Q: Why is transparency so essential for the healthcare industry going forward?
Nick Vailas: The fundamental economic flaw in healthcare is that a lower-cost provider cannot gain market share on a higher-cost provider. An analogy would be if there were two Cadillac auto dealers in the same marketplace, 10 minutes away from each other, and one Cadillac dealer offered vehicles for sale at half the price as his competitor. In the retail world, that auto dealer would probably put the other guy out of business. In healthcare, that isn’t the case. You could literally be 20 percent of your competitor, and you won’t be able to budge your market gain at all.
Q: Why is healthcare so different from retail industries?
NV: There are a couple of reasons. One is that in many cases, the user or purchaser is not aware of the price or the price differences. Number two is that in many cases, the purchaser really doesn’t have the responsibility to pay for [care]. It’s up to the employer.
One of the main missing ingredients in healthcare is personal responsibility. Without transparency and personal responsibility, we will never reform healthcare in a meaningful way that is congruent with American values. I believe that Americans are willing to take responsibility if we give them the tools to act with responsibility.
But there are challenges. It’s complicated. Many providers of healthcare have no idea what the true costs are of the service, so there’s another economic principle that is essential in reforming healthcare. The first one is that a lower-cost provider cannot gain market share; the second one is that what we are paying for services is not a reflection of the cost.
You get reimbursed in healthcare typically what is negotiated, not as a reflection of the cost. That’s the dilemma many independent ambulatory surgical centers fight or deal with. They keep wondering, “Why can’t I gain market share? Why aren’t people knocking on our doors for lower cost of care and arguably better care?”
Q: What needs to happen to rid powerful hospital systems of the power to charge high prices without losing market share?
NV: Transparency. This is all allowed to exist — this chaos, these behaviors that are not congruent with the laws of business nature — because of a lack of transparency and sheer darkness around what actually goes on in healthcare. I believe very strongly that transparency and personal responsibility — “skin in the game” — will transform healthcare. When I say transparency, I mean if people are aware of the price or the cost or the money that is being paid for a service.
I’ll give you a good example. In our market space, we have a healthcare provider offering colonoscopies at $1,800, including professional and technical components. A provider 10 minutes away — the same gastroenterologist [at a different site] — charges $10,000. I’ve launched a company called Compass Healthcare Advisers, [founded to help consumers save money on healthcare], and we are in multiple states, so we know this variability exists everywhere we are working. I would contend that in any high-density population areas in America — large cities where there’s an abundance of providers — you will find tremendous variability among providers.
The key to developing transparency is accurately mining the data so you are comparing apples to apples, provider to provider. Most likely that would involve a third party with the skills and technology we have developed to mine this data. Even health plans can’t tell you an aggregate level, by service, of the global fee of a knee surgery. They’d have great difficulty telling you what the cost in the global fee would be.
Q: Who needs to get involved to encourage that personal responsibility?
NV: We’re working with employers, who are paying the bill, to influence employees to use lower-cost providers. Right now, we have state of New Hampshire employers in the city of Manchester, as well as others, who basically incentivize their employees to use lower-cost providers. It’s a cash reward. It’s important for employees to have “skin in the game”, such as a higher deductible or co-payments, to help adoption rates.
Q: It seems that employers inherently benefit from incentivizing employees to choose lower-cost providers. Why hasn’t this happened already?
NV: It’s a very good question. There are a few factors. There have been many false prophets over the years that have promised cost savings, and they have failed. So I believe that employers are kind of deaf to cost-saving measures in healthcare, and their only reaction is to actually pass more of the premium costs onto employees. That’s been their response.
I believe — and we are actually doing this — that you can bend the cost curve by using a transparency tool and designing an insurance plan that will incentivize employees to shop for their care. We are doing this in New Hampshire as well as Kentucky.
This will bode well for ASCs typically. They are lower cost providers — not in all cases, but in many cases they are.
Q: Large hospital systems often enjoy better contracts from payors and business from consumers because of their name brands. Do you think cost transparency will be able to affect that market share despite the power of a name brand?
NV: Absolutely. Even here in the Northeast — and we are saturated with healthcare providers and hospital systems — you can get hospital systems to compete with each other. This isn’t a “hospital versus ASC” debate. This is competition among all providers. I believe those that are more focused and efficient will win. There have to be winners and losers in healthcare, just like in any other business.
We’re at a crossroads in America where the current federal administration has forced the issue. Whether that’s good or bad, the good here is that we’ve got to do something. Democrats have offered a single-payor system, which Americans in the last polls showed that they don’t want. But we cannot afford the current system, so the single-payor system will only thrive financially if we ration care. I believe Americans won’t put up with that. That’s like capitation for the whole country.
I believe that there is a way to care for most people who want to take responsibility, and that is similar and familiar with behaviors that exist in purchasing any other type of insurance other than health insurance. [In that scenario], you have personal responsibility, you’re fully aware of what you’re paying for and you have a choice.
The technology that is here today can help develop that kind of environment. Consumerism can thrive in healthcare, and it’s the only true checks and balances for price and quality. We cannot regulate price and quality.
Q: Will companies need the cooperation of hospitals and other providers to mine data, or can it be done without their assistance? It seems high-cost providers would refuse to cooperate because of the potential damage to their market share.
NV: Companies need the cooperation of employers and insurance companies and third-party administrators. Large employers own their own data, and they may have contracted with a third-party administrator or another health plan. So whoever has the data has the ability to share it.
[The refusal of hospitals to cooperate] was the case with the staff model HMOs that developed in the nineties. Hospitals saw they were their own worst enemy, so they failed at starting their own health plans.
Related Articles on Transparency:
5 Goals for Surgery Centers in the Next Five Years
Bedford Ambulatory Surgical Center President Nick Vailas Launches Healthcare Transparency Blog
Washington State Law Aims to Increase Transparency Around Insurance Rate Hikes
