Largest Nonprofit Health System Heads Toward Fully Transparent Pricing

The solution to the most vexing problem in healthcare—pricing failure—just got an enormous boost. Pricing failure is when there is no correlation between price and quality, which is pervasive in healthcare. The Tulsa World recently reported on the largest nonprofit health system in the country joining the trend towards fully transparent procedure pricing. This is a trend that began in Oklahoma several years ago and has demonstrated an ability to reduce surgical costs 50-90% over the norm.

Ascension’s St. John Health System joined the transparent medical network (TMN) pioneered in Oklahoma. TMNs differ from so-called “transparency” offerings that simply show the insurance pricing but do nothing to truly streamline the consumer and provider experience. Not only can a patient (or a doctor advising a patient) see the true costs of care in advance in plain English, it gives employers access to cash-based prices with healthcare organizations while employees pay zero and avoid the hassles and confusion of dealing with indecipherable bills, EOBs, PPO networks and other anachronisms that have driven healthcare’s hyperinflation.

[Disclosure: I have worked and consulted with the originators of the Zero Card who are featured in the Tulsa World article. They contributed to  a portion of the open-source Health Rosetta project that includes TMNs as a component. As I've disclosed many times, the Health Rosetta is a non-commercial open-source project that provides a reference model for how purchasers of healthcare should procure health services. In my role as Managing Partner of Healthfundr, a seed stage venture fund, we invest in companies adhering to precepts of the Health Rosetta.]

David Pynn, the Ascension St. John CEO, was highlighted in the article and shared how TMNs are part of their strategic direction.

I believe that health systems like St. John need to do whatever they can to lower the costs of healthcare, and I think that population health is a reality that is coming. I don’t think higher deductibles and shifting costs to employees is the answer.

Ascension’s Pynn highlights the blunt-instrument tactic (high deductibles) that many employers have resorted to out of frustration with out-of-control costs. This pioneering hospital had the benefit of seeing forward-looking employers in their community successfully slay the healthcare cost beast while providing great healthcare benefits. As this small, Tulsa-based manufacturer demonstrated, it’s possible to lower per-capita health benefits by 30% while improving benefits for their employees. Further, it allowed the manufacturer to invest money that would have otherwise been squandered on unnecessary healthcare costs into R&D—more than doubling what competitors spend on R&D. It is worth noting that TMNs work best when paired with a value-based primary care model. With a modern primary care model in place, there is time to have a proper discussion with patients about the alternatives and risks of surgery. In many cases, patients essentially “self-deny” a claim (what I call a Negclaim) as there are sometimes better options for them. After all, a well-priced, but unnecessary, procedure is nearly as bad as an unnecessary procedure made worse by pricing failure.

The company Ascension is working with was founded by a health benefits consultant (Jim Millaway) so they deeply understand and work with benefits consultants who may have the most important job in the country. Millaway described to the Tulsa World what the providers and employers want:

Providers want cash business like everybody else. This is all about access. Employers want access to a cash market, and hospitals want access to cash payers. Employees win in the end because as long as they use their Zero Card they get hundreds of surgical procedures and healthcare services for zero dollars, no copays, no deductibles. This takes an unknown, super-long payment cycle and makes it absolutely certain, and condenses it to four or five days.

Startups such as the Zero Card demonstrate how the power of deflationary economics is finally arriving in healthcare by reducing non-value-add administrative overhead. In the Tulsa World article, the chief science officer of the company expands on why it is compelling to doctors long frustrated by the failing of the systems they operate in. Having quietly worked on pioneering the TMN off the beaten path, there has been a chance to work through all of the nuances one might run into over the course of a few years. For example, they have shown employers how it can be introduced as a complement to existing PPO networks at any time of the year. They’ve also worked through how issues such as unanticipated surgical complications can be addressed in a straightforward manner. In other words, the “fear, uncertainty and doubt” proffered by threatened health plans to slow progress have all been laid to rest. Now, it’s time for that to spread nationwide.

The ripple effects of the TMN movement are profound. They lay bare the fact that PPO “discounts” aren’t a great deal for purchasers and they are frustrating for providers. From the provider’s perspective, having to annually wrangle with a list the PPO provider has with hundreds of procedures doesn’t allow them the flexibility they desire.

An organization such as Ascension may only be comfortable going fully transparent on a subset of their services where they know their costs and/or they have competitive reasons where they don’t want to lose business. They like that they could start with something like all total joint replacements. If they find out they have mis-priced a bundled procedure, they can remove it from the TMN at any time. Later on, if they want to add other items, they can add them as fast or as slow as they want. For example, the University of Oklahoma’s OU Medical Center in Oklahoma City has extended the TMN approach into chronic disease management—an area not typically thought of as suitable for bundles. In their case, they have so much experience and expertise with managing diabetes, they can give employers a bundled, transparent price for the year (they assign patients to one of five levels of severity).

Other organization have been more aggressive about ramping up their bundled, transparent pricing. McBride Orthopedic hospital is now receiving 70% of their revenue via bundled payment that is outside of the Rube Goldbergian claims processing system that is so frustrating to doctors. TMNs have been a no-brainer for high-performing ambulatory surgery centers. Now that the largest non-profit health system in the country is joining the TMN movement, it promises to break open the most opaque industry in the country. TMNs were always simple and compelling for employers and employees. As this move by Ascension shows, providers of all shapes and sizes are now ready to embrace truly transparent prices. This will call into question anachronistic PPO networks and finally bring true market pricing to healthcare.