Healthcare Costs: Are You Paying for a Lexus and Getting a Pinto?

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Inconsistent healthcare costs - are you paying for a Lexus but getting a Pinto?The rising cost of healthcare in this country has arguably reached a “state of emergency.” Over the last 15 years, employers and employees have faced rising insurance premiums and contributions that drastically outpace inflation. And it’s not as if you’re getting what you pay for.

Expensive Healthcare Can Cripple Organizations

The cost of healthcare benefits has become a serious burden, and as we noted in a previous blog, reducing the cost of healthcare continues to be the number one priority of HR benefit managers. But there’s more: beyond the absolute dollars of healthcare, there are opportunity costs that we don’t often think about. Money that would have otherwise gone into investments or infrastructure development is now being diverted to employee healthcare benefits, and that has implications for the long term viability of every organization.

Large Employers Are Taking a Stand

Recently the city of Dallas, tired of healthcare costs eating into their budget for fixing potholes, ganged up with neighboring cities to create some buying power.

“Fed up with soaring costs, Dallas and 30 other North Texas municipalities are asking hospitals to submit bids indexed to federally controlled Medicare prices to cover the cost of care for city employees” writes Jim Landers in an article titled Cities see strength in numbers in negotiating for better health care costs for the Dallas Morning News.

What if You’re Not a Large Employer?

This begs the question, if you are an employer in Dallas without that kind of negotiating power, how do you manage costs, which can vary dramatically within a single procedure class? For example, North Texas municipalities paid between $37,947 and  $142,851 for knees and hip replacements – a difference of over $100,000!

For self-insured employers, the temptation might be to encourage your employees to go to lower cost providers. While this curbs upfront cost, without knowing the quality at these lower cost providers, you don’t know if you are exposing your employees to poor quality care, which has been demonstrated to increase costs as much as six times, due to complications.

What’s worse, there is often an assumption that higher cost correlates to higher quality, so attempts at steering employees to low cost alternatives may be viewed with extreme suspicion.

Employers’ Secret Weapon: The Quality Transparency Revolution

A complete picture cannot be painted until a hospital’s past performance (clinical outcomes) is known. For example, the graph shown by Dallas Morning News, displays the amounts paid by the cities to local hospitals for hip and knee surgery. Overlaying each hospital’s MPIRICA Quality Score for knee replacement, you notice a pattern that MPIRICA commonly sees throughout the country: when it comes to healthcare today, price and quality are not correlated. The higher priced “Lexus” hospitals are often among the lowest quality providers, and vice versa.

North Texas Medical Price and  Quality Variability - MPIRICA

Armed with the newfound power of quality transparency, employers in Dallas (and throughout the US) can now encourage their employees to choose lower priced providers without worrying about sacrificing quality.

And just to drive home the value of quality data: while Dallas has a coalition, they have not yet been successful in getting Baylor University Medical Center to reduce rates, according to the Dallas Morning News article. However, they can now be confident in their negotiation that both Methodist and Texas Health Plano have solid past performances. Knowing this is a far more effective approach than saying “pretty please” to Baylor.

So Dallas, with quality data you’ve now got a platform to really leverage your buying power. Now, go out and take care of those potholes.