David Smith, Founder and CEO of Third Horizon Strategies (THS) and Co-founder of HC3 (Health Care Council of Chicago) kicked off the November 16th event by providing a high-level overview of the regulations around the impact of price and quality transparency, after which Will James, a corporate strategist working with THS, moderated an expert panel discussion.
Will James, Corporate Strategist
François de Brantes, Healthcare Innovation Consultant
Cheryl Matochik, Managing Director, Third Horizon Strategies
Kevin Weinstein, CEO, Renalogic
Watch the live event:
David Smith, Founder and CEO, Third Horizon Strategies & Co-founder, HC3
Hospitals, group health plans, and health insurance issuers have released a massive amount of health care data this year, as mandated by the Healthcare Price Transparency Rule and the Transparency in Coverage Final Rule. While no one knows exactly how to leverage the data right now, as various entities begin to detangle and understand the data - and subsequently begin to juxtapose the data with claims data, unicast data, T-MSIS data, and Medicare compare data - we are going to have some of the richest information we have ever had about how unit cost and unit price negotiations work at the market level in American health care. That's a big deal. I think this time next year, when we have an event around “transparency and coverage,” people are going to know a lot more about it. In the following two to three years, the health care industry will become increasingly interested in what happened in July of this year. We are excited to have this conversation in advance to determine some of the most impactful things that can be done with this data, both here in Chicago and nationally.
Will James (WJ), Corporate Strategist
Price transparency is not a new concept. It made a grand entrance in 2020 and 2021 with the finalization of the Hospital Transparency Rule, Transparency and Coverage rule, and The No Surprises Act. However, the Transparency in Coverage regs that went into effect this year have really instigated a lot of activity and conversation and are top of the mind for the health care industry. As David prefaced, this is a great time to discuss this topic.
François de Brantes (FB), Healthcare Innovation Consultant
I am currently an independent consultant. I have spent the past 20 years working in different sides of the industry ranging from large organizations like General Electric (GE) to a very small not-for-profit that eventually grew into a large not-for-profit. I have also worked for a company focused almost exclusively on payment reform. As David said, one of the more frustrating things that we've all had to deal with is the inability to understand the price of health care; whether it's at the individual consumer level or for large employers, small employers, and even providers who want to understand the differences in prices that exist in their local market for the benefit of their patients. We are at a point now where we can actually start to understand health care prices, and it is indeed very exciting.
Cheryl Matochik (CM), Managing Director, Third Horizon Strategies
I come at this entire topic of price transparency and transparency in health care in general from the employer's perspective. Prior to joining Third Horizon Strategies, I spent 15 years working at the Council of Insurance Agents and Brokers, which represents the large benefits consultants and insurance brokers in the country, working with the middle market employers and large employers who are the most significant purchasing block of health care. like to say that I grew up in the commercial insurance industry and still keep my primary residence in the space but keep a summer residence in health care.
I've had a front seat over the last year working with several broker clients that have been advising their employer clients on being compliant with the regulations. It’s been an interesting journey navigating and advising clients around this first initial implementation phase. As we move into the next year, I am excited about understanding how we really leverage this new data currency to do the things that we've been waiting to do in health care, particularly in the employer space, where there's not been much control but a lot of information asymmetry. These regulations could help turn the tide on that narrative.
Kevin Weinstein (KW), CEO, Renalogic
I am the CEO of a business called Renalogic, which is focused on cost containment, a little bit of price transparency, and rationality in the dialysis space. Like Cheryl and Francois, I've seen this industry from a couple of different perspectives. I've spent my career working with payers, providers, employers, and consumers. I've worked for nine private equity or growth-stage businesses on the unregulated side of health care. David was right: this is an underappreciated revolution, and a quiet revolution is about to happen. It is the same as when they had a kind of government multibillion-dollar mandate which created the health care I.T. universe right here in town. That was all scripts. However, this is an underappreciated, transformational moment. The best analogy I can think of is when Uber and Lyft put taxis out of business. That somehow just snuck up on everybody. There will likely be unintended consequences of this level of innovation, and there will be changes in the market – we don’t know what those changes are yet.
WJ: Cheryl, can you provide some context to the timeline behind all the rules and the acts? And discuss some of the goals?
CM: Several different pieces of legislation and regulatory rules have been put forward over the last three years by the federal government, and these rules are being implemented in phases over a three-to-four-year period. On January 1, 2021, the hospital transparency rule went into effect, requiring hospitals to post their charge rates in machine-readable files publicly. On January 1, 2022, most sections of the No Surprises Act went into effect, and Transparency in Coverage implementation kicked off. There have been several enforcement dates delayed and occurring after the regulatory requirement dates; however, this past January is when all insurance companies and self-funded employers started ramping up for the July 1, 2022 deadline, which is when they were expected to post machine-readable files of all their contracted rates with their in-network providers for every single health care item in service that is covered by the medical plan.
Having had an inside view from employers, fully-insured employers are relying on the insurance companies to take care of all of this for them because they are able to delegate compliance performance to the insurers. Typically, the insurer wlll contractually assume sole responsibility for required data disclosures. Self-insured plans are a different story. Self-insured employer plan sponsors can delegate compliance performance but are ultimately still on the hook and liable. The issue was that most self-insured employers were not clear on what they needed to do and the different nuances of how they had to post the files, and what kind of information needed to be shared until around April/May this year, leaving them with a very short window to meet the July 1 deadline. On July 1, there was an asteroid of information hit the internet. And now companies who have the analytic capabilities to do so are looking into the data –
exploring what’s in it, how it is organized, and the quality of the data. The machine-readable files that were put out with all the payer contracted rate data are for the business-to-business health care marketplace. It's for stakeholders that are doing contract negotiations, rates, setting employer plan contracts, etc. On January 1, 2023, the second key consumer-facing provision of Transparency in Coverage begins a phased in implementation. For plan years starting on January 1, 2023, group health plans must provide a consumer price transparency tool that allows plan members to compare costs for in-network providers on 500 health care services. On January 1, 2024, every health care item in service must be disclosed in this consumer cost estimate tool to allow individuals to log on and look at what their out-of-pocket liability is going to be on a procedure prior to receiving care. Right now, insurance companies, TPAs and self-funded employer plan sponsors in the commercial market are working on this piece. As we head into January of 2023, it will be interesting to see how insurance companies will differentiate their tools.
WJ: Kevin, what are some of the industry implications past and present, how did we get here?
KW: We got here over many long hours following the post World War II (WWII) structure. After WWII, there was a wage increase/wage freeze, so we tried to figure out how to give people money and instead, we gave them health care benefits. That is how we ended up with the employer-based system that we have today. There have been many failed attempts over many decades of people trying to come up with a participant or an individual solution. However, this was always going to require a government-based solution. I liken it in some respects to electronic claims processing.
FB: If you look at that arc of history, health care benefits became part of compensation for anyone employed in the United States, and benefits used to be relatively rich. It was relatively common for people not to pay a whole lot when they had a Health Maintenance Organization (HMO) plan. Suddenly a shift happened, partially because of tax laws that created an opportunity for companies to create what at the time seemed like a “cool idea.” These were high-deductible health plans because there was a tax advantage of putting money in a health savings account, and it became very appealing for a certain level of individuals and companies. A lot of companies started instituting these high-deductible health plans as an added benefit for highly compensated individuals. That happened simultaneously with a massive explosion in health care prices which happened for a variety of reasons. High-deductible health plans became the norm because of prices going up. So, you had two things converging at the same time. What happened was we had the introduction of fees that had nothing to do with real consumerism but became anchored in consumerism because of the price increases in health care because of the decline in HMOs. The entire industry kind of flipped on its head. And because of that flip, you started seeing individuals legitimately wanting to know how much procedures were going to cost them because it's coming out of their pocket.
KW: The hurdle to getting regulations passed was because there are very few occasions where the hospitals and health plans are on the same side of the issue, and neither the hospital nor plans wanted this legislation passed. It was people on the purchasing side, either individual consumer advocates or business groups, who said, “wait a minute, the system is rigged against us.” And both the plans and the hospital systems didn't want them to know what was really going on.
CM: If you fast forward to where we are today, we are moving at Formula One speeds around these transparency issues. It is going to take a while to bake into the market but reflecting on what's happened since the Court of Appeals in 2020 to where we are in November 2022 is just astounding.
FB: And here’s an example. Three to four years ago, I was working with an airline company that was trying to do a relatively simple bundled payment program for joint replacements in a few communities across the country. For us to be able to price those bundles, we needed a basis for which to proceed. We could have gone knocking on the doors of people, but it’s better to have a basis and preferably a historical basis of that from the employer. At that time, the employer and their benefits consultant as the plan manager could have refused to give us claims data because it's proprietary information. Today, however, we don't need the plan to give any information whatsoever to that employer because we can go on the plan's website, download the machine-readable files, and see it for ourselves. That is a tectonic shift.
WJ: How has the adoption been for the providers and the payers as well?
CM: With the hospitals, there was limited compliance. I’m not sure what the percentages are, but it’s gotten better over time. The Centers for Medicare & Medicaid Services (CMS) issued some penalties this year that were steep. Early on, there were a lot of challenges to the hospital rollout because of the flexibility that CMS granted and the quality of the data. The payer files are a little bit different. I think they have a bit more time as they were delayed six months. There are a lot of issues once you get into the different payers and how they organize the data and what’s in the data. However, I would say, at a general sort of quality level, things are pretty good at this point.
WJ: I want to drill down more into individuals and patients. How can this affect the user experience a little bit more going down in the future?
FB: This is where it can be transformative. Going back to the car analogy, the goal has always been to get there. Meaning to be able to tell someone who's having a health event that you're pregnant; you're going to have a baby. Okay, awesome news. How much is this going to cost apart from the several hundred thousand dollars during the lifetime of the kid? The answer today is, I don't know. But the purpose of the legislation was to obligate employers and providers to answer that question. This means at the point of the request; you get an answer on what the total cost is going to be; pregnancy and estimates of costs around the pregnancy, the delivery, the newborn, and comparisons between different facilities and different providers so that you can make an informed decision about your health care and finances and plan effectively.
KW: I don’t think that there will be much of a consumer impact for a very long time. To the extent that we still have employer-driven health care reliant on benefits managers, the impact will be on people who are tasked with purchasing health care on behalf of individuals. The reason for that is that it is hard to change consumer behavior without a network effect. Nobody is trained today to shop for health care services, including the U.S. consumer. And that's not going to change just because the pricing is available. As Francois mentioned, professionals reviewing on behalf of others is what will drive a lot more change than individuals. It’s going to take a generation of processing before more people will be trained to look for and utilize price information.
FB: I think you're selling the American consumer short. I'm going to push back with Uber as an example. Consider this, you download an app, and it informs you that you're going to get into a stranger's car with the license as a courtesy driver. It could be anyone literally who decided to turn their car into a taxi. They will come to pick you up and drop you off, plus the good news is that you're going to know ahead of time. In advance, you can see how much it's going to cost you, contrary to a taxi where you must wait until you get to the end of the ride to determine the cost - very much like the U.S. health care system. And yet, this certainty is what drove Uber and Lyft to become what they are today. Most consumers prefer to know ahead of time.
KW: I think the other thing that would be fascinating to reconcile your point of certainty is a better understanding of process claims. The same claim, same provider, and same “stuff” may yield different pricing. “Suzi does it on Thursday; Mary does it on Monday,” and there is a completely different result. It will be interesting to see that when you say it's supposed to cost me $10,000, it may be something else on the website when I check it. So, it is not a price guarantee in the same way that Uber is; rather, it is more of a reference point.
There are two things I was hoping we would address today. One is that “enough is enough” for employers. The other being, when was the last time anybody talked to a travel agent? Travel agents are gone now. Why are they gone? Because we have the Internet. We've got some price transparency in the travel industry now. Who are the travel agents in health care? They are the networks. So, whether it's Blue Cross here in Illinois or HCSC (Health Services Corporation), their job is to go out, renegotiate prepackaged stuff and then bring it back to you. What will that role become? People can now say, I know what’s already available to me. Maybe there’s still some leverage around it because they’re packaging by volume. But I would not want to be the guy who's in charge of these networks over the next 10 years. It sure feels like a travel agent sort of scenario if things start to take off.
WJ: So that brings up a great point. We've been talking about some of the implications, contract negotiations, the networks, and employers. Coming at it from the mind of an investor, I'm going to bring this to Kevin, how does that landscape change? How does your mind start changing because of all the change that will seemingly come?
KW: I would say your earlier-stage investors love moments of change. Whether it's the Telco Act of 96, or it's HIPAA (Health Insurance Portability Accountability Act), or the ACA (Affordable Care Act), things that are massively restructured create opportunity. I think I look at it much more like incumbent operators: such as, am I at risk? Is my current business model going to take a hit? I would separate investors into two buckets: 1) Those that are investing in earlier innovation and excited by moments like this, and 2) Those that are much more focused on the investments they already have or liked the structure that was in place before.
WJ: What's the next shoe to drop in transparency? What does 2023 look like?
KW: Enforcement is the next shoe to drop. E.g., Joe's TPA (Third Party Administrator) should not be raked over the coals two months after this. Instead, there is some period after which Joe's TPA needs to be held accountable. For me, it’s going to be on the enforcement aspect of what the government is going to do to continue to drive change reasonably.
CM: I think one of the pieces inferred in this conversation is that what we have yet to pull out completely is quality outcomes data and standards around that data. There are many industry groups that have been working on quality and outcome standards for a while. I can comment on this because I was heavily involved in some of those organizations, and I see that there must be a shoe-dropping around that.
FB: It will be the implosion of the extensive health systems, especially the ones that have been highly successful in negotiating high prices, because the front-line clinicians are generally entirely unaware.
Will: Final question, what excites you the most, and what concerns you the most about the future of price and quality?
CM: Having worked in the employer space for the past 18 years, this is the chance we've been waiting for – it is the key ingredient. There are layers of data that we now must co-mingle with price data, demographic, clinical claims, and so on, but it is the critical ingredient. I think this is the opportunity that we've been waiting for, and I'm curious to see if employers are going to step up and demand the value that they should be getting for their health care spending.
KW: We've heard from folks who have alleged there is a broken health care system hence all the challenges we have experienced. So, it is now exciting to think, here's a chance to make a meaningful impact to fix the system. What I fear is that people will say, “wait a minute, so now that we have fixed the system, America is still a pretty unhealthy place!” So, was this really a process problem? Is this really a systemic problem? What is really driving the health of our population? My fear is that I won't live long enough to have the answer to these questions. FB: My aspiration is to see the restructuring of what we call the ‘delivery system’. To the point Kevin made earlier, all the consolidation, and other things that happened has been majorly driven by the massive conflicts of interest that exist because people don't know what they're buying. They don't know how much it costs. They only find out on the back end. And there are a lot of pockets that get lined in the process, including brokers, benefit consultants and others. And as Cheryl mentioned in her opening comments, in this body of legislation and regulation is designed to shed light on all these conflicts of interest at multiple levels in the system. But Kevin's correct this doesn't solve the underlying way in which the health of the population improves and the way in which the health care can be more effectively delivered.