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Disruptive Innovators: Cost competition puts pressure on providers

Price transparency efforts may force hospitals to cut prices

Randy Cox says he’s not a super genius or even much of an entrepreneur, but when he noticed a jump in his family’s routine healthcare expenses in 2011 and discovered he couldn’t price shop, he found himself starting a business – Pricing Healthcare – a website offering procedure-level prices for healthcare facilities in various areas of the country.

Cox’s company is one of many responding to the trend toward greater pricing transparency in health care. As more of these companies, and the states, put healthcare pricing out in the public domain, providers and payers who have been reluctant to reveal their prices will be disrupted – maybe even so much that they’ll be forced to lower prices.

[See also: Price transparency market to grow to $3B]

“(Hospitals) are very interested in getting your business, and if people are getting colonoscopies and diagnostic work somewhere else because it’s so much cheaper and they lose all that traffic, they will change their pricing,” Cox said. “That to me is very exciting. … I can’t think of anything more disruptive in health care than that.”

That hospitals may be forced to not only make their pricing public but drop their prices is nearly an inevitability, said Nick Newsad, a senior associate at Colorado-based Healthcare Appraisers.

“I think eventually they’re going to face facts, especially (because) hospital prices tend to be quite a bit higher than ambulatory service centers or independent imaging facilities,” he said. Most providers are not going to proactively cut their prices, but as people making cost comparisons take note of the huge pricing differences between hospitals and many freestanding facilities offering the same services and they chose the lower prices, providers will be forced to make pricing changes.

While those not on the pricing transparency bandwagon have argued that lower prices may mean lower-quality care, Newsad said that for the majority of elective procedures – the sorts of services patients have time to plan for and research – like a colonoscopy, for example – there’s not a lot of variation in the process so issues of quality are hard to argue.

[See also: Price transparency gains ground as lead healthcare issue.]

“A lot of them are kind of almost factory-style procedures,” he said.

That said, he does believe that some hospital services should cost more. Emergency care, for example.

But sometimes paying more doesn’t mean better quality care is being provided, said Jason Kart, a physical therapist. He worked for a large physical therapy company before starting his own, Core Physical Therapy Clinics, in Chicago.

“I would love to take the Pepsi Challenge with some of these corporate providers in terms of the cost,” he said.

In the corporate PT firm, patients would be scheduled for visits with a physical therapist two or three times a week for 90 minutes each, he said, but would only work with the physical therapist for 30 minutes. The remainder would be spent with an assistant.

He works with clients for the full 90 minutes so patients improve more quickly, he said, which saves both the patients and the insurers money, and he charges less than the larger PT firms.

“I’d like to see more clinics (disclose their pricing) because … the quality of care and the efficiency of care as a function of cost is atrocious,” he said. “I think as healthcare providers we need to start being more responsible for that problem.”

Some providers and payers are starting to disclose their pricing, said Newsad, and are reporting positive results with improved collections and efficiencies, but the vast majority is still holding out.

How these holdouts will react to continued pressure from the government, consumer demand and price transparency companies like Cox’s will vary, said Newsad.

“I would suspect the forward-thinking ones are going to embrace (it) – and already have – and the reactive ones are going to keep charging high prices until they can’t.”

 

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