Open Pricing

By David Ollier Weber	October 25, 2011
Offering a fixed price for an episode of care may draw more customers ? locally and internationally. A new website helps providers do just that.

I was at a party this summer where the wife of a distinguished orthopedic surgeon confidently asserted that disgruntled Canadians are flocking to the United States for the elective surgeries they can't get ? or have to wait unconscionably long for ? under their own socialized system.

I begged to differ. And perhaps it's not necessary to refute this myth for sophisticated readers. But it's a myth that has been repeated so often by opponents of health care reform in the United States that it has come to be believed by many smart people, like that surgeon's wife.

They've been misled. Here's the real story, as reported in Health Affairs in 2002 by a team of researchers from both countries:

Even counting sunbirds who take refuge from northern winters in places like Florida and Arizona, and travelers who find themselves in need of emergency care, the number of Canadians who check into U.S. hospitals barely registers a blip on the radar. Among a representative population-based government sample of 18,000 Canadians, a mere 90 of them ? one-half of 1 percent ? received medical care in the United States in the previous year. And only 20 of those ? one-tenth of 1 percent ? had gone to the United States for the express purpose of getting medical treatment.

The researchers concluded, "Results from these sources do not support the widespread perception that Canadian residents seek care extensively in the United States. Indeed, the numbers found are so small as to be barely detectible relative to the use of care by Canadians at home."

Marketing North and South of the Border

While treating Canadians won't be a cash cow for border hospitals or even high-profile institutions, some Canadians who can afford it do head south for certain kinds of nonemergency medicine when they're impatient with waiting times at home. Working through Richard Baker, a Vancouver-based Canadian broker, at least 22 hospitals in eight U.S. states ? some as far from the border as Arizona, Oklahoma, Kansas and Maryland ? eagerly have packaged and priced their surgical and diagnostic services specifically to attract the antsy foreigners.

These U.S. hospitals promise Baker's clients they'll replace a knee, do a cardiac bypass or perform any of a dozen elective procedures within a matter of days at a guaranteed rate as much as six times lower than the "usual and customary" reimbursement they'd demand from retail payers. Think $16,000 for a new hip, marked down from $100,000.

It's an idea that works for U.S. residents who are employed by self-insured companies, too. St. Mary's Regional Medical Center in Lewiston, Maine, now offers the same cut-rate package deal (not including postoperative follow-up, which is left to the patients' own physicians back home) for employees of companies like the Northeastern grocery chain Hannaford Bros., working through Aetna as third-party administrator.

Peter Hayes, then the purchasing honcho for Hannaford Bros., came up with the notion several years ago of inviting St. Mary's to bid for hip replacements for the chain's 50,000 employees. (One unfortunate who chose a shoddy hospital with a high infection rate had just run up a $1 million bill.)

After some research on medical tourism, Hayes had contracted with a highly ranked Singapore hospital to do the procedures at well below the U.S. rate. Employees who opted to fly there would enjoy an all-expenses-paid overseas vacation with a companion, and their co-pay would be waived ? and still Hannaford would save money. But Hayes couldn't get any takers. So, through Aetna, he invited local hospitals to try to match the Singapore deal, both on the basis of outcomes data and cost.

Most hospitals refused to divulge their complication rates, he recalls. And most "didn't really know how much it costs to do a hip or a heart."

St. Mary's had no such problem.

"Our quality scores are very transparent," asserts Len Farinas, the hospital's director of orthopedics and neurosurgery. "And we have two surgeons who do 99.9 percent of our total joints, so there's not a lot of variation. That makes it easier to come up with a certain price. We knew what our cost was and what we would need to be reimbursed. 'Let's put it all together,' we said."

"What started as a pilot has expanded because of word of mouth, through employers talking to one another," added St. Mary's director of managed care Pamela Beaule. "The catalyst for us was having patients leaving the state of Maine [for procedures like knee and hip replacements]. That's not good for the state or its facilities or the patients."

Beaule and Farinas won't reveal the prices they're quoting to favored domestic and foreign customers for total joint-replacement surgery. They cite competitive reasons. And that's the problem when people tout market-based solutions to soaring health care costs: There's no transparency to support marketplace price comparison.

Indeed, a recent national survey found that one patient may pay as much as 683 percent more than another for the same medical procedure in the same town, depending on which doctor they choose. Another recent study found substantial variations both in the volume of services and in prices paid by Medicaid programs.

"Overall, per capita spending in the 10 highest-spending states was $1,650 above the average national per capita spending, of which $1,186, or 72�percent, was due to the volume of services delivered," the study reported. Short of such analyses, state Medicaid directors have no idea whether they're being undercharged or overcharged compared with their compeers.

An eBay for Purchasers and Providers

Many providers would love to have an opportunity to pitch fixed-price episodes of care like that to big employers, says Hayes. But there has never been a mechanism.

Now, in concert with Don Crandlemire, a health care attorney, and Len Fromer, M.D., executive medical director of�the Group Practice Forum (a research and education arm of the American Medical Group Association), Hayes has founded a website called Open Health Market ? http://www.openhealthmarket.net. They hope it will become "an eBay for purchasers and providers." The former can sign in to post RFPs for MRIs, CAT scans, joint replacements, heart procedures and the like; the latter can respond with a flat-rate price tag.

"Instead of paying for every widget," explains Hayes, purchasers will know up front what the bill will be ? a simple, direct and translucent transaction.

"If you talk to providers," says Hayes, "they're really, really angry at health plans because, for providers, negotiations have always been win-lose situations. Even if they offer higher value and lower cost, they're getting paid the same."

Through Open Health Market, he explains, "we're hoping that, as purchasers in the community talk with providers in the community, it'll bring health care back to the community level ? without a third party intervening right in the middle of it. With more transparency, patients will vote with their feet. Providers will have to compete. And it creates a much different revenue model."

So far, you can count the medical groups and hospitals who've enrolled at openhealthmarket.net on the fingers of two hands, admits Hayes. And there are fewer than two dozen employer counterparts, even though registration is free.

"It's slow going," Hayes admits. "This is a new concept. The C-suite question is always, 'Who else has done this?' "

Most providers are just as dithery. Baker, the Canadian broker ? who also negotiates on behalf of uninsured U.S. clients through his North American Surgery Inc. ? says one American hospital he was trying to enlist in his network took six months to quote him a price. By then he'd lost interest. "It was obvious they couldn't make decisions," he concluded.

For hospitals that can do the math and are open to his business model, he says, it's "found money." And yet, he laments, "this concept goes flying over the head of four out of five" U.S. hospital executives. "I'm stunned at how difficult it is for most of them to get their minds around it."

Hayes is hoping the creation of Open Health Market will open minds.

"We're trying to spread the news that we're out here by word of mouth and networking," he declares. "What we really need is a large employer to decide to use the tool. Once we do, and as more individual patients are getting more skin in the game through high-deductible health insurance plans, we think we might gain a lot of traction."

David Ollier Weber is the principal of The Kila Springs Group in Placerville, Calif., and a regular contributor toH&HN Daily.

The opinions expressed by authors do not necessarily reflect the policy of Health Forum Inc. or the American Hospital Association.

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