Consumer-Driven Healthcare


Joseph Forrester, DO, a critical-care hospitalist and pulmonologist in Denver, discovered firsthand how scoping out and paying for healthcare now resembles shopping for other big-ticket items. Unlike purchasing and paying down a diamond ring or a 60-inch flat-screen TV, for which the final price and payment is duly noted and balances promptly adjusted, hospital billing attempted to overcharge Dr. Forrester by 500%. He already had paid $4,000 toward his 2008 out-of-pocket deductible for medical expenses and was surprised when the hospital said he would have to pay the full $5,000 deductible before he could receive care. The savvy doc went to a real-time claims adjudication tool that he uses in his own practice to show the hospital he’d already satisfied the first 80% of the $5,000 deductible.

The hospital’s billing department listened and responded.

Dr. Forrester paid the remaining $1,000 to fulfill his deductible, and his insurer covered the rest of the treatment cost. “Having access to this information allowed him to receive care immediately, without having to wait weeks for the hospital to correct its mistaken information,” says Chris Stanley, MD, a medical director with United Healthcare.

High-deductible health plans (HDHPs) like Dr. Forrester’s have been growing in popularity since the establishment of health savings accounts (HSAs). Designed to help individuals save for future medical and retiree health expenses on a tax-free basis, HSAs were signed into law by President Bush in December 2003. These products are just beginning to influence how hospitals collect fees and how patients negotiate with their physicians—including hospitalists—about which medications, tests, and procedures they’re willing to pay for.

Break from Tradition

Patients can shop around click for large version

click for large version

According to the U.S. Treasury Department Web site, HSAs allow individuals to “own and control the money in your HSA. Decisions on how to spend the money are made by the consumer without relying on a third party or a health insurer. Consumers will also decide what types of investments to make with the money in the account in order to make it grow.”

HSAs only are available to individuals covered solely through an HDHP. Individuals receiving veterans benefits or already on Medicare are not eligible; however, if they establish an HSA before enrolling in Medicare, they can keep it—but not add to it.

HDHPs offer consumers—especially young, healthy individuals—low premiums and high deductibles (between $1,150 and $2,900 for individuals and $2,300 to $5,800 for family plans). In addition to paying a low premium, consumers can put money into an HSA to pay for out-of-pocket expenses, including deductibles, co-pays, and co-insurance. The maximum amount of tax-free money a consumer can stash in an HSA this year is $5,800 for individuals and $11,600 for families. (Those 55 and older can contribute an additional $1,000 annually to their HSAs to accelerate their savings rates.)

Next-Generation Health Plan Terms

  • Health savings account (HSA): A savings account that offers consumers an alternative to traditional health insurance to pay for qualified medical expenses. Consumers can pay for current health expenses and save for future medical expenses with tax-free contributions. HSAs are available through banks, credit unions, insurance companies, and other financial vendors.
  • Health reimbursement account (HRA): A savings account funded jointly by an employer and employee to pay for covered medical expenses. Unused funds roll over annually. Many HRAs offer additional cash incentives, such as in-network providers and wellness programs, to reduce employees’ premium costs.
  • High-deductible health plan (HDHP): An individual must have an HDHP in order to open an HSA account. HDHPs usually are inexpensive health insurance plans, also known as catastrophic plans, with deductibles of at least $1,100 (single) or $2,300 (family). Annual out-of-pocket expenses to the consumer (deductibles and co-pays) cannot exceed $5,800 (single) or $11,600 (family).
  • Chargemaster price: The list price for services and procedures charged to self-pay and other uninsured clients, usually three to three and a half times the normal Medicare reimbursement.
  • Negotiated price: The amount public and private insurers actually pay hospitals and other providers.—MP

Consumers can access HSA funds through a debit card, or they can pay for a service, then file for reimbursement.

An HSA should not be confused with a flexible spending account (FSA). Both are paid for by employees with pre-tax dollars; however, FSAs:

  • Carry no insurance requirements;
  • Are capped at $5,000 in annual contributions;
  • Do not pay interest on the account balance; and
  • Must be used—or forfeited—by the end of the plan year.

In contrast, an HSA:

  • Is funded by the employee or jointly by employer and employee (known as a health reimbursement account, or HRA);
  • Has insurance requirements on deductibles and out-of-pocket contributions;
  • Pays the provider directly and submits receipts to the account administrator;
  • Accumulates interest through a financial institution; and
  • Allows unused funds to be carried forward.

Easy Business Decision

Employers are jumping on the HDHP bandwagon, largely to shift more health insurance costs to employees. HDHPs allow consumers to save on upfront costs (e.g., premiums and routine medical expenses) while allowing them to partner with their physicians when deciding how and when they will spend their HSA dollars.

Allowing patients to be involved in the testing, medication, and length-of-stay decisions relative to their care is a reversal from the status quo. Physicians working with hospitalized patients aren’t used to patients questioning treatment or asking for a cost analysis of medications. Another way to think about working with patients who have nontraditional plans: If you were eating at a soup kitchen, you probably wouldn’t complain about having to eat off of paper plates. But if you were dining at a five-star restaurant, you’d freely complain to the maître d’ if your soup was cold or the salad limp.

The 2008 National Study of Employer-Sponsored Health Plans, conducted by international human resources consulting firm Mercer, reported consumer-directed health plans, coupled with either an HSA or an HRA, are offered by 45% of companies with 25,000 or more employees (up from 22% in 2005). Nine percent of companies with 10 to 499 employees offer consumer-directed health plans, up from 2% in 2005.

Mercer partner Blaine Bos notes that raising deductibles is the fallback for employers faced with medical cost increases they can’t—or won’t—absorb. “The introduction of HSAs may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt,” Bos says in the survey analysis. He predicts bad economic times will accelerate consumer-directed health plan uptake in small and large firms because they deliver substantially lower costs than PPOs and HMOs. In 2008, CDHP costs averaged $6,207 per employee, compared with $7,815 for PPOs and $7,768 for HMOs.

Data from indicate consumers are taking full advantage of HDHPs: Fifteen percent choose the highest deductibles, 48% the mid-range, and 37% the lowest deductible.

How Hospitals Can Respond to High-Deductible Health Plans

HDHPs and accompanying HSAs and HRAs pose a number of financial issues for hospitals. An obvious challenge is that most HDHPs with an HSA/HRA component are backed by PPOs whose provider network agreement stipulates that hospitals can’t bill for deductibles in advance. Therefore, hospitals will have to bill the insurers, who will deny the claim if the patient hasn’t met his or her deductible. The hospital or physician will then have to pursue the patient or guarantor to collect. Payors without real-time claims adjudication tools may exacerbate this problem, leaving consumers and hospital billing departments without adequate information to resolve claims promptly. Other actions hospitals must consider as consumers shoulder higher healthcare costs:

  • Improve self-pay collection: Providers likely will need to secure upfront payment and charge interest on slow payers;
  • Offer payment plans: With the maximum HSA deductible at $5,800, some customers may ask providers to offer deferred payment;
  • Get ready now: HDHPs and HSA penetration could grow to 33% of patients by 2012, according to some healthcare experts;
  • Review your self-pay receivables: They will rise as HDHPs gain market share;
  • Offer an HSA at your own hospital: Employees will experience firsthand what healthcare cost-benefit decisions mean to consumers;
  • Redesign patient access, scheduling, registration, and billing to incorporate HDHPs, HSAs, and HRAs; and
  • Rethink your approach to each specific type of patient financial responsibility—co-pay, coinsurance, deductible, and out-of-pocket ceiling.—MP

Still on HM’s Horizon

Consumer-driven healthcare has yet to significantly affect hospitals and—by extension—HM groups, although hospital admissions were down 2% nationally in 2008 and hospital debts are climbing. Adam Singer, MD, CEO of IPC: The Hospitalist Company, says the impact of HSAs on HM isn’t noticeable yet because patients haven’t adapted to the new model. “Consumers usually aren’t price-shopping the facility, because they’re committed to their physicians and will go to the hospital where their physician has privileges,” Dr. Singer says. “Additionally, the patients hospitalists see are very sick. Many came in through the ED and had no choice about how they got there. They certainly don’t pick their hospitalists.”

By extension, the ED isn’t immune to market forces driving consumer-directed care. Karen McConnell, PhD, director of the Oregon Health and Science University’s Center for Policy and Research in Emergency Medicine, posits that rapid adoption of high-deductible plans could change ED utilization (Ann Emerg Med. 2005;46(6):536-40). Although the ED may be insulated from extensive shopping and price negotiation because visits generally are for urgent conditions, Dr. McConnell says, ED utilization patterns may change if cost-conscious HSA holders forego other necessary medical care or seek substitutes for less-urgent problems.

The reality of consumer-directed healthcare and patients footing more of their own medical bills could eventually have a significant impact on HM programs. “Hospitals are under attack,” Dr. Singer says. “The 20% to 50% of hospital medicine program revenues received as support payments from their hospitals may drop as high-deductible plans with HSAs drive down hospital revenues. So as hospital revenues fall, the subsidies—particularly some of the more absurd, seven-figure subsidies that hospitalists enjoy—are vulnerable.”

Patients Take Charge

With their own money at stake, HSA consumers are engaged in the decision to spend—or save—their healthcare dollars. Although the shift in the doctor-patient decision-making process has slowly found its way into the hospital, it is playing out in doctor’s offices—one of several pipelines for hospital admissions. As a consumer, Linda Waldmann, manager of MyCost, a real-time claims-adjudication tool offered by Alegent Health, introduced cost when making treatment decisions after she was diagnosed with carpal tunnel syndrome. She asked her orthopedic surgeon lots of questions, absorbed what he said, then made her own treatment choices.

“My orthopedist wanted me to have three tests, but I elected to postpone one test until my HSA replenished the following year,” Waldmann says. “Doctors are still hesitant about negotiating with patients, but this one understood my concern.”

Blue Cross/Blue Shield of Tennessee’s (BCBST) Maggie Fox, director of application systems, saw a large jump (to 33% in 2009 from 8% in 2008) among BCBST’s 5,000 employees opting for HSAs. The Tennessee company emphasizes prevention, education, and wellness as critical components of consumer-directed care, and the company’s HSA consumers are offered a variety of discounts for adhering to healthy lifestyles.

Tax Shelter or Bankruptcy Opportunity?

Statistics and common sense tell us that unanticipated consequences happen when people are required to put their own money on the table for their healthcare expenses. HSAs sometimes are seen as a boon to those who can contribute up to $5,800 a year—pre-tax—in an HSA, choose a HDHP, then pay for routine medical expenses with other funds. By not using HSA money, high-income individuals can roll over their contributions each year, contributing another $5,800 annually until they reach Medicare eligibility.

A U.S. Government Accountability Office (GAO) report indicates that some wealthy consumers have figured out the benefits of accruing tax-free healthcare dollars: In 2005, HSA contributions totaled $754 million and withdrawals only $366 million. This suggests some tax-free hoarding at work, perhaps to pay for big-ticket medical expenses before Medicare kicks in. But wealthy individuals don’t get a completely free ride: The money must be used only for qualified medical expenses.

At the spectrum’s other end lie bankruptcies, bound to increase as consumers pay a larger portion of their medical expenses. The 2005 Harvard Consumer Bankruptcy Project shows the damage done by uncovered medical bills: Based on analysis of 1,458 bankruptcy filings in 2001, the project’s authors concluded that 50% were caused primarily by medical bills averaging $11,854, and that 76% of the bankruptcy filers had no medical insurance. Some have called the Harvard Project’s data analysis flawed. Michael Millenson, president of Health Quality Advisors, a healthcare consulting firm in Highland Park, Ill., examined the same data on the insurance industry’s behalf, concluding that only 17% of the bankruptcy filings were related to medical bills.—MP

At BCBST, HSAs have opened dialogue between patients, physicians, and hospitals. Through a Web-based portal called “Blue Access,” providers receive information on a patient’s financial liability in as little as 10 seconds. “HSAs and HRAs have created a patient liability that never existed before,” Fox says. “Higher out-of-pocket costs change everything. Providers need to collect payment at the point of care, whether that’s the office or hospital. There’s more work at checkout, but at least patients and providers know the exact amount the care costs and how much the patient has to pay.”

Davis Liu, MD, a Wharton School of Business graduate and family physician with Northern California Permanente Medical Group, advises hospitalists to be ready for patients with HSAs to challenge treatment decisions because of the cost. He says hospitalists must prepare to communicate clearly and effectively with HSA patients, especially when it comes to necessary testing and medications. The task might be difficult because information about testing costs and procedures is limited, and prices vary dramatically by hospital and region. “While it is extremely unlikely that patients will refuse testing when hospitalized, hospitalists must be acutely aware that these patients may skip follow-up appointments, testing, and surgeries,” Dr. Liu says.

United Healthcare’s Dr. Stanley sees physician decision-making evolving as HSA patients become more aware of the economics of treatment options. “Patients are already questioning doctors who order four tests when they’re only willing to pay for three, wanting to postpone procedures, and asking about costs for additional tests and procedures,” he says. “Eventually, cost consciousness will impact group practices. They will have to decrease overhead, revamp collection processes, and strive for administrative simplicity.” Woe to the physician who believes cost isn’t their responsibility, Dr. Stanley says, as they “must realize they’re small-business owners and act accordingly.”

The Future

Consumer-driven healthcare might have little effect on hospitals right now, but change is on the horizon, according to Greg Scandlen, president and CEO of Consumers for Health Care Choice in Hagerstown, Md. He cites the 2008 National Health Interview Survey conducted by the Centers for Disease Control and Prevention, which shows 20% of Americans have an HDHP, as proof positive these new plans are increasing market penetration.

“We’re at a tipping point where every provider will have to deal with cash-paying clients,” he says. “Hospitals with Chargemaster pricing [the list price for services and procedures charged to self-pay and other uninsured clients, usually three to three and a half times the normal Medicare reimbursement] won’t get away with that much longer. They’ll have to charge reasonable, negotiated rates rather than slamming self-pay patients.”

It looks as though the days when patients entered the hospital worried about getting well and dealing with the bills later will soon be in the rearview mirror. Not far into the future, individuals with self-pay components to their health insurance might demand and receive full financial disclosure of all their expected hospital costs (see “Patients Can Shop Around,” p. 29) at the time of admission, with necessary adjustments at discharge.

“Hospitals can’t have secret pricing in a transparent, consumer-driven world,” says Scandlen. “The HDHP model hasn’t fully hit hospitals yet, but they’ll get clobbered in about two years if they don’t adapt.” TH

Marlene Piturro is a freelance writer based in Hastings-on-Hudson, NY.

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