile-first, well designed solution. Cedar white labels its solution to health systems and can even deploy its solution via Epic’s MyChart. For patients that still prefer paper statements, it can send that too

• Most importantly, Cedar seems to provide a complete “billing-as-a-service” solution where its call center with Patient Success Advocates become an extension of the health system and help patients with any billing disputes
• Cedar has also partnered with clearinghouse Waystar recently to provide consumers with pre-visit pricing estimates (presumably across multiple providers), given their access to data and technology. In fact, if Waystar wants to differentiate from other clearinghouses in the future, Cedar could become a viable acquisition target
• Cedar’s solution is a win-win for both consumers (compared to the status quo) and especially health systems. Hence, selling to the health systems as a RCM solution to improve collections is a smart business choice. It can provide them with revenues to reinvest in building solutions that leverage the new price transparency regulations passed / proposed and also continue to bring the desired future state discussed above to fruition

OODA Health

• With OODA Pay, patients receive:

A single statement that consolidates all provider bills and EOBs. The statement includes deductible status, HSA balances, etc. (Yes!)

Flexible payment plans and different payment options (like Cedar)

Access to live concierge billing representatives that have a single (like Cedar)

• The solution is payer led but requires close partnership with the provider. Their first partners included Blue Shield of California, BCBS of AZ,and Dignity Health. The platform integrates with EHRs and payers’ systems to provide a single bill to the patient
• This allows for a holistic innovative solution, but likely also increases sales cycle and still could create issues for providers who treat patients from all payers. That said, this could be the right solution for [loosely] vertically integrated players such as UHC — Optum to improve consumer experience
• It takes billing disputes and patient payments out of the hands of the provider, enabling them to focus on care delivery while increasing their collection rate and reducing admin costs. It makes the payer responsible for owning the member financial experience, selling concierge billing services to providers, and even offering financing for elective care
• OODA Pay does not appear to be real-time, i.e. where the patient receives a bill at the end of their appointment (I hope to dive deeper into their platform and would love to learn more). They do not (yet) seem to be focused on pre-visit cost estimates experience; though that could be a relatively easy add on given their partnership with payers

Most other solutions…

Provide consumers the ability to price shop with CPT codes pre-visit; however, lack insight on true “value” of the provider, or even consumer experience ratings

2. Providers with listed pricing, catering to uninsured, underinsured, and those willing to pay in cash, or use their HSA/FSA for shoppable services; e.g. Walmart Clinics, Parsley Health, Ro, Hims & Hers, MDsave, Surgery Center of Oklahoma

• Case-in-point: I have a high deductible health plan. After my annual physical, my PCP ordered the basic metabolic and lipid panel tests. But he could not provide me with the OOP costs if his lab ran the tests. Thus, I went to Quest Direct and got the tests done after paying a fixed price clearly listed on their website
• Most solutions in this space are straightforward. They help shine light on the “true price of services” as market forces drive pricing. Many employers can use them for comparing their negotiated prices
• MDsave is unique, allowing consumers to price shop for shoppable services across multiple providers, similar to how GoodRx allows one to shop for a drug across many pharmacies. Consumers can then purchase that service by prepaying and visit the provider. Consumers can also apply that spend towards their annual deductible

3. Payer led solutions; e.g. Bind, Simplepay Health, Sidecar Health, Oscar Health, Gravie Comfort

Bind

• Members of Bind, get access to its app which allows them to:

Determine the providers in-network and in their neighborhood

Know their full OOP liability prior to the visit for the specific procedure by different providers. Bind eliminates deductibles and combines coinsurance and copay into a total OOP cost

• Providers are trained to find the member’s OOP liability and ensure members pay that prior to getting services. Members pay no additional bills after the visit
• If additional non-emergency services are recommended by the provider, members can shop the same way; or work with the existing provider who would need to tell them the OOP costs beforehand and collect that, ensuring full transparency
• Bind is built on the UHC’s (UnitedHealthcare) network. They leverage UHC’s data to steer consumers to high value providers based on their price, quality, and referral patterns by quoting different OOP costs
• Bind essentially capitalizes on the insane price variations that exist today in the Commercial sector. If someday healthcare services pricing were within a reasonable range [as seen in competitive markets], companies like Bind would: a) generate less value from pricing arbitrage, b) could perhaps afford selling lower premium or $0 OOP costs products
• Bind recently raised $105M to expand from self-insured to fully-insured market and has been touted by UHC’s leadership on earnings calls
• It is ironic (and commendable) that Bind’s founder/CEO Tony Miller founded Definity Health in 2000s that evangelized the high deductible health plans, only to later start a company that eliminates deductibles

Oscar Health

• Oscar’s plan with $0 copay for all virtual primary care, 24*7 urgent care, and tier 1 lab work and medications alongside a Care Team available at anytime to navigate consumers to high-value providers is a good example of an HMO-like product that can eliminate OOP cost surprises for consumers

Sidecar Health

• Sidecar leverages the growing self-pay pricing trend at providers. Consumers can call providers to ask for self-pay price, or use Sidecar’s app to see treatment options with prices within a set radius
• Consumers pay the providers (or pharmacies) directly using Sidecar’s debit card, eliminating the need for claims; 20% of which is charged back to the consumer as OOP costs, while 80% of covered by Sidecar
• Consumers can see any provider since there is no network; however, Sidecar has an upper limit to the portion it pays for each procedure called the “benefit amount” which is based on its data on what the cost of that procedure in that zip code should ideally be. Consumers are liable if actual costs of care exceed the benefit amount
• In addition, consumers have to upload their provider’s bill to confirm that they received care and the amount charged by provider
• It seems less useful for consumers in emergency that may be unable to shop around

Regulations

Following are the three main regulations that are directly relevant to enhancing transparency.

1. No Surprise Act

• Today, oftentimes certain physician groups such as anesthesiologists or labs and imaging centers associated with an in-network health system choose to be surprisingly out-of-network, billing services at an insane price and leaving consumers with high OOP liability when they are vulnerable and have no choice, or information to make an informed decision. You would think hospitals would be able to work directly with anesthesiologists, etc. to ensure they are also in-network
• Starting January 1, 2022, “it will be illegal for providers to bill patients for more than the in-network cost-sharing due under patients’ insurance in almost all scenarios where surprise out-of-network bills arise (including out-of-network emergency care), with the notable exception of ground ambulance transport. Health plans must treat these out-of-network services as if they were in-network when calculating patient cost-sharing.”
• This is a great win for consumers, even though consumers will indeed still get separate bills. Additionally, payers can choose to pay out-of-network providers a different [reasonable] amount than that billed; if providers are unhappy, they can enter arbitration where the arbitrator has to choose either the payer’s, or provider’s offer. Overall, this largely favors the payer

2. Hospital Price Transparency

• Starting January 1, 2021, each hospital is required to disclose pricing:

A) For all items and services with all payers in a machine readable format, including gross charges, discounted cash prices, payer-specific negotiated prices, and de-identified maximum and minimum negotiated charges

B) For 300 shoppable services in a consumer-friendly version including 70 CMS-specified shoppable services and 230 hospital-selected shoppable services. Hospitals may opt to use their existing patient estimator tool to fulfill this requirement (example here)

• AHA (American Hospital Association) lost its challenge in the court and this rule is now in effect
• Many hospitals might choose not to follow the rules, as the penalty is relatively miniscule at $300 / day / hospital (or $109,500 / year). Moreover, hospitals will not provide prices for professional / non-employed physician services
• In addition, the law does not require hospitals to estimate a consumer’s OOP costs, given that they do not have the plan’s detailed information (e.g. deductible). Nonetheless, it can provide third-party fintech companies with wealth of data that can be aggregated to enable more informed price shopping
• The law in its current form is a good first step towards enhancing transparency; however, its impact is still to be determined. Critics argue that it may lead to rising prices as underpriced hospitals will ask for more. However, there is a little precedent to tell us how this experiment will truly materialize

3. Transparency in Coverage

• This HHS final rule announced in Oct 2020, will start taking into effect in phases, between January 2022 and January 2024. The rule has three parts to it:

A) Negotiated rate disclosure: Similar to the Hospital Price Transparency rule, starting Jan 2022, insurers (included self-insured plans) have to disclose the following in machine readable files: a) the in-network negotiated rates for all covered items and services between them and providers (not just hospitals but all providers), b) historical payments to, and billed charges from, out-of-network providers, and c) in-network negotiated rates and historical net prices for all covered prescription drugs at the pharmacy location level, over a 90-day time period for dates of service within 180 days prior to publication of the file. This will enable employers, researchers, government, and third-party companies to independently analyze the data and share learnings

B) Shared savings via MLR calculations: “Effective from 2020 MLR reporting year, “insurers that encourage consumers to shop for services from lower-cost, higher-value providers, and that share the resulting savings with consumers are eligible to take credit for such “shared savings” payments when calculating their medical loss ratios (MLR).” This is to ensure that issuers do not have to send additional MLR rebates to consumers

C) Estimated OOP costs: Payers will require to provide consumers with cost sharing estimates inclusive of deductibles, coinsurance, copay, etc. and the underlying negotiated rate starting January 2023 for 500 pre-defined shoppable services and then for all services in January 2024 via self-service tools

• Both AHIP and The Alliance for Community Health Plans have opposed the rule. Payers will likely agree to the “shared savings via MLR calculations” and “estimated OOP costs” requirements but would oppose sharing the “negotiated rates”. You will not see the government asking Walmart to disclose their negotiated rates with suppliers for their products as it’s a highly competitive and well functioning market. However, healthcare is a broken market with both insanely high pricing and obscene variation in pricing for the same services due to the reasons discussed before. HHS is hopeful that full transparency will help resolve the issues. This indeed will be the biggest experiment run on a fifth of the US GDP

Concluding thoughts

• Overall, the industry seems to have recognized the issues and is slowly moving in the right direction with new investments and push from policy makers
• Payer-led solutions seem more promising to bring OOP cost transparency to the majority of consumers soon. I can imagine a plan that combines Bind’s approach with Oscar’s $0 virtual care copay approach and a care team, knowing that consumers are not astute or habituated shoppers of healthcare and can use guidance
• That said, providers focused on self-pay consumers are critical to highlight the “true competitive pricing” for services
• Health insurers will likely not be able to compete on “better negotiated pricing” as prices become known to all with new regulations. They will need to compete on their ability to:

A) Determine risk and appropriately price products (duh!)

B) Coordinate care by proactively steering consumers to the best providers with their insight on overall value (Bind + Oscar approach!). How many employers or insurers do that well today?

C) Provide a superior consumer experience, including a wide enough network of give consumers the necessary choice and coverage

• Policy makers need to continue to:

A) Promote healthy competition including new next-generation companies not beholden to old ways of thinking, or legacy technology. This will continue to drive high quality of care at lower costs. At Surgery Center of Oklahoma, which circumvents insurers and only serves self-pay consumers (or employers), prices of care bundles have dropped over the years benefiting consumers

B) Close loopholes that enable out-of-whack healthcare pricing. Typically, this does not happen in truly competitive markets. This may also require reforming the employer-sponsored self-insured market

C) Incentivize providers and payers to make investments to enhance CX. Typically, this is a natural outcome of competitive markets

D) Tie compensation to quality, CX, and outcomes (value-based care). This is also a natural progression of competitive markets. However, it will need to be driven via reimbursement regulations; as government is a major payer of healthcare

• Health systems need to embrace truly competitive markets, with focus on quality of care and consumer experience to differentiate and to remain relevant. It just seems to be a matter of when, not if

Today, health systems are unbundling with proliferation of ambulatory surgical centers, retail clinics, virtual care players, specialty care companies, etc.

Tomorrow, new players might enter acute care services — the very core of health systems, hurting incumbents from both sides

Health systems in the US have the best medical technologies and have great physicians who care a lot about their patients and want to do good; it’s letting those qualities shine