Blog

The end of the year tends to be a slower season for us, but we look forward to continuing our work in the new year. Happy New Year!

We wish you a merry Christmas and hope you get to enjoy time with family and friends.

Earlier this month, the Centers for Medicare & Medicaid Services (CMS) released some performance scores for group practices and individual physicians. Although the performance scores were for only around 40,000 individual physicians, the release of this data is notable in that the scores were for individual physicians and were in regards to clinical quality metrics.

The scores were only for physicians who volunteered to participate in the PQRS program (where participating physicians are eligible for a financial bonus). However, given how CMS wants to link the vast majority of its traditional payments to quality or value by 2018, it's not hard to imagine CMS offering bigger and bigger incentives to participate in PQRS (and eventually, penalties for not joining). We're hopeful that the release of this data, as limited as it might be, is only a precursor to a larger industry shift that enables consumers to make better decisions when selecting a healthcare provider.

The Wall Street Journal posted an essay reviewing the impact of Obamacare. As one might expect, Obamacare is neither an unqualified success nor an unmitigated disaster (much to the chagrin of many political commentators). Overall, it seems that the legislation achieved some of its goals to a limited extent.

Significantly, 10 million Americans who were previously uninsured now have coverage. Unfortunately, most of people received care through the expansion of Medicaid, a program estimated to provide a benefit equivalent to about 20%-40% of its cost. The growth in healthcare spending slowed down for a few years, but it looks like it is picking back up again (perhaps attributable to the economy). So, the short-term results were mixed in many areas. What does seem clear, however, is that Americans became far more familiar with concepts such as deductibles and network coverage.

Consumers who shopped on the health insurance exchanges likely also have a better understanding of the trade-offs between deductibles, network breadth, and premiums. It's possible that this consumer exposure to the trade-offs and the underlying cost of health care might actually have a substantial impact on the industry in the long-term.

Even with just a few encounters with medical providers, we quickly learn that pricing for health care services is different than it is for other industries. How many other industries struggle to tell you ballpark pricing until after the service is performed? Health care consumers can also get lost in a sea of technical terms like deductibles, co-insurance, in-network, and formulary. An article published on Harvard Business Review's website explain yet another way in which healthcare pricing can be bizarre.

The article starts off by explaining that there is actually little pressure on pharmaceutical companies to reduce pricing -- after all, who would want to deny patients potentially life-saving medication? No surprise there. What is surprising is when organizations (known as pharmacy benefit managers, or PBMs for short) that are specifically paid to help their clients save money actually end up better compensated when they don't. The authors explain that this quirk can happen as a result of PBMs getting to keep a percentage of savings that they negotiate above a certain fixed amount. While that scheme may have worked when drugs cost less than $500, the economics become vastly different when the prices are substantially higher (an increasing trend in the last several years). The article raises questions of when and how large employers will react to the new reality of higher prescription costs. Until then, this conflict of interest is just another example of how pricing in health care can be so difficult to understand.