How Price Transparency Impacts Cost Savings

Healthcare cost and affordability have been perennial concerns for both healthcare consumers and payers as prices have continued to outpace general inflation. Couple this with ongoing legislation from the federal government to increase transparency, and tools that help people compare pricing for services are needed now more than ever for both cost mitigation and compliance purposes. Healthcare costs are affected both by the price and use of services, and with the dynamic nature of cost drivers, like the increase in mental health services, payers need to address pricing. There are several types of price transparency tools available, so it is important to understand the right solution for your strategy and the nuances and purpose of each tool in your toolbox.  

Price transparency solutions for members 

Plan members can play an important role in the fight against rising healthcare costs, so it is important that they have access to the right tools and information. During open enrollment, plan selection tools, which members can use to select the best fit plan for their situation, can help members select the most cost-effective plan for their varying healthcare needs. Likewise, when seeking medical services, price comparison tools can help members find lower cost providers. Educating members on the availability of transparency tools and how to use them can help members play their part in lowering costs for both themselves and payers alike. 

Selecting the right plan benefits package can be a daunting task for members who may not understand the various scenarios where they might incur more out-of-pocket expenses, and this may cause them to enroll in a plan that is not well-suited to the way they will use the healthcare system. Benefit teams can empower their members by equipping them with the right solutions. The lower deductibles associated with plans with richer benefits may be a good option for a member who anticipates a lot of healthcare needs, such as those managing chronic conditions or members who have planned expenses (e.g., members who plan to become pregnant), but may not be a good fit for members who are generally healthy and have low interaction with the healthcare system.  

Members who are generally healthy may benefit from plans with lower premiums typically associated with high-deductible plans. Plan selection tools used during annual enrollment can guide members through this process by bringing together all potential out-of-pocket costs and suggesting the lowest cost plan option to the member. Solutions that can bring together premiums, employer HSA contributions and pre-tax savings, and estimate out of pocket expenses based on the member’s experience can be invaluable to members. This is especially true if tools allow them to plan for upcoming expected major expenditures, a change in covered dependents, and chronic conditions attributed to new members or newly diagnosed existing members.  Additionally, availability of tool adoption statistics can help plan sponsors understand who the tool is working for and where to focus outreach, ultimately reducing the amount both members and plan sponsors are spending on benefits.

Price comparison tools are another important transparency solution for members. It is often unclear to members what medical services will cost, and as a result what their responsibility will be. Other ancillary services may also be associated with the service they’re seeking and contribute to the total cost of the visit. Members may also be unaware that the cost of services may vary greatly depending on who performs the service, where it is performed, and the provider’s network status. Price comparison tools give members visibility into these scenarios by showing members the cost of a service when performed by the providers they are considering. They also incorporate the member’s expected cost share, a comparison of costs between providers for the same service, or the cost of other bundled services. Arming members with this information enables them to make a financially informed decision about who to see for their healthcare needs, which can lead to lower costs for themselves and plan sponsors. 

Price transparency needs of payers 

Healthcare payers act as both suppliers and consumers of healthcare transparency tools. In addition to the plan enrollment and price comparison tools they may make available to members, payers might also use other data sources like machine readable files (MRFs), National Average Drug Acquisition Cost (NADAC), or other external benchmarks for rate setting, advanced analytics, and reimbursement strategies. 

The federal government required MRFs to be published as part of Hospital Price Transparency in 2021, and Transparency in Coverage in 2022, with the goal of increasing visibility into contracted rates, thus driving down costs. The challenges associated with the data in these files somewhat limit the value of MRFs as a standalone asset, but coupling the contracted rates in these files with actual reimbursed amounts help payers understand what their peers are paying for services and how they can impact their medical pricing. In the example below, the cost for a vaginal delivery as reported on Hospital and Health Plan MRFs ranged between $9,847 and $11,372 for individuals with insurance coverage, which is similar to the client rate of $10,610.  Comparing the client rate instead to the median rate of $9,737 from Reimbursement Benchmarks uncovers a potential savings opportunity of over $1.4 million.  

*Potential Savings = (Claims Median – MarketScan Benchmark) * Utilization

Payers can do the same exercise with pharmacy pricing using rates, like the Federal Upper Limit (FUL), which represents what the Center for Medicare & Medicaid Services (CMS) is paying for medications, or the NADAC, which represents the national average price that pharmacies are paying to manufacturers. While payers shouldn’t expect to get the same rates as CMS, they could instead pay a percentage markup on the FUL or NADAC in place of the common practice of paying a discount on the average wholesale price (AWP), which historically has seen considerable fluctuation across manufacturers. These changes may lead to lower annual prescription drug costs through improved price negotiation and stabilization. Comparing contracted medical and pharmacy rates to what others have negotiated helps identify opportunities to get more competitive pricing and impact medical and pharmacy cost trends. With the requirement of prescription drug machine readable files now enforced, the forthcoming MRF files will provide another valuable data asset to understand rates and prices across payers nationwide. 

Claims based benchmarks from a robust longitudinal dataset with relevant data cuts for fair comparison can be equally beneficial for transparency when incorporated into advanced analytics. Benchmark data allows payers to compare their cost and use trends against a robust external population. When adjusted for differences in geography, demographics, and comorbidities they support efforts to tackle rising costs by giving payers valuable insight into where they stand compared to their peers. For example, if a payer has been focused on shifting members to lower cost sites of service, like physician offices and ambulatory surgical centers rather than outpatient hospital settings, an external benchmark may help them set and track appropriate targets, positively impacting overall medical trend and the annual spend. In the example of site of service steerage, the ability to adjust for underlying differences is important as there may be less opportunity for high acuity patients to be moved to lower cost settings. 

Benchmarking against internal data can also deliver valuable insights by placing focus on better performing groups or segments within your own population. This type of analysis is common in provider profiling aimed at improving performance of less efficient providers, which can be used to support value-based care initiatives. In the example below, we take a group of cardiologists and compare each of their costs to the average amongst their peers. A simple comparison shows that Dr. Smith has the lowest cost. However, taking the additional step to adjust the benchmark to control for differences in each physician’s patient population reveals that Dr. Reid is less costly than expected for their patient population risk, and is one of the better performing physicians. Dr. Smith was actually expected to be less costly after accounting for patient risk and was the least efficient physician in the group, despite having the lowest cost.     

Payers can use this information to both reward more cost-efficient providers with better reimbursement rates and to curate their networks. They may also choose to integrate this information into their cost transparency tools. Benchmark data, whether internally or externally sourced, can be a valuable tool in mitigating healthcare costs. 

Implement price transparency for stronger cost management

Rising healthcare costs highlight the need for payers to have a cost management strategy. Price transparency tools are a way to increase visibility into pricing and a method for addressing healthcare affordability. They can help members find lower cost plans without sacrificing coverage and identify lower cost providers without conceding quality. Transparency tools allow payers to use real-world data to know where they stand in the market and how to offer more cost-effective benefits. Taking additional steps to deliver user-friendly applications, bringing together disparate data sources, and incorporating best-in-class benchmarks can help payers stand out amongst their peers while positively impacting their healthcare trends.