Advice from a Purchaser Who Took on Health Care’s Status Quo and Won
April 14th, 2022
Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities.
Dig into the data. Read the fine print. Follow the money.
That’s Marilyn Bartlett’s advice to employers and purchasers struggling to contain soaring health care costs and looking to gain greater transparency from plans, third-party administrators (TPAs), pharmacy benefit managers (PBMs) and brokers.
“You need to become aware of the full range of costs, including all the hidden fees and incentive arrangements used by health care providers, middlemen, service providers and vendors. You’re the fiduciary, so you have a responsibility to understand where the money goes.” -Marilyn Bartlett
Bartlett knows what she’s talking about when it comes to driving down health care costs. As a certified public account and the former administrator of Montana’s state employee health plan, Bartlett rescued the 31,000-member state plan from impending insolvency by carefully examining existing contracts and reviewing stakeholder financial data to drive better deals for the state.
Here, the contractual terms she found that were unnecessarily adding millions of dollars annually to the cost of health care, and the approach she recommends employers and purchasers take to carefully examine the contractual commitments they make with their vendors.
Use all available tools
According to Bartlett, new tools—notably hospital price transparency rules and the prescription drug reporting requirements for self-insured employers contained in the Consolidated Appropriations Act (CAA)—can give purchasers much better insight into how their health care dollars are spent. For instance, brokers will be required to disclose direct compensation paid by TPAs, PBMs and others. But it is important to push for disclosures on indirect, non-cash compensation, too. That information, combined with what brokers are required by law to disclose, can help employers determine exactly who the broker is working for.
The CAA also contains a prohibition on gag clauses that have traditionally restricted purchaser access to provider cost and quality information. This should help level the playing field when it comes to provider and plan negotiations.
Throw away the chargemaster
Bartlett took over Montana’s state health plan in 2015 in the wake of a $28 million loss the previous year. Actuaries were projecting the insurer would be insolvent by 2017. A former controller for a Blue Cross/Blue Shield plan and chief financial officer of a TPA, Bartlett drew from her experience to systematically disassemble and rebuild the plan’s provider and vendor arrangements.
Her first step was to review the wildly varying prices the plan paid to hospitals. One hospital, for instance, charged four times the amount of another for a knee replacement, and virtually all relied on discounts off their chargemaster, or internal price list, to set rates. Using this methodology, some facilities were charging as much as five times the Medicare rate for the same service.
As a result, the plan imposed a new, take-it-or-leave-it reference pricing model that tied all reimbursements to Medicare rates: Hospitals would receive, on average, about 230% of Medicare and the amounts could only increase if Medicare raised its baseline payments for the same service.
“We knew their financial condition and where their break-even points were” by reviewing Medicare cost reports, Bartlett said. “So, we were eventually able to get them to agree. We pulled rates down and got immediate savings.” Hospital cost savings reached $4.6 million in 2016, $12.7 million in 2017 and $15.6 million in 2018. Today, the plan routinely generates a surplus and premiums haven’t been increased since 2017.
The National Academy for State Health Policy recently launched its interactive Hospital Cost Tool, which provides data on a range of measures to offer insights on hospital profitability and breakeven points calculated using annual Medicare Cost Reports. This provides purchasers with an important tool to model the actions taken in Montana that significantly lowered costs.
Re-read the contracts
In addition to scrutinizing hospital pricing, Bartlett urges purchasers to dig deep into the health plan’s TPA, PBM and consulting contracts. She was appalled by what she found in Montana. Some of the more egregious contract language included clauses that:
- Gave the TPA authority to unilaterally pay non-covered services if they received pushback from a provider or patient.
- Allowed the TPA to keep prescription drug rebates as “reasonable compensation” for its services.
- Restricted the plan’s ability to perform its fiduciary duty by prohibiting it from seeking recovery of network provider overpayments.
- Prevented the plan from directly contacting any health care provider without involvement of the TPA.
- Imposed numerous constraints on how the purchaser could audit TPA claims data.
- Enabled the TPA to sell the purchaser’s data to outside parties.
- Allowed the TPA to pay affiliated third-party vendors without any purchaser knowledge or oversight.
- Allowed the TPA to pay providers less than the claim amount collected from the purchaser and pocket the difference.
- Routed drug manufacturer rebates through a third-party “rebate aggregator” that collected up to 25% of the rebate before sending the balance on to the health plan.
- Allowed PBMs to contract with pharmacies they own.
Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities. Even if not explicitly banned by the CAA, hidden contract terms or contract terms that limit the availability of data place employers at risk for failing to meet their fiduciary responsibilities. This, in turn, can put them in both regulatory and legal jeopardy.
Bartlett said she believes the CAA disclosure requirements will go a long way toward helping purchasers—and the country—get control health care spending.
“All the money in the system; that comes from employers, employees, consumers and the taxpayer. It’s all of us, and it’s just horrible how much waste there is. So, I think these transparency rules can give us the leverage we need to finally start reducing that waste.” -Marilyn Bartlett
Today, Bartlett is helping state health plans pursue the same cost-saving tactics she employed in Montana in her role as a senior policy fellow with the National Academy of State Healthcare Policy.
Price Transparency Offers Opportunity to Employers and Purchasers
November 10th, 2021
What is hospital price transparency?
A landmark federal rule requires the nation’s 6,000 hospitals to make pricing data available publicly. This requirement includes plan-specific negotiated prices, not just the “chargemaster” prices, for every item or service.
The rule was supposed to help consumers and purchasers shop more intelligently for health care services. However, due to variable compliance and huge discrepancies in how the data is presented by reporting hospitals, it has been difficult to benchmark or compare data across hospitals.
Why haven’t hospitals complied?
Hospitals that have been slow to comply with the transparency rule have faced a penalty of only $300 per day. This is a very small financial hit to hospitals – large or small.
In early November, the administration finalized a rule to increase to the penalty that takes hospital size into account, raising penalties as high as $2 million a year for large hospitals that fail to make prices public. This increase in penalties will go into effect in January 2022.
What does this mean for employers?
Employers can use this information to drive value-based purchasing.
- As data becomes more complete over time, price information can be used to structure requirements in the procurement process and negotiate better contracts.
- Better price information will give employers and other health care purchasers more insight into how their contracted hospitals compare on price with other hospitals, both overall and on an item-specific basis.
- The availability of specific price information allows for better consumer decision support tools, more member engagement and better member education.
Health Plan Opportunities:
- Health plans will be able to use the data to negotiate better contracts with providers.
- Price data can also be used in conjunction with quality and patient safety ratings to design benefits that support the use of high-performing, lower-cost providers.
- Networks can be designed based on value, and variation that does exist will be easier to identify.
Bottom Line: Price transparency means health care purchasers have access to more information to determine value and improve affordability for their employees and members.
The Real Cost of Health Care: Hospitals Dragging Their Feet on Price Transparency
May 17th, 2021
This year’s landmark federal rule requiring the nation’s 6,000 hospitals to begin making pricing data available publicly was supposed to help consumers and purchasers shop more intelligently for health care services. But whether that’s actually occurring seems questionable.
According to news reports and PBGH’s own analysis, wide variation in how hospitals are presenting price information make provider-to-provider comparisons difficult. Worse yet, hundreds of hospitals have coded their price lists in ways that ensure the data is invisible to Internet search engines. The Wall Street Journal reported the practice is so widespread among both hospitals and payers that the Centers for Medicare and Medicaid Services (CMS) recently issued guidance prohibiting it.
Only 35% of hospitals complying
Then there are the hospitals that haven’t complied with the transparency rule at all, apparently willing to accept a $300-per-day financial penalty in lieu of publishing their price lists. A recent study in Health Affairs found that 65 out of 100 hospitals sampled were “unambiguously non-compliant.”
Among those that have posted prices, the numbers frequently have sparked more questions than answers. Case in point: Prices for caesarean sections provided by Sacramento-based Sutter Health varied by a factor of 10—from $6,241 to $60,584—depending on which Sutter facility did the procedure and/or which insurance company paid for it.
Hospitals point to COVID-19 challenges
The transparency final rule, which was initially published in December 2019, codified an executive order issued by President Trump the previous June that had identified hospital price transparency as a means of encouraging provider competition and reducing costs. The American Hospital Association (AHA) filed suit to block the rule’s implementation and sought an emergency stay, but a federal judge upheld the legality of the regulation in December 2020 and the law took effect on January 1.
The rule requires hospitals to post their entire list of standard charges, or chargemaster, along with discounted cash prices, payer-specific negotiated prices, and de-identified minimum and maximum negotiated charges. They also must publish pricing for 300 specific shoppable health services, 70 of which have been predefined by CMS.
Hospitals believe the Department of Health and Human Services (HHS) should exercise discretion in enforcing the rule, given the challenges facilities face due to COVID-19. Insurers, for their part, have argued that the rule will cost them vastly more than anticipated, require the sharing of trade secrets, and compel the disclosure of “staggering” volumes of data.
But key elected officials are not in a sympathetic mood. Bipartisan members of the House Committee on Energy & Commerce in mid-April urged the HHS to conduct vigorous oversight and enforce full compliance. They suggested the possibility of increasing the civil penalty amount and conducing regular hospital audits. Notably, the current penalty of $300 per day, or $109,500 annually, amounts to about 0.0033% of the average hospital’s net patient revenue of $334.5 million in 2018.
A vital tool for purchasers
The price transparency rule was primarily envisioned as a tool to help consumers make better purchasing decisions. But it will likely prove most valuable to health care purchasers and employers, assuming standardized, accurate pricing data eventually is available nationwide.
That’s because the lack of visibility into pricing historically has been a source of enormous frustration for employers. Without pricing or care quality information, purchasers are effectively flying blind when it comes to decisions about employee health benefits. This knowledge vacuum has been exacerbated by gag clauses and other tactics some providers have used to prevent payers from sharing price or quality information with purchasers.
Equipped with payer-specific discounts and the other details required by the rule, purchasers should be able to determine:
- How their contracted hospitals compare on price with other hospitals, both overall and on an item-specific basis
- Whether payers are charging self-insured employers more than fully insured customers
- Whether their third-party administrator (TPA) is securing the best available deal
Greater hospital transparency could also contribute to improved health plan and pharmacy benefit management pricing visibility.
A multi-pronged approach
As important as price transparency is, it represents only one tool for addressing the enormous problem of over-priced, variable-quality health care. New payment models that align Medicare and Medicaid with private sector purchasers are necessary to ensure that efficiency and quality are consistently prioritized across the system.
And while well-functioning markets continue to represent the best way to get lower prices and higher quality, policymakers need to revise marketplace rules to ensure that drug manufacturers, hospitals and physicians don’t use anti-competitive practices to gain market power and raise prices.
Finally, protecting patients from surprise medical billing must be a key priority. Certain physician groups, often backed by private equity firms, can’t be allowed to exploit their monopoly positions to extract high prices from health plans and self-insured employers.