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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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New Study on Hospital Pricing by Houston Business Group Highlights Gaps Between Medicare and Private Insurance Payments

Employer group in Houston plans to use the numbers to pressure lawmakers for policy changes involving how hospitals and health plans price their services

Clinical laboratory leaders will probably not be surprised to learn that wide disparities exist between what Medicare pays hospitals and what is paid by private insurers and employers. That’s according to analysis by the Houston Business Coalition on Health (HBCH) which examined costs and billing practices at four of the region’s top hospitals, each a flagship for its respective health system.

This study—by a business group concerned about the spiraling cost of healthcare for their employees—is significant because it indicates that some large employers are willing to become more aggressive in driving down healthcare costs. In the Houston study, three of these hospitals—Houston Methodist, Memorial Hermann, and HCA Houston Medical Center—charged more than 250% over Medicare, noted a press release, which stated the group plans to use the numbers to lobby Texas lawmakers for policy changes.

“The prices employers paid to hospitals are unsustainable and negatively impact business growth, family quality of life, and resources needed for other critical community social needs,” said HBCH executive director Chris Skisak, PhD, in the press release. “Our intent in sharing and publicizing these resources is to facilitate direct discussions with health systems and employers to better understand the ramifications to Houston businesses and the greater community.”

The HBCH describes itself as a resource for local employers and healthcare providers seeking to promote cost-effective healthcare delivery and health benefits. It has 60 members that collectively provide healthcare coverage for 500,000 area residents.

Chris Skisak, PhD
“We’re entering a new age of transparency and it’s clear from these tools that pricing is not directly correlated with quality, but rather on what the market will bear,” said HBCH executive director Chris Skisak, PhD (above), in a press release. “While this is cause for concern, there are opportunities for change and these resources will enable employers and health plans to negotiate future contracts to select health systems that offer the best value—the highest quality at the lowest costs.” (Photo copyright: Houston Business Journal.)

Hospital Claims Medicare Reimbursement Flawed

A spokesperson for Memorial Hermann disputed the HBCH’s analysis, telling the Houston Chronicle that “Medicare reimbursement is a flawed and an inappropriate benchmark to use for commercial payments, as Medicare payments do not cover the cost of services provided.”

But the HBCH analysis also disclosed that each hospital was charging private insurers more than double the breakeven, defined as the amount needed “to make up for any shortfalls from public sector payers such as Medicare and Medicaid and uninsured patients.” And they “achieved a commercial profit margin of more than 45%” over the breakeven.

The fourth hospital, Baylor St. Luke’s, charged 216% over Medicare and had a commercial profit margin of close to 20%.

The HBCH based its analysis on publicly available data and tools from RAND Corporation, The National Academy for State Health Policy (NASHP), and Sage Transparency, an interactive, customizable dashboard which uses both public and proprietary data to compare and display hospital prices and quality.

The Medicare claims data came from a RAND study, titled, “Prices Paid to Hospitals by Private Health Plans.” The 53-page report is accompanied by a downloadable spreadsheet with details on prices at more than 4,000 hospitals in 49 states plus the District of Columbia. Released in May, it covers data from 2018 through 2020.

The HBCH analysts combined data from this report with data from the NASHP Hospital Cost Tool (HCT), which was released in April. The HCT allows anyone with a web browser to look up cost metrics for 4,600 hospitals in the US. The numbers, available through 2019, include revenue, profitability, and breakeven points. It also incorporates an earlier set of the RAND Medicare claims data.

An NASHP press release notes that the breakeven calculation “accounts for a hospital’s operating costs, profit or loss from public coverage programs, charity care and uninsured patient hospital costs, Medicare disallowed costs, and a hospital’s other income and expense.”

The HBCH press release notes that hospitals need only 127% of Medicare to break even.

National Numbers

Nationally, the RAND study found wide variations in prices paid by private health plans from state to state. “In Texas, prices paid to hospitals for privately insured patients by employers averaged 252% of what Medicare would have paid,” the HBCH press release noted.

But that places Texas around the middle of the pack compared with other states. According to a Rand press release, prices charged to commercial payers were over 310% of Medicare in Florida, West Virginia, and South Carolina. But in Arkansas, Hawaii, and Washington, the numbers were below 175% of Medicare. The overall national average was 224%, the study found.

The RAND report’s downloadable spreadsheet breaks out the numbers by state and for individual health systems by name.

Numbers like these could have policy ramifications as employers seek to reduce the costs of providing health benefits. “The data is already being used to guide a new path forward,” states the HBCH press release. “As an example, HBCH and its members are working to demand transparency and change policies in the upcoming Texas 88th Legislative Session to eliminate anti-competitive language between hospitals and health plans.” 

Clinical laboratory managers and pathologists working in hospitals and health systems will want to watch how employer groups respond to future studies of hospital pricing compared to the Medicare program. Employers increasingly are dissatisfied with the status quo in how hospitals and doctors price their services to health insurers.

It is reasonable to expect more studies to be published that compare what hospitals charge private health insurers versus what they are paid by the Medicare program.

Stephen Beale

Related Information:

Houston Employers Pay Hospitals More than Twice the Medicare Rate, Needlessly Reaping Large Profits from Commercial Payers

Understanding NASHP’s Hospital Cost Tool: Commercial Breakeven

Private Health Plans During 2020 Paid Hospitals 224% of What Medicare Would

Prices Paid to Hospitals by Private Health Plans

Understanding Hospital Costs—New Tool Makes Data More Transparent and Accessible

Sage Transparency

Some Houston Hospitals Are Charging Private Insurers Up To 3x What Medicare Pays as Deductibles Rise

Employers Paying Hospitals More than Double Medicare Prices

Employers Pay Hospitals Billions More than Medicare

Kaiser Permanente Announces that Virtual Visits with Providers Have Surpassed Face-to-Face Appointments at Meeting of Nashville Health Care Council Members

Should this milestone be an indicator that more patients are willing to use telehealth to interact with providers, then clinical laboratories and pathology groups will need to respond with new ways to collect specimens and report results

Telehealth is gaining momentum at Kaiser Permanente (KP). Public statements by Kaiser administrators indicate that the number of virtual visits (AKA, telemedicine) with providers now is about equal to face-to-face visits with providers. This trend has many implications for clinical laboratories, both in how patient samples are collected from patients using virtual provider visits and how the medical laboratory test results are reported.

That this is happening at KP is not a surprise. The health system is well-known as a successful healthcare innovator. So, when its Chairman and Chief Executive Officer Bernard Tyson publically announced that the organization’s annual number of virtual visits with healthcare providers had surpassed the number of conventional in-person appointments, he got the members’ attention, as well as, the focus of former US Senator Bill Frist, MD, who moderated the event.

Tyson made this statement during a gathering of the Nashville Health Care Council. He informed the attendees that KP members have more than 100 million encounters each year with physicians, and that 52% of those are virtual visits, according to an article in Modern Healthcare.

However, when asked to comment about Tyson’s announcement during a video interview with MedCity News following the 13th Annual World Health Care Congress in Washington, DC, Robert Pearl, MD, Executive Director/CEO of the Permanente Medical Group and President/CEO of the Mid-Atlantic Permanente Medical Group (MAPMG), stated, “Currently we’re doing 13-million virtual visits—that’s a combination of secure e-mail, digital, telephone, and video—and we did 16-million personal visits. But, by 2018, we expect those lines will cross because the virtual visits [are] going up double digits, whereas the in-person visits are relatively flat.”

So, there’s a bit of disagreement on the current numbers. Nevertheless, the announcement that consumer demand for virtual visits was increasing sparked excitement among the meeting attendees and telemedicine evangelists.

“It’s astounding,” declared Senator Frist, “because it represents what we all want to do, which is innovate and push ahead,” noted an article in The Tennessean.

Is this a wake-up call for the healthcare industry? Should clinical laboratories start making plans for virtual patients?

Of virtual office visits, Pearl noted in the interview with MedCity News, “Why wouldn’t you want, if the medical conditions are appropriate, to have your care delivered from the convenience of your home, or wherever you might be, at no cost to you, and to have it done immediately without any delays in care?”

Pearl added that one-third of patients in primary care provider virtual visits are able to connect with specialists during those sessions.

“It’s better quality, greater convenience, and certainly better outcomes as care begins immediately,” he noted.

Kaiser Permanente ‘Reimagines’ Medical Care

The virtual visit milestone is an impactful one at Kaiser Permanente, an Oakland, Calif.-based nonprofit healthcare organization that includes Kaiser Foundation hospitals, Permanente Medical Groups, and the Kaiser Foundation Health Plan. It suggests that the KP has successfully integrated health information technology (HIT) with clinical workflows. And that the growing trend in virtual encounters indicates patients are becoming comfortable accessing physicians and clinicians in this manner.

As Tyson stated during the Nashville meeting, it is about “reimagining medical care.”

Bernard Tyson (right), Chairman and CEO of Kaiser Permanente, speaking with former Senator Bill Frist, MD (left), at the Nashville Health Care Council meeting where he announced that the non-profit provider’s number of virtual visits with patients had surpassed its face-to-face appointments. (Photo Credit: Nashville Health Care Council.)

What does “reimagining” mean to the bottom line? He shared these numbers with the audience, according to the Modern Healthcare report:

  • 25% of the system’s $3.8 billion in capital spending goes to IT;
  • 7-million people are Kaiser Permanente members;
  • 95% of members have a capitated plan, which means they pay Kaiser Permanente a monthly fee for healthcare services, including the virtual visits.

The American Telemedicine Association, which itself interchanges the words “telemedicine” and “telehealth,” noted that large healthcare systems are “reinventing healthcare” by using telemedicine. The worldwide telemedicine market is about $19 billion and expected to grow to more than $48 billion by 2021, noted a report published by Research and Markets.

Consumers Want Virtual Health, but Providers Lag Behind Demand

Most Americans are intrigued with telehealth services. However, not everyone is participating in them. That’s according to an Advisory Board Company Survey that found 77% of 5,000 respondents were interested in seeing a doctor virtually and 19% have already done so.

Healthcare systems such as Kaiser Permanente and Cleveland Clinic are embracing telehealth, which Dark Daily covered in a previous e-briefing. However, the healthcare industry overall has a long way to go “to meet consumer interest in virtual care,” noted an Advisory Board news release about the survey.

“Direct-to-consumer virtual specialty and chronic care are largely untapped frontiers,” noted Emily Zuehlke, a consultant with The Advisory Board Company (NASDAQ:ABCO). “As consumers increasingly shop for convenient affordable healthcare—and as payers’ interest in low-cost access continues to grow—this survey suggests that consumers are likely to reward those who offer virtual visits for specialty and chronic care,” she stated.

Telehealth Could Increase Healthcare Costs

Does telehealth reduce healthcare spending? A study published in Health Affairs suggests that might not be the case. The researchers found that telemedicine could actually increase costs, since it drives more people to use healthcare.

“A key attraction of this type of telehealth for health plans and employers is the potential savings involved in replacing physician office and emergency department visits with less expensive virtual visits. However, increased convenience may tap into unmet demand for healthcare, and new utilization may increase overall healthcare spending,” the study authors wrote in the Health Affairs article.

Clinical Laboratories Can Support Virtual Healthcare  

Clinical laboratories must juggle supporting consumer demand for convenience, while also ensuring health quality expectations and requirements. How can pathologists and medical laboratory leaders integrate their labs with the patient’s virtual healthcare experience, while also aiming for better and more efficient care? One way would be to explore innovative ways to contact patients about the need to collect specimens subsequent to virtual visits. Of course, the procedures themselves must be done in-person. Nevertheless, medical laboratories could find ways to digitally complement—through communications, test results sharing, and education—patients’ use of virtual visits.

—Donna Marie Pocius


Related Information:

Kaiser Permanente Chief Says Members are Flocking to Virtual Visits

Kaiser’s Tyson to Nashville: Health Care’s Future Isn’t in a Hospital

More Virtual Care Than Office Visits at Kaiser Permanente by 2018

Telemedicine Market Forecasts: 2016 to 2021

What do Consumers Want from Virtual Visits?

Virtual Visits with Medical Specialists Draw Strong Consumer Demand, Survey Shows

Direct-to-Consumer Telehealth May Increase Access to Care but Does Not Decrease Spending

Cleveland Clinic Gives Patients Statewide 24/7 Access to Physicians Through Smartphones, iPads, Tablets, and Online; Will Telemedicine Also Involve Pathologists?

Medicare Price Cuts May Slow Total Overall Hospital Spending Growth

Pathologists and clinical laboratory managers will want to stay abreast of what emerging data is revealing about the broader impact of slowed growth in Medicare spending

Contrary to the predictions of some analysts, a recent study suggests that slowing Medicare price growth by lowering hospital reimbursements will slow hospital utilization and spending for all age groups. For pathologists and clinical laboratory managers, the study represents credible evidence that cuts in Medicare prices cause a measurable and linked decrease in hospital utilization for both the elderly and the non-elderly.

The Affordable Care Act of 2010 (ACA) permanently suppressed the rate of growth in Medicare reimbursements to hospitals and most other medical providers, according to a recent study by the Center for Studying Health System Change (HSC). In this study, the HSC sought to measure spillover effects of changes in Medicare inpatient hospital prices on patients under age 65. (more…)

Increased Number of Corporations Now Offer Employee Wellness Programs, Creating Opportunity to Clinical Laboratories to Provide Needed Lab Tests

Elements of Obamacare specifically support employer programs designed to improve the health of employees

Who would have believed that, after passage of the Affordable Care Act back in 2010, a fast-growing trend would be that of employers spending more money to develop employee wellness programs and offer medical clinics within corporate facilities? At a minimum, this development creates new opportunities for clinical laboratories to be direct providers of medical laboratory testing services to corporations.

Employee Wellness Programs Incorporate Medical Laboratory Testing

There is a simple reason why employers are jumping on the employee wellness bandwagon. Evidence demonstrates that incentivizing employees to live a healthier lifestyle can help reduce the cost of providing health insurance. It can also contribute to less absenteeism and increased employee productivity, both of which are important benefits to employers.

New data affirming this trend can be found in the 2013 Health Care Survey conducted annually by AON. AON is a global re-insurer that provides risk management services, insurance, and human resources solutions. About half of all U.S. employers now offer employee wellness programs, according to a recent study by Rand Corp., an independent think tank based in Santa Monica, California.


McKinsey & Co. Study Says Health Reform Law May Cause 30% of Employers to Drop Healthcare Benefit Programs

Obamacare reforms scheduled for 2014 may have negative financial impact for pathology groups and clinical laboratories

It was not welcome news to many healthcare policymakers when McKinsey & Company released the findings of a survey that indicated that as many as 30% of employers were likely to cease offering health insurance coverage to employees when certain mandates of the Affordable Care Act (ACA) take effect in 2014. Criticism of the McKinsey study was swift, and newspapers and television news outlets gave wide coverage to these criticisms.

For pathologists and clinical laboratory managers, this dust-up over the findings of the McKinsey survey of major employers provides a clue as to the more rancorous debates that are yet to come as, year by year, different mandates of the Obamacare law take effect. The details of McKinsey’s survey about how employers are likely to handle employee health insurance coverage are an example of such debates.