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Healthcare Cost Transparency: Tipping Toward Strategic Imperative

Partner, Health & Life Sciences, Oliver Wyman

We asked in our November 2014 white paper “Getting Ready for Price Transparency” if this year would be the tipping point for healthcare transparency. It certainly seems that it’s going that way. Oliver Wyman’s Tomas Mikuckis highlights a number of examples across sectors that show how payers, regulators – and even a few providers – are jumping on the transparency bandwagon:

Earlier this year, BlueCross BlueShield of North Carolina expanded its online healthcare cost and quality shopping tool, tripling the number of procedures consumers can explore and making the information available to everyone in North Carolina, whether they have BCBSNC coverage or not. “We’re working to take the mystery out of healthcare by providing cost information about more than 1,200 procedures,” said BCBSNC President and CEO Brad Wilson at the time of the launch. “This information will help consumers get more bang for their healthcare buck.”

Just last week, the Center for Healthcare Transparency officially kicked off its new cost and quality initiative. At the event, FierceHealthcare reported, Niall Brennan, the chief data officer for the Centers for Medicare & Medicaid Services (CMS), said the time was right to support a national transparency movement: “A few years ago, you could’ve put everyone interested in transparency in a closet, and there would’ve been room left over.”

CMS made headlines itself last week when it released a new dataset that details information on the prescription drugs that individual physicians and other healthcare providers prescribed in 2013 under the Medicare Part D Prescription Drug Program. The dataset describes the specific medications prescribed and statistics on their utilization and costs for more than one million distinct healthcare providers who collectively prescribed $103 billion in prescription drugs under the Part D program.

Providers that stand to benefit from more openness are also taking the plunge. In March, Seattle’s Virginia Mason Medical Center posted on its website the estimated prices for its 100 most common outpatient surgical procedures. Additionally, the medical center provides written estimates of out-of-pocket expenses for medical procedures. Explained Steve Schaefer, vice president for finance: “This reflects our commitment to transparency and to providing information that helps individuals make informed choices about their healthcare.”

Critics would say the gap between current practices and accurate calculators of out-of-pocket liability for patients is still large. And that’s indeed the case. Yet, these moves show that some providers are starting to recognize what we argued in our earlier paper—that a price elasticity curve does exist in healthcare, at least for certain classes of procedures. For their competitors, especially those with higher cost structures, being able to understand the impact, and model the trade-offs, will become more of an imperative.

Perhaps even more interesting is how quickly the worlds of price transparency and product and network design appear to be intersecting. A recent Harvard University study found that tiered benefit designs created significant shift in member utilization to lower-cost, “tier 1” providers in a Blue Cross Blue Shield of Massachusetts product. The proliferation of these designs serves to further “steepen” the demand curve and member price sensitivity.

For providers, the questions we posed last fall become even more acute relative to understanding how price can impact volume and market share and how best to optimize and estimate potential impacts of price changes in more transparent, price-sensitive markets and product constructs. All of these variables become critical to avoiding a “race to the bottom on price,” where price reductions simply lead to cannibalization of pricing power on existing patients.

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