Healthcare Costs

Healthcare Finance 3.0

Reimagining healthcare finance post Covid19.

I have been participating in some Zoom meetings to hear how others are reimagining healthcare post Covid19. There is broad consensus that use of Telehealth will not diminish because consumers are using it now. In fact, 80% of physician visits are now Telehealth visits.

Most are still questioning the longevity of current Telehealth reimbursement. When first conceived, Telehealth use was supposed to help reduce the cost of healthcare and with current reimbursement levels, it’s not achieving that objective. Convenience and limitations of the technology may be driving up cost.

When costs go up, everyone starts talking about the need for more value based care arrangements even though structural issues makes it hard for many healthcare organizations to make those arrangements work.

So the question that remains to be answered is how do we develop a more sustainable model?

Healthcare Consumerism vs. Accountable Care Organizations [ACO]

We have competing ideas at play in the healthcare industry.

On one hand, we want everyone to behave as healthcare consumers. That means we want every American to carefully select the healthcare services they need based on quality metrics and cost so that they get the best outcome possible.

On the other hand, we want to narrow their choices and limit their options so that we can control their spending and achieve defined outcomes of quality.

There are elements in both strategies that could work if we combined them in different manner.


Ideation is not about having the perfect idea but rather generating fresh ideas to solve a problem. Asking questions helps to get the process started:

1/ Who should control the purse strings?

2/ Is the Healthcare Consumer capable of making informed decisions?

3/ Can we better empower the healthcare consumer?

4/ Is it possible to offer choice and control costs?

5/ Who should define a quality outcome?

Developing a Sustainable Model

If we answer the questions from different perspectives, new ideas and needs emerge. 

For instance, if we start from the healthcare consumer perspective:

1/ The consumer could control the purse strings even if they are not paying for the service out of pocket.

2/ The consumer could make informed choices if we laid out a healthcare roadmap for them.

3/ The consumer could be informed of all the options for events on their healthcare roadmap.

4/ The consumer could be better empowered to choose their physicians and control costs.

5/ The consumer knows how they want to feel and move post service and is in the best position to assess whether or not they got their expected outcome. 

The expected outcomes needs to be established with their physician. Atul Gwande MD talks about physicians understanding all the options but also understanding the limits of medical interventions so that healthcare consumers develop reasonable expectations.

Healthcare Roadmap

Based on the answers, we’re missing the healthcare roadmap that gives consumers actionable information based on their genetic profile and lifestyle. 

Various companies are collecting information on their current health status, pre-determinants of health, genetic and risk profile but so far there is no repository for the information.

Professional economists believe the government should maintain a single repository of this type of information so that it is safeguarded and continuously used to better understand the needs and cost of healthcare.


As an industry, we usually talk about “medical necessity” as a way to define coverage even though there are always issues in defining necessity and limiting care. 

Most consumers don’t read all the fine print in their policy and likely don’t understand the concept of medical necessity. To empower the healthcare consumer, policies need to be easier for them to understand what’s covered and what’s not.

Different nomenclature such as uncontrollable event versus controllable event could help.

1/ Uncontrollable events are those predicted in their healthcare roadmap. 

Everyone has some sort of flaw whether genetic or lifestyle that leads to an increased cost. So financially shielding healthcare consumers from all uncontrollable events seems fair to all. Incentivizing healthcare consumers for sustained behavior change may help lower the cost of their roadmap and the total cost of care.

2/ Controllable events are the services healthcare consumers want and can plan for in advance of the event.

Thinking about events enables us to think more holistically about everything that might be needed and that could enhance the healthcare consumer experience. Controllable events could be either paid out of pocket or financed through a supplemental plan. 

Direct to Consumer

Other industries are reconfiguring to enable more direct to consumer sales. There is a role for it in healthcare as well to fulfill the miscellaneous needs of healthcare consumers. 

Direct to healthcare consumer platforms are providing the same level of service and transparency as direct to consumer services. Prices are coming down for over-the-counter drugs and medical supplies. 

The expenses could be paid either out-of-pocket or a pre-tax account [aka: HSA account].

Success with Wellness

There is no silver bullet for increasing engagement in wellness programs. However, successful programs with higher than average participation have common elements. 

5 Elements of Successful Wellness Programs:

Offer choice so that you meet people where they are at on their journey for better health.
Working out should simply be time for everyone to do something physical and enjoyable. Offering choice is the easiest way to meet people where they are at on their journey to better health. Many corporate wellness programs make it easier for employees to move throughout the day by implementing walking meetings, standing desks and treadmill desks. Personal trainers, including Harley Pasternak now believe that people can get lean in life just by standing more and walking at least 10,000 steps/day which is about 5 miles/day. 

Lean is not enough. People also need to be strong [and flexible]. Some companies are encouraging employees to workout at their desks or wherever they feel like it because just 5 minutes of resistance training each day improves health over time. Others are offering on-site classes, access to company gyms or contributing to workout related expenses by adding a fitness benefit

Make the healthy choice the default choice.
Subtle changes in what you offer and how you offer it can have a big impact on choice and waistlines without causing mutiny. Target makes the healthy choice the easy choice [aka default choice] by giving employees an extra discount on healthy food and workout clothing purchased from their stores. Other companies such as IDEO are finding success simply by putting the water on the top shelf and soda on the bottom shelf in company fridges. Employees are now drinking more water than soda. 

Reflect your cultural values in your program
Think about what your company does, who your company serves and what the company values for ways to link your wellness program to the core mission. Target successfully aligned their business with their social mission to reinforce their cultural values of wellness in the communities where their employees live and work.

Engage people who can inspire healthy changes and support the program
Dayton, Ohio RTP [Fat Bus Drivers] took a risk by adding a health coach and it paid off over time by reducing healthcare costs. The “secret” to their success is that they truly care for their people and it’s reflected in everything they do from privacy to celebrating milestones. Having a boss that has walked a day in your shoes probably helps too. Mark Donaghy, CEO of RTP shared at the recent FitBit Captivate conference that he started as a bus driver and to this day still identifies as being a bus driver. Can you imagine having a boss that not only relates to where you are now but also shows you the path to a more successful life? That’s powerful.

Reward Healthy Behaviors
Share the healthcare savings with employees who participate and meet their goals. The Dayton Ohio RTP program rewarded employees who participated with enough money to cover the increase in premiums each year. Doing so reinforced the fact that healthy behavior lowers healthcare costs for all.

Successful wellness programs do more than lower healthcare costs. Publicly traded companies with wellness programs are outperforming their competitors with better recruitment, retention and productivity.

About the Author: Shannon Smith is a healthcare strategist with over 15 years of helping companies achieve greater success and the founder and CEO of Hello Workout, Inc.

Pricing Transparency

Will pricing transparency reduce the cost of care?

Many people inside and outside the industry are grappling with this question. A recent Harvard study reports that pricing transparency does not lower cost and they are not sure why.

Having access to prices is important to patients required to shoulder more of the financial burden for their care. For the most part, patients were already able to get the cost or at least a reasonable estimate in advance of their services from outpatient providers. However, comparable information is generally not available to patients when medical services are more complex and unplanned. Those complex and unplanned services are the real cost drivers of healthcare.

However, there is more to pricing transparency than most realize. Let me shed some light on it for you.

Charges vs. Contracted Rates

There have been a lot of stories in the news sounding alarms about the high cost of care.  However, the stories are often comparing charges from one provider to the next or comparing charges to Medicare reimbursement.  There is some validity to making those comparisons but in reality neither comparison has much to do with cost to the consumer.

Medicare requires providers to set a uniform charge.  There are so many billing codes that many large provider organizations, including hospitals and medical groups, set charges as a multiple of Medicare reimbursement rates.  For many organizations, Medicare reimbursement reflects a payment floor, not their break-even point.  Adding a multiple to those rates allows the provider to comply with the Medicare requirement of a uniform charge and set a charge sufficiently high to allow for full reimbursement from all payers.  The contracted rate is the cost consumers pay for the service and for most providers, it is a fraction of their charge. 

Contracted Rates

Contracts with commercial insurers such as Blues, Aetna, Cigna, United etc. are given volume discounts by large providers. Physicians by in large have to accept the commercial rates to participate in the plan unless they are exceptional.  The contracted rates from one insurer to the next vary because the rates reflect the market power of the insurer.  The market power of the provider is built into all the commercial rates and therefore, has little to do with the variability experienced by consumers.

For the most part, the contracted rates in existence limit the reimbursement to providers [in other words, limit what consumers pay] because they are paid a group rate for the billing code(s).  Each of the commercial payers use different reimbursement methodologies for complex services and items routinely passed through such as high cost implants and supplies.  The variation in terms muddy the waters and make the payment for those services hard for even professionals to compare without repricing technology. 

Out-of-Network Providers

Out-of-network providers added to the variability in charges and in most cases, their charges became the high cost outliers.  The reimbursement rate to non-contracted providers is lower than that to contracted providers. Consequently, the non-contracted providers raised their charges billed to insurers to make up for the total reimbursed amount but at the same time, discounted the amount billed to patients.  Patients choosing a high cost, out-of-network provider were largely unaffected but insurers or employers of self-funded plans in the end paid a hefty price.

As payers limited out-of-network benefits, the out-of-network providers kept increasing their charges which is why few employers now offer plans with out-of-network benefits and why the outlier charges should soon disappear if they haven’t already. Access to out-of-network providers is limited under most plans and most patients will pay more now if they choose to continue using them. 

Closed Networks

We’re entering another period of closed networks designed at least in theory to better manage the health and healthcare of patients by coordinating care and increasing compliance with behaviors that lead to healthy living.  However, these networks will also help reduce cost by using primary care physicians to channel patients to a fewer number of providers in exchange for bigger discounts. The downside is that patients often give up choice and control which scares some people.

Higher Discounts

Employer groups and others are reporting savings from using reference pricing and package pricing, also referred to as a bundled payment, which yield bigger discounts from providers on high volume services. Bundled payments make it easier for healthcare consumers to understand the cost of complex services and reference pricing makes it easier for them to choose a low cost provider.

However like most large businesses, healthcare providers including hospitals thinks about cost and profitability at a much higher level than a specific service or the patient.  Large providers can change their allocation methodologies to discount certain services as long as they can make it somewhere else.

Deeper cost cutting for all services will take some time.  What many outside the industry do not fully appreciate are all the constraints on the main cost drivers for delivering healthcare.  For instance, labor is the most significant cost driver for provider organizations and it is constrained by regulatory guidelines, unions, geographical location and staffing shortages.

So in the short run, the cost of some services may decrease and others may increase as a result of pricing transparency. The impact on the total cost of care will depend largely on what happens with demand and other initiatives to align the interests of the healthcare delivery supply chain.

With that said, pricing transparency is a good thing for everyone including healthcare providers. It is much easier to collect money for services rendered when people understand what they owe and know that they will receive good care in return.

Before a diamond shows its brilliancy and prismatic colors it has to stand a good deal of cutting and smoothing.

– Unknown Author


About the Author: Shannon Smith is a healthcare strategist with over fifteen years of experience helping companies achieve greater success.