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PIERCING THE FOG OF MEDICAL PRICING AND PROMOTING TRANSPARENCY

JILL HONECK AND SERIGRAPH overpaid for her husband’s 2005 colonoscopy. Way overpaid. The gross charges were $13,000 for the inspection and removal of five polyps.

How do we at Serigraph know we overpaid when most consumers of health care have no clue about true costs? We know because we can compare prices.

Serigraph administers its health care through Anthem Blue Cross and Blue Shield, a large insurer owned by WellPoint, and together we made a huge leap in 2005 toward creating an open marketplace. We developed transparent prices for high-volume procedures across more than twenty providers in southeastern Wisconsin.

In 2009, Jill and her husband used our transparency model to choose a different provider for their colonoscopies. The gross charges were much lower at $2,472 and $2,797, respectively, and after discounts, net prices of $1,208 and $1,417.

By consulting our cost chart (see Exhibit 4-1), the Honecks saved the company thousands of dollars. The couple did such a good job of shopping that Serigraph picked up both of their deductibles and co-insurance. We made the preventive colon tests free, as we now do for all people in our plan who use a cost-effective colonoscopy provider.

Al Tackes, one of Serigraph’s maintenance technicians, also had no problem driving outside the county to have a colonoscopy done at a cost-effective provider, the Milwaukee Endoscopy Center. He said the service and quality were excellent and the prices unbeatable.

This specialized facility has figured out how to deliver a routine colonoscopy for $1,127 and one with a biopsy for polyps for $1,250. That compares to sticker prices elsewhere as high as $11,000 for a colonoscopy with multiple biopsies for cancer testing.

EXHIBIT 4-1

We were so desperate back in 2004 to pierce the fog of medical pricing that we took matters into our own hands. Linda Buntrock, our senior vice president of human resources, decided to use her MBA smarts to cut through the obfuscation. With some covert help from insiders, she came up with a Rube Goldberg pricing matrix on twenty-three procedures that account for a majority of the dollars spent on elective procedures.

Where no one else had prevailed against system-wide secrecy, Linda got it done. She posted her results on an intranet site for our co-workers, and, voilà, we had transparency. At least we had a start.

To get there, Linda had to fight off the clap-trap that the prices negotiated between the big provider groups and the big health plans were confidential. Included in their contracts was a clause that restricted either side from disclosing prices. What utter nonsense!

It may be their information, but it is also ours—we pay the bills, we write the checks. So, of course, we know the real prices. We, as one company with about twelve hundred lives covered, did not have as many data points on prices as a health insurer, but over time we could review enough procedures and bills to get to workable transparency.

In my view, consumers have an inalienable right to health care prices. After all, health care costs are so high that they knock some households into financial stress or even bankruptcy. Consumers have a need and a right to know up front what a procedure—especially a major procedure—will cost.

Beth Kreutzer, a customer service representative, echoed the experiences of most Serigraph people: “I have tried; it’s almost impossible to get prices from providers.”

Anthem Blue Cross and Blue Shield leaders agreed with us philosophically, that transparency is essential to creating a marketplace. So they quietly reviewed Linda’s work and blessed her findings. They had many more data points than we did, so we could be assured what we were showing to our people was accurate and, further, that providers were being fairly represented.

The initial reaction of medical providers was to shrug off our transparency model. We were just one payer, and they could hide behind a Wizard of Oz curtain. A few, though, immediately asked what they could do to get into our best bracket. The market was moving a little.

About the same time, there were a few other moves toward transparency. The Wisconsin Hospital Association put out a site that listed “sticker prices” for hospital procedures. It included average discounts at each hospital. Their Web site was clunky to use, but it was an advance of sorts.

In 2008, Anthem Blue Cross and Blue Shield used its experience with Serigraph to roll out transparency nationally to a broad range of consumers.

Serigraph now uses Anthem’s data as grist for our intranet pages, which shows pricing the most user-friendly way. Serigraph’s transparency site includes twenty-seven of the highest-volume, most expensive procedures, such as a hip replacement (see Exhibit 4-2 for what Serigraph co-workers seeking price and quality information on a hip replacement find on our site). Among its other virtues:

EXHIBIT 4-2

• Doctor fees are included with hospital and clinic charges.

• Other line items that were unbundled before, such as anesthesiology, are included.

• Prices are shown for whole episodes of care, from beginning of treatment to the end, including physical therapy after surgery.

• Information on quality is added to identify what we call high-value providers. Some call them centers of excellence; we call them “Centers of Value.” We steer our co-workers to those winners.

Combined with the Anthem transparency site, Serigraph can give good consumer information on 75 different procedures. This is just the kind of powerful information consumers need to make good choices.

CO-WORKERS OFTEN SEEK HELP

Serigraph’s co-workers can use the company site on their own. However, more often than not, they come to the Human Resources office to get further counsel on how to navigate through the pricing minefield that characterizes the medical world.

During the difficult development of our transparent information, we held onto the tenet that patients have a right and the need to ask: “How much is this treatment going to cost?”

I asked that question about my pending hip replacement in 2005, before Serigraph rolled out its transparency model. The Web site at my hospital system of choice listed the charge before discounts at $27,000 for the hospital alone. When I called the hospital’s 800-number hotline for more specific price information, the staff person guessed the price at $23,000.

I say “guessed” because when I asked if the prosthesis was included in the price, the person on the end of the line gave the hapless answer that he didn’t know. When I asked the same question about anesthesiology, he didn’t know. Pretty pathetic.

The most common response when a patient asks for a price is: “Why do you care? Insurance covers it.” For a patient in a consumer-driven plan, that unresponsive come-back is unacceptable.

My hospital bill ended up at about $25,000 after discounts. It had twenty-two line items that neither I nor the chief financial officer at Serigraph could decipher. This is the confusing mess facing every health care consumer every day.

The surgeon billed $9,800, before discounts, for forty-five minutes of work on my hip. He is an excellent surgeon: fast, infection-free, good bedside manner. That’s why I picked him after interviewing and checking out four other orthopedic surgeons. He does five hip replacements each Monday and Tuesday morning. You want a surgeon who does high volumes. He or she gets good at the craft. Higher volumes also show other doctors are referring cases. You don’t want the doctor doing one a week.

He bills out at almost $50,000 each day. Not a bad morning’s compensation.

RETAIL PRICES MEAN LITTLE

To show how meaningless retails prices are, my net price for the surgeon after discounts came in at $1,800. That is an 82 percent discount from the $9,800 sticker price. Only the uninsured face those horrendous “sticker” charges, because they are not connected to a network and the accompanying discounts. Some uninsured people succeed in negotiating a lower price prior to treatment, but many see their charges lowered only when they bargain with bill collectors.

Most provider discounts in the private sector are in the 20-30 percent range, but some are less and some are much more—depending, of course, on where some pricing guru in the provider system decides to set the retail price.

In near-monopoly areas, like northwestern Wisconsin, discounts are almost nonexistent. The providers can get away with high prices. One plan member broke an ankle skiing and received no discounts from the sole hospital in Ashland, Wisconsin. She was captive to their near-monopoly.

Adding to the pricing absurdity is the huge variation right within the sprawling consolidated health systems. The price swings from hospital to hospital—in the same system—can run two times from bottom to top. No one in our company, and not many in the region, knew that absurdity before the transparency efforts revealed the significant price differences.

In other economic sectors, politicians step in on the side of the consumer and mandate transparency. Car dealers, mortgage peddlers, and real estate agents are required by law to fully disclose every price item in a transaction. In a house closing, a buyer even has to sign a form saying he or she understands the full dimensions of the deal.

Transparency is required of stock brokers and mutual funds purveyors. Even car repair shops in Wisconsin have to provide an estimate, which the car owner signs. It is binding unless the customer is called and agrees to a higher charge.

Ironically, on the other end of a health care financial transaction, the medical providers want full information about your ability to pay. The first questions you are asked when you register are: “Do you have your insurance card with you?” “Are you still at this address?” “Do you carry any other health insurance?” They demand transparency about how they are going to get paid, but seldom reciprocate with transparency on how they are going to charge.

There ought to be a law.

Serigraph has repeatedly asked Wisconsin legislators and the governor to mandate price transparency, but nothing has happened. Nor has state government taken the easy step of making the prices it pays for coverage of its own employees transparent. That would provide at least one statewide portrayal of net prices.

It took until late 2009 for such a transparency bill to be introduced in Wisconsin.

Similarly, the national insurance reform falls short of requiring openness in prices.

Perversely, providers come after customers hard if they don’t pay. Collection agencies, threats of legal action, credit impairment—all the hard tactics—are brought to bear. Little wonder health care bills are one of the leading causes of personal bankruptcy in the country.

Even when there is a legitimate dispute over a bill, the balance gets turned over to a credit agency, which promptly puts a black mark on a patient’s credit rating. Removing the impairment means taking on an inert, impersonal, rules-driven bureaucracy. It takes months of determined effort.

OVERBILLING IS SYSTEMIC

Another part of the pricing opacity outrage is overbilling. It is systemic.

Brian Brodzeller, a Serigraph chemist, and his wife, Michelle, spent their Sundays poring over the huge, complex bill from the complicated premature birth of their daughter. They found a dozen mistakes, mainly for procedures that never happened.

Serigraph offers a reward for finding billing errors. It gives co-workers half of any recoveries. The Brodzellers didn’t ask for the reward, but saved themselves and the company about one-tenth of the $100,000 bill. One charge was $6,000 for a procedure that never took place. Another $2,000 was a double billing. Ten more errors were for smaller amounts.

Brodzeller said he finds mistakes in every medical bill his family receives. “To be honest, you have to wonder if the many mistakes don’t amount to fraud,” he said. His bulldog approach succeeded more often than not in expunging the improper charges. But not every consumer of health care has that kind of tenacity.

Two years after the procedure, the Brodzellers are still trying to straighten out the mistakes in billing that won’t go away. The bills aren’t big enough for them to afford an attorney, so they fight the billing bureaucracies on their own.

There ought to be a law or at least some form of consumer protection.

In another instance at Serigraph, an employee was billed $6,000 for the removal of a bone spur from behind her Achilles tendon. Months later, she had exactly the same procedure done on her other ankle, and the price from the same surgeon, now in a new system, was $15,000.

She challenged the higher charge and was given no satisfaction. “The first one should have been billed higher” was the lame rationale.

Most medical overbillings and errors go largely unnoticed in this country because the third-party payment system insulates the patient from most of the bill. Only when part of the payment comes out of a personal health account does the bill get the kind of scrutiny it deserves.

Rita Fellenz, wife of a Serigraph co-worker, was motivated by our cost-sharing arrangement to double-check her bills for a repaired rotator cuff. She was billed $5,472 for a room she never used in the outpatient procedure. The embarrassed hospital grudgingly expunged the item but never apologized.

She also called out the clinic on a $600 charge for a simple pre-operation physical. The bill was reduced to a more normal $300.

Not surprisingly, a niche industry has grown up in the United States that helps patients and companies root out mistakes. Auditing companies find errors in eight of every ten bills. Serigraph employs an outside auditor through Anthem for reviewing its major bills.

Most of the payment morass starts with the federal government. Tim Nixon, a retired sales representative for Serigraph, showed me his bill for cataract surgery. The gross charge for one eye was $3,688; Medicare paid a discounted $1,626, about 44 percent of the charge. Tim paid $50.

He didn’t really look at the bill. At $50 out of his pocket, why should he? I pointed out that the bill contained five charges for “non-specific outpatient treatments” adding up to $1,724, almost half the bill. Those procedures weren’t even coded.

That kind of unaccountable billing goes a long way toward explaining why Medicare is projected to go into the red in 2017, if not sooner. The mismanagement of prices starts at the top and sets a pattern for the whole country. The insurance industry, by and large, follows the Medicare pricing system.

Pricing in the non-market for health care is an opaque deck of cards. Nonetheless, we private payers still have to manage our way to acceptable results. We cannot use the dysfunction of the non-system as an excuse.

Serigraph continues to show its local providers where they rank poorly on price. They have moved slowly, but we are finally seeing some moderation in their prices. Without transparency, such progress toward accountability would have never happened. For a change, some prices are going down, not rapidly up.

In 2008, we added quality data to our matrix. Co-workers can come to the Human Resources Department to inquire not only about price but also about quality. That allows us to do a better job of steering our people to “Centers of Value.” It’s a win-win. The only losers are overpriced providers.

Five years after our transparency breakthrough, other big health insurers have been pushed or emboldened to put out their own transparency sites on prices. Finally, they are taking the side of the consumer and the payers like Serigraph. Anthem now publicly lists almost fifty procedures with bundled prices, including doctor charges. Humana has a similar site for one of its networks.

It’s about time! Sunshine is finally piercing the unconscionable fog of medical pricing.