Health care cost transparency is the ability of patients to learn how much a medical service or treatment costs, preferably before receiving the service or treatment. This is important because treatment and service costs vary widely from doctor to doctor and from facility to facility.

“In all my travels, with all the different hospitals I visit — hundreds of them — only one had the general charges of fees and services, like cost per day in the hospital, posted up on the wall. It just doesn’t exist today,” says Mark Haegele, director, sales and account management, at HealthLink.

“This system has made it difficult for people to get the information. We’re getting there, but a spotlight on transparency and the cost and options gives people a little more decision-making authority,” he says.

Smart Business spoke with Haegele about the shift toward transparency and helping employees shop for better health care prices.

Why do health care prices vary so much?

Physicians are just trying to diagnose you to help you get better. In addition, surgeons only get paid if they recommend surgery. So, cost doesn’t really weigh into whether patients get knee replacement surgery or are sent to therapy for six months.

If you go to a store and look for a refrigerator, one of the first things you try to figure out is the price. But if you go to the doctor, and you’re talking about getting your knee replaced, that conversation — if it ever comes up — comes up at the very end.

The average treatment for heart failure might vary by tens of thousands of dollars within the same city. A list of Medicare costs, released by the Centers for Medicare & Medicaid Services, found a difference of $21,000 to $46,000 in Denver, Colo., or $9,000 to $51,000 in Jackson, Miss.

Only some rate differences are because of health care’s complexity. If two people with the same insurance get a tonsillectomy at the same hospital, they still could have different doctors ordering different levels of anesthesia and pain medicine with different philosophies on hospital-stay length.

How does transparency lower costs?

As the government, media and patients push for reliable cost and quality information, it motivates the entire system to provide better care for less money. For example, according to the book “Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care,” the governor of New York mandated that hospitals publish their mortality rates for heart surgery. By the year following, hospitals started implementing quality metrics to reduce mortality, and the trend in the mortality rates dropped dramatically, which ultimately saved lives.

In another instance, a Thomson Reuters study of a Chicago employer found a cost variance of 125 percent for health insurance members receiving an MRI of the lower back without dye, with similar differences in diagnostic colonoscopies and knee arthroscopy procedures. If employees were given information to select providers at or below the median cost, it was estimated the company could save $83,000.

What can benefit administrators do to help facilitate transparency?

As a general rule we feel helpless, but there are some things benefit administrators can do to move costs. You’ve got to get information out to members, and then align incentives. The average member, once he or she meets the $2,000 out-of-pocket maximum, for example, doesn’t care if a hip replacement costs $5,300 or $223,000. They should — but most don’t make better purchasing decisions until it impacts them.

Under a self-funded health plan, you have more control over what you are able to publish and demonstrate to employees, as well as more ability to align incentives. But regardless, you need to start identifying costs of providers of key procedures to treat your health plan like an asset.

By putting together a best-in-class grid for your members, and then aligning incentives to ensure they use the lowest cost providers, such as giving a $200 gift card, you can empower your members and move the needle on health care cost.

Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or

Website: Visit the website to learn more about transparency and other key health care business trends.

Insights Health Care is brought to you by HealthLink

Published in Chicago

Transparency in health care means allowing consumers to have both cost and quality information for services delivered by health care service providers. In health care, this kind of information has been largely invisible and unknown to consumers, including employer groups. Many believe this lack of information is a factor in high health care costs.

In recent years, both health plans and employer groups have been supportive of the concept that directly engaging consumers in decision-making can help to reduce costs. And, in order to engage consumers, they must be informed about costs and quality of services.

“Transparency enables consumers to compare both the cost and the quality of health care treatments,” says Dr. Stephen Perkins, vice president of Medical Affairs for UPMC Health Plan. “Those two pieces of information are essential. That is the only way they can truly make informed choices among doctors and hospitals.”

Smart Business spoke with Perkins about transparency and its possible effects on health care and health care costs in the future.

Why is transparency important?

First, for providers, it benchmarks their performance, thereby giving them a way to measure their performance against others and, consequently, make improvements. For insurers, it provides a way to recognize and reward quality and efficiency in the delivery of health care. And, finally, it provides a way to help patients make more informed decisions about their care.

In addition, the cost of procedures can vary dramatically by facility, and often the consumer has no idea of the price differences. At present, health care may be the only industry in which consumers are expected to purchase a service without fully knowing the cost or quality of what they are getting. Most consumers who are part of an employer’s health plan have no idea about the cost drivers that determine the premiums they pay.

How can transparency affect health care costs?

At present, consumers are largely unaware of the price differences that exist for the same services from different providers. They have little idea about the cost of just about anything connected to health care, with the possible exception of co-payments. Consumers certainly have a right to know the quality and cost of their health care. Through health care transparency, consumers can get the information necessary to be able to make choices based on value. Reliable cost and quality information is essential to making choices. In theory, consumer choice should create incentives at all levels and motivate the health care system to provide better care for less money. When providers compare themselves to one another, this can begin a process that could lead to improvements in care and reductions in costs.

For almost all other purchases, consumers can readily get information about price and quality. This has always been presumed to be the basis for making intelligent choices that make sense economically. It would seem logical to assume that will be the case with health care as well.

Certainly, it makes sense that engaging individuals to be more responsible in managing their health and in purchasing health care services is a necessary first step to curbing costs in health care.

What about the differences between health care purchases and other purchases?

There are certainly differences. For one thing, consumers might be inclined to automatically associate cost with quality, when that may not necessarily be the case. In addition, it is not always possible for health care decisions to be made following a slow and deliberative process. These decisions are often made under emergency conditions and at times of high emotional stress.

What kind of consumer tools can be effective to ensure transparency?

In order for consumers to get information that is most useful, they would need to know data that is derived from actual claims. That way they see what actually was paid to the hospital for a certain procedure, for instance. They can use that information to determine, for example, what the cost of a certain procedure was in several different hospitals in the area. But consumers have to know not just how much a procedure costs but also the total cost of caring for a given condition.

How will health plans be involved in transparency efforts?

Health plans will be essential to transparency efforts because they have the capacity to make price and quality information available at the local level and they can offer consumer-directed plans for employers and individuals.

Health plans have the capacity to show comparisons of price, quality and efficiency. They are interested in transparency because providing quality and price information to consumers in a way they can easily access and use is also a way to build trust with members.

Why would providers support transparency?

Transparency data will allow providers to improve by benchmarking their performance against others. It encourages private insurers and public programs to reward quality and efficiency. And, it helps patients to make more informed choices about their care.

There will be concern, of course, that consumers might, at least initially, be confused by the new information, but essentially, transparency is seen as something that will certainly become a benefit to consumers.

Dr. STEPHEN PERKINS is vice president, Medical Affairs, for UPMC Health Plan. Reach him at (412) 454-7682 or

Insights Health Care is brought to you by UPMC Health Plan.

Published in Pittsburgh

When third-party administrators (TPAs) solicit quotes for stop loss insurance for their client companies that self-insure, they may not be getting the maximum discounts available from stop loss carriers if the carriers don’t receive transparent data from the provider network.

That’s why it’s so important to make sure the network is sharing data at every level, says Brian Fallon, director, payor relations and new business development and data analytics at HealthLink.

“TPAs are now asking the carriers about the network ratings and the frequency of their evaluation,” says Fallon.

Smart Business spoke with Fallon about network discounts and how they may impact stop loss pricing.

How is a managed care network evaluated by a stop loss carrier?

A key component to the evaluation of a managed care network is its claimed discounts relative to stop loss pricing.  Several factors are involved in determining the effectiveness of a discount. Some include the location of the member, the location of the employer (they are not necessarily identical) and the composition of the provider contracts.

The clinical referral patterns of the providers are also taken into consideration and are important, as a member located in a rural market may incur initial care at a rural facility. However, specialty or tertiary care will typically migrate to a metropolitan market, where the available scope of services is enhanced and the managed contracts are structured on a per diem or DRG basis. Those contracts also contain fixed pricing for inpatient and outpatient services, reducing the exposure to billed charges.

All factors contribute to a stop loss carrier evaluation of the network. Additionally, carriers review the structure of the network, the volume of claims flowing through the network on an aggregate basis and the credibility factor assigned to the network. A network with credible claims data will have less reliance on manual pricing.

Why is transparency of data so important?

The greatest challenge that a reinsurance carrier has is the lack of transparency provided by the networks being evaluated. Networks may provide average savings or net effect discounts that are not regionally based but are reflective of larger geographic regions, thus distorting the accuracy of the discounts. Carriers need to be able to consider the contractual allowed amounts at a specific facility, as well as paid amounts. In addition, networks need to disclose actual facility rates inclusive of actual stop loss provisions at the facility.

Network discounts at high dollar amounts are not reflected accurately via the averages that are commonly cited. When brokers or consultants market self-funded employer groups with stop loss, typically they only provide the overall average discount for the group. Networks and ASO carriers market their overall average discounts and, again, the focus is on the total claims.

How do network discounts impact stop loss pricing?

The discount information is important for complete understanding of the aggregate attachment point calculations, but not really relevant or helpful for specific or large claim evaluation.

PPO discounts for high-dollar claims after the specific deductible will differ from the averages that are typically provided. The actual discounts are typically lower on shock claims, but the reduction in stop loss liability is higher. Networks should be able to engage in the discussion with the carrier as to the net effect discount as it relates to various stop loss price points.

Other factors impacting stop loss pricing are the availability of vendors or arrangements that impact trigger diagnosis such as dialysis or an effective pharmacy benefit management program. Pricing offsets can be as impactful as a 5 to 10 percent of the specific deductible premium.

We are also seeing the emergence of small groups entering the self-funded market. Mandated benefits, premium taxes and the unknown liabilities contained in Patient Protection and Affordable Care Act (PPACA) legislation are now providing small employers enough motivation to explore self-funding.

The conclusion for the TPA is to know how a stop loss carrier rates the network being promoted to the client –— and how often the networks provide the data. Networks used to be sold by the merits of the participation of providers.

TPAs and their clients alike are looking for new ways to address cost. We see the emergence of conversations of narrow networks — that is, steering through benefit plan design — to the most cost-effective providers. Reported discounts are also being evaluated on an adjusted cost basis through case mix indexing. Members are also becoming prudent consumers as they share more of the burden of cost.

Now, networks will be challenged to provide these methods of transparency to the reinsurance carrier to ensure accurate valuation of the network in order to obtain price points to compete in the self-funded market. It’s also incumbent on the TPA to have the dialogue with the reinsurance carrier regarding network valuations and for the network to demonstrate their effectiveness to both the TPA and reinsurance carrier.

Brian Fallon is director, payor relations and new business development and data analytics at HealthLink. Reach him at (314) 925-6222 or

Published in Chicago