A report setting principles and recommendations for achieving greater price transparency in US healthcare suggests the task will require cooperation between healthcare providers, payers, and employers.

Price transparency is a critical element to reforming the US healthcare system, says a report released this month by the Healthcare Financial Management Association.

"Patients are being asked to take on an increasingly significant share of the payment for healthcare services. They are looking for higher value providers: those that offer quality services at a fair price," Richard Gundling, VP of healthcare financial practices at HFMA, said in an email exchange. "It is impossible for them to make decisions about the value of a provider without having price as a component."

Why Is Healthcare Price Transparency So Hard?

The authors of the report wanted any form of price transparency to be easy to use and easy to communicate to stakeholders. They set the following goals as the foundation for price transparency reforms:

• Should empower patients and other care purchasers to make meaningful price comparisons prior to receiving care.
• Should be paired with other information that defines the value of services for the care purchaser.
• Should ultimately provide patients with the information they need to understand the total price of their care and what is included in that price.
• Will require the commitment and active participation of all stakeholders.

"Transparency won't be successful without clarity of information, or without easy accessibility. The basic point is to make it easy for patients and other care purchasers to make decisions about which provider offers them their desired level of value," Gundling said.

"The report offers several examples of how information can be made easily accessible: Providers might post procedure prices on a public website, or provide information on how to make phone or email inquiries to pricing specialists. Many payers, as well as third party vendors, are already offering transparency tools for their members that enable them to make price and value comparisons among multiple providers."

Achieving the price transparency goals will require cooperation between healthcare providers and payers, Gundling said. "Transparency will work best when there is collaborative agreement between providers and payers on the right 'metrics' for transparency, offering different or potentially conflicting information will ultimately create confusion for care purchasers."

"And both payers and providers need to be responsive to feedback from patients/health plan members on what information they find useful when choosing a provider. The HFMA report includes a recommendation to establish "different price transparency frameworks for different care purchaser groups," he said.

For insured patients, the report recommends payers serve as the main source of price information. Providers are best suited to provide price information to uninsured and out-of-network patients, the report contends. And fully insured employers should use and expand transparency tools that help workers identify higher-value providers, according to the report.

"Patients are assuming greater financial responsibility for their healthcare needs and in turn need information that will allow them to make informed healthcare decisions," the report states. "Price is not the only information needed to make these decisions, but it is an essential component."

'Unleash the Market'

One of the most powerful results of greater price transparency will be transforming many fields of medicine into market-driven service delivery models, according to the HFMA report.

"Certain areas of health care are becoming, or already are, more like a retail marketplace, including the market for elective procedures such as Lasik eye surgery or cosmetic surgery," the report states.

"Recent trends in consumer-driven and value-based insurance design are moving 'commodity services' such as lab work, imaging, and screening tests, as well as some procedures, more toward a retail model. And new payment models are potentially reshaping how care will be delivered and priced."

David Friend, who earned a graduate degree in finance from the University of Pennsylvania's Wharton School, a medical degree from the University of Connecticut and now works at accounting powerhouse BDO, has been advocating for market-based reforms in medicine for nearly four decades. In a phone interview he said price transparency and market-based reforms go hand-in-hand. "They're going to have to unleash the market."

"If you let the market work, it will be just like restaurants," he said of achieving price transparency in healthcare. "You should know what you're getting and how much it's going to cost."

Friend believes the market forces that have already been unleashed are bearing down on the "vested interests" that oppose greater transparency in US healthcare.

"This is coming because the consumers are getting smarter and are starting to demand it," he said, noting individuals have an incentive to become savvier shoppers as they face wider healthcare coverage options that include a range of cost sharing burdens such as deductibles and co-pays.

"It's now finally going to happen," he said. "The entire health system has to change: 25 percent of the economy. With 25 percent of the economy up for grabs, you're going to have tremendous winners and unbelievable losers."

'Center Stage Without a Script'
The need for greater transparency is widely viewed as pressing. "We're giving consumers keys to a new car, but you wouldn't give anyone a new car without driver's education," Robin Gelburd, president of New York, NY-based FAIR Health Inc., said in a phone interview.

FAIR Health is a not-for-profit corporation established in 2009 as part of a settlement agreement between the state of New York and insurers over out-of-network reimbursement practices. According to the organization's website, the organization was formed to manage, improve, and expand the claims database that supported claims adjudication and to enhance its transparency, objectivity, reliability and accessibility."

FAIR Health maintains an independent database of healthcare claims information on 140 million "covered lives," Gelburd said.

"In the past, the consumer was like the chorus line in a Broadway show," she said. "Now they have been thrust to the center of the stage with the spotlight on them. They can't be center stage without a script."

A Pittsburgh-based Blue Cross Blue Shield carrier views private health insurance exchanges as a golden opportunity in the group market.

Highmark Inc. is banking on customer-driven private health insurance exchanges as a key growth area for group coverage over the next four to five years.

"We're looking aggressively to move groups to private exchanges," Bill Brown, manager of digital distribution at the Pennsylvania-based insurer, said in a phone interview on Wednesday. "We flipped from a defensive to an aggressive strategy. We've done a lot of demos for national accounts."

Highmark, the fourth-largest Blue Cross and Blue Shield-affiliate in the country, provides health insurance policies to more than 5 million people in Delaware, Pennsylvania, and West Virginia. It launched private exchanges for group coverage in January 2011, with "full scale" operations in place by January 2012. Analysts predict that percentage of consumers using HIX will grow from 1 to 3 percent now to as high as 40 percent in 2018.

"We are so early in the evolution of these exchanges, [that] to have growth that quickly shows how powerful this technology is," Brown says.

"More Depth with the Group'
Highmark is working to establish defined-contribution private exchanges that are consumer-driven and offers "many types of products." Beyond medical coverage Highmark's private exchanges offer dental, vision, and other types of consumer policies.

Brown says private exchanges appeal to small- and medium-sized businesses that have relatively high revenue and well-compensated employees. "The private exchange gets more depth with the group… low-revenue companies may not have the funding to do defined contribution."

Low-revenue companies and small business employees who have never had health insurance are often better served pursuing coverage options on the new public exchanges, Brown said.

Under the federal Patient Protection and Affordable Care Act, individuals and businesses may purchase health insurance policies on public exchanges in all 50 states. With the open enrollment period for 2014 now closed, federal officials say more than 8 million people have signed up. The Small Business Health Options Program public exchanges for group coverage are launching at a slower pace, with growth expected to accelerate in 2015.

"We do have a few groups that have already purchased through the SHOP," Brown says of Highmark's participation in the public exchange for group coverage. "There are different groups that will have more opportunities in the SHOP than a private exchange."

The ability to offer a large suite of insurance products is a major selling point for defined contribution plans on private exchanges. "We're getting a group or member to select from the umbrella of Highmark products," Brown says. "There's a benefit to Highmark to put all its products up and sell them as one. … It's a great opportunity for Highmark to grow our subsidiary business."

Private exchanges offer several advantages to employers and employees, Brown contends. On the employer side, he cites a 450-employee business that reaped huge administrative cost-saving gains from purchasing health coverage on one of Highmark's private exchanges. "They did all their enrollment on paper. They moved to our platform to move themselves to an online platform. It's saving them hours and hours of work every month."

For employees at small businesses, workers can choose a product tailored to their needs, Brown says. "For the most part, in the 100-and-under sized company, they had never had the opportunity to buy products that are what their families need," he said. "With private exchanges, you have employees picking policies that are right for their families and the stage of their lives."

Keys to Success
For insurers seeking to launch private exchanges for group coverage, Brown says the keys to success include careful market assessments and picking the best IT partner possible. "We wanted to make sure we hit the right markets at the right time."

Highmark looked for markets where the company could offer employers opportunities to manage costs, Brown said, "giving the small-group employer another option to dropping their employees on the public exchange market."

Medium- to large-sized employers present opportunities for both Highmark and its group coverage clients, who can realize significant human resources cost savings. With the private exchange handling administrative functions that were often previously sited in multiple locations, "you're really consolidating a lot," Brown says. "They love the administration aspect of it."

Highmark executives also chose carefully when they picked Seattle, WA-based Array Health as the company's IT partner for private exchanges.

"We were looking for someone who had the same vision as Highmark," Brown says. "They are really customer-focused. After the sale, we have very deep touch-points with our consumers… They wanted to make sure everything after enrollment was nailed down. That's why we chose them."

Array Health CEO Jonathan Rickert said Tuesday that he co-founded the company in 2006, when "Romneycare," the Massachusetts healthcare reform law enacted in 2006 by then-Governor Mitt Romney, sparked the imagination of healthcare executives across the country. "The original vision of the business was to offer employees an array of choices," Rickert says. "We wanted to ultimately personalize and humanize the experience of purchasing insurance."

Rickert says Array Health began licensing the company's private exchange IT platform in 2011. "The ACA happened, and we started getting approached by large carriers." Array Health views a private exchange's online presence like an iceberg. "The marketplace is like the tip of the iceberg, then there's the 90 percent under water," Rickert says.

The "90 percent under water" includes billing, customer service, data integration, and "a beautiful front-end shopping experience. You've got to pick the right partner and you have to set it up correctly."

"We loved their back-end technology," Brown says of Highmark's choice to partner with Array Health. "On the front end, we wanted something that was really simple… We do have a call center that supports the website. But we don't get a lot of use of our call center."

With a head start on most of the country, Arkansas is pioneering a series of system-wide payment reforms designed to create a value-based healthcare delivery system.

When you think of fiscally progressive, trend-setting states, Arkansas probably is not the first to come to mind.

But the home of the Razorbacks is on the cutting edge of healthcare reform efforts nationwide, with the state building the country's first public-private, universal-payer, value-based healthcare delivery system.

In 2012, state officials launched the Arkansas Payment Improvement Initiative, a gain-sharing/cost-penalty payment system for healthcare providers. The first payers to enter into the new system were the state's Medicaid program and the dominant commercial-insurer duo, Arkansas Blue Cross Blue Shield and Humana.

"Medicaid almost has to lead the way," Andy Allison, the state's Medicaid director, told me earlier this month. "Medicaid typically adopts the policy changes first, then the private payers adopt later."

Arkansas' universal payer system is so innovative, that federal officials are studying whether Congress would have to pass a new law for Medicare to fully participate, Joseph Thompson, MD, the state's surgeon general, told me earlier this month. "We have stimulated debate in the federal Department of Health and Human Services," he said. "They may be concerned they don't have statutory authority."

Thompson told me that a universal payment system can be a powerful driver of change in any state's healthcare reform efforts, such as setting consistent incentives for providers to attain quality and cost containment goals. "We have all of our public and private payers pulling in the same direction," he said. "We are looking at a total system transformation."

Crisis Spurs Healthcare Payment Reform in Arkansas

I have been politically aware since Jimmy Carter was elected president and a member of the workforce nearly as long. The level of cooperation and conciliation that is on display in Arkansas appears unprecedented.

The political maneuvering to establish and maintain a key element of the state's healthcare reforms, Medicaid expansion, has been an epic struggle.

After Election Day in 2012, Democratic Gov. Mike Beebe faced a huge obstacle in his quest to expand Medicaid to provide coverage for half of the state's uninsured residents – as many as 250,000 adults. Republicans had taken control of both houses in the Arkansas legislature for the first time since Reconstruction. The GOP caucus opposed Medicaid expansion. And 75 percent majority votes were required in the House and Senate to change the state's Medicaid program.

"There were two general groups of Republicans, all of whom don't like the ACA, don't like Obamacare," Beebe told me last week. "Some are honestly opposed, some are afraid of elections."

The political impasse was broken last spring, when a group of business-friendly Republican senators led a drive to expand Medicaid through private insurance policies purchased on the state's new public exchange, Arkansas Health Connector.

Payment Reform Naysayers 'Better Wake Up'

The "private option" for Medicaid expansion has since become a rallying cry for expansion advocates in nearly two dozen states where Republican lawmakers have been blocking expansion of the program. Last month, New Hampshire became the latest state to adopt Medicare expansion, again with Republican senators taking up the private option banner.

State Sen. Jonathan Dismang, who helped lead the GOP effort to enact private option Medicaid expansion in Arkansas, told me last week that The Natural State has shown the country how to make the difficult compromises necessary to advance healthcare reform. "We would like to transform Medicaid. We have something that can be replicated in other states," he said. "I feel good about what we've done."

I feel good about it, too. Arkansas is showing the country that it is possible to tear down the political and economic barriers to healing what ails US healthcare.

In a display of unprecedented cooperation and compromise, Arkansas is on the verge of creating the country's first public-private, universal payer, value-based healthcare delivery system.

Imagine you are the Democratic governor of a rural state that has struggled for decades to help provide healthcare services for all of its citizens.

This is the second part of a multi-part series on healthcare payment reform in Arkansas. Read Part I.

Out of your state's 2.9 million residents, a half million people lack health coverage.

With 100 percent financial support from the federal government, you can expand the state's Medicaid program and offer health insurance to 250,000 residents. Medicaid expansion would build on a high-risk gamble you had recently taken to create a value-based medical payment system across the state. It also would help address a $300 million Medicaid gap in the state's budget.

But almost every Republican in the state legislature views Medicaid as hopelessly broken. And you need 75 percent majorities in the GOP-controlled House and Senate to change the state's Medicaid program.

Now you know how Arkansas Gov. Mike Beebe felt heading into the legislature's key votes on Medicaid expansion in April 2013.

"The real issue was the 75 percent vote. That was the key to this whole problem," Beebe said in phone interview Tuesday, noting he had a powerful ally in his bid to expand Medicaid as part of a grand strategy to transform the financing of healthcare in Arkansas. "The logic dictates that you do it."

Medicaid expansion has become one of the fiercest fronts in the political battle over the federal Patient Protection and Affordable Care Act, with about half of the states having adopted Medicaid expansion. Many chose the relatively straightforward route through growth of existing Medicaid programs.

But Arkansas is among several states that have decided to expand Medicaid through a "private option," using the 100 percent federal expansion financing to fund private insurance policies for the poor purchased through the state's PPACA exchange, Arkansas Health Connector.

"Medicaid is the driving force here," says David Wroten, Executive VP of the Arkansas Medical Society. Two players dominate the modest commercial payer market: Arkansas Blue Cross Blue Shield at No. 1 and Humana a distant second. "The real results are confined to the Medicaid program and Blue Cross Blue Shield," he says.

'You're Hurting Your Own People'
Beebe has championed education, economic development and tax relief since becoming governor in 2007, and he is reluctant to take on the mantle of healthcare reform. "Education and economic development are still my primary focuses," he says. "They make all the other problems easier to solve."

But the former hospital board member said no public official, especially the state's chief executive, could ignore the need to enact system-wide healthcare reforms as the Medicaid funding gap raised alarm in 2011. "You've got to be a counter puncher sometimes," he says. "You can't ignore problems even if they weren't your chosen focus."

"The old fee-for-service model was broken," Beebe said. "I wanted to see where we could go to get away from fee-for-service."

Finding a way to get Medicare expansion through the legislature became a top priority. The governor said he has told leaders of other states "they are crazy to their face" for bucking Medicare expansion. "You're going to pay for it whether you take it or not," he says of the cost of providing medical care to the poor, particularly for hospitals as the federal government scales back Disproportionate Share Hospital payments for uncompensated care.

"These states that are just saying 'no' are paying for the rest of us and not getting anything in return at the expense of their people and their hospitals… You're hurting your own people."

In Arkansas, Republicans embraced an innovative approach to Medicaid expansion that broke The Natural State's political gridlock on the issue. "The approach we took is appealing to some of them," the governor said of Republican lawmakers, singling out a "pragmatic and business-friendly" GOP faction in the Arkansas legislature. "There's an ideological appeal to doing it with private insurance."

State Sen. Jonathan Dismang, (R-Beebe), says Republicans who joined with Democrats to approve private option Medicaid expansion felt compelled to act because of the Medicaid budget gap. "We felt we had to do something. Largely, it was out of necessity," he said.

Dismang says he and many of his Republican colleagues view private option Medicaid expansion as a way to fix the program. "We felt we had to something very substantial. Membership was not going to be satisfied with tweaks here and there."

Many conservative members of the Republican caucus worried about the long-term prospects of Medicaid expansion, including the program's ability to evolve with the changing healthcare landscape and the federal government's commitment to paying for expansion.

"I can understand the concerns from the other side, the concerns about sustainability," Dismang said of Republican lawmakers who opposed Medicaid expansion. But the benefits of using private insurance through the exchanges to fix Medicaid could hold promise nationwide, he noted.

"We are decreasing our existing (fee-for-service) Medicaid rolls. These (newly covered) individuals are going to have private insurance cards. They're going to have skin in the game," he says. "From my perspective, we had a broken system. … We were hundreds of millions short. We attacked traditional Medicaid and made some reforms there."

Medicaid Struggle Far From Over
In addition to enticing Republican lawmakers with the private option, the state's Medicaid expansion pact requires the program to clear the 75 percent legislative hurdle every year. In February, renewal of Medicaid expansion barely passed in the Senate, 27–8. Last month, four rounds of balloting were necessary in the House to gain passage, with a razor-thin 76–24 final vote.

And monumental work remains to control Medicaid costs, Wroten said. Physicians represent a fraction of Medicaid spending in Arkansas, with payments to individual doctors who are not hospital employees accounting for as little as 2 percent of the state's total Medicaid budget, according to the medical society leader. "We're small players in this," he said.

"Eventually, we need to do payment reform for the entire Medicaid program," Wroten says. "We all joined this effort with the expectation that this would be a system-wide change… We can cut the physician budget in half and not make a dent in the Medicaid budget."

Promising Start
Beebe, who is ineligible to run for re-election in the fall due to term limits, says anecdotal evidence and early results from Arkansas' healthcare reform efforts are positive. He cites the experience one obstetrician has had with the state's new medical payment system, which allows high-value physicians to share in cost savings but makes high-cost physicians pay some reimbursement money back.

"He was going to lose money on every baby and he was a fine doctor," the governor said. "As a matter of routine, his staff was sending every placenta to a pathologist, which was totally unnecessary and expensive. A little bit of self-examination can totally change your overall costs."

Many Arkansas leaders deserve credit for the House and Senate votes last April that cleared the way for Medicaid expansion, Beebe says, as well as for other vital reforms such as the value-based medical payment system and improved care coordination through primary care medical homes.

 "We've really got to give a lot of credit to a lot of people," he says of state officials and members of the coalition who have been pushing Arkansas' healthcare reform efforts forward, including Wroten, Surgeon General Joseph Thompson, Arkansas Hospital Association President Robert "Bo" Ryall, state Medicaid Director Andy Allison, state Department of Human Services Director John Selig, and "Republican and Democratic legislators who got this done."

"This is not a one man show," he said.