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High deductible plans: Balancing out-of-pocket costs and outcomes


Passage of the ACA and trends in the insurance industry are putting more of the cost burden on patients through high-deductible health plans, with significant implications for physicians, their income, and patient outcomes.

In 2013, the U.S. Department of Health and Human Services reported that healthcare spending had grown at a record low pace from 2009 to 2011. The slowdown in  growth was attributed to the sluggish economy and was thought unlikely to continue as more Americans gained insurance under the Affordable Care Act (ACA).

An increase in the spending growth rate was considered inevitable-a 6.1% acceleration was predicted for 2014, compared with a 3.9 % increase in 2011. Even so, there was hope that the consumer-driven belt-tightening that occurred during the recession would continue despite more people being insured.

The way policy analysts expected that to happen was through shifting a larger share of spending to consumers.

High-deductible health plans started appearing after legislation was passed in 2003 that required persons opening a health savings account to enroll in a high-deductible plan. They started gaining prominence in recent years as employers watched their own healthcare spending skyrocket, forcing them to look for ways to shift more of the burden to employees, according to Brett Hickman, CPA, partner in PwC’s health industries practice.

A June 2013 PwC report found that 17% of employers were offering high-deductible plans as their only option, a 31% increase over 2012. The percentage that said high-deductible plans would be the only option in 2014 jumped to 44%, according to PwC.

How high deductibles work
Under a high-deductible plan, in exchange for low monthly premiums plan members must meet higher deductibles before their insurance coverage begins.  
For 2014, the internal revenue service’s definition of high-deductible is $1,250 for an individual and $2,500 for a family. Maximum out-of-pocket expenditures are $6,350 and $12,700 for individuals and families, respectively. Many, but not all, include preventive care such as annual physicals or immunizations, as a no-cost benefit.



If high-deductible health plans continue to rise and 50% of the people with employer-provided healthcare plans are covered by them, healthcare spending could be reduced by about 4%, or $57 billion, annually, according to a 2012 study in Health Affairs.

The unknown factor is whether reducing  healthcare spending on the front end will cause unintended consequences later. Under the “gatekeeper” model of care in the 1990s, patients would often forego care from specialists who were, unlike capitated primary care providers, reimbursed using the fee-for-service model that required greater out-of-pocket payments from patients, says Hickman. By putting off care from a specialist, many patients’ conditions deteriorated to the point that they required more care than they would have otherwise, thereby leading to higher costs.

There are many similarities between the model of care prevalent in the 1990s and the one emerging today. How successful the current model will be remains open to debate.

“I think any bean counter or actuary will tell you we are on a slippery slope right now,” says Hickman. “We’ve got to get to organized population health where we can use predictive analytics and we can align the incentives across the patients, providers and the health plans … to ensure the patient gets the right care that he or she needs when they need it and it’s not over- or underutilized.”

The impact on physicians
When patients pay more out-of-pocket, they are generally more judicious about when and under what circumstances they see their doctors, and what tests and procedures they are willing to undergo. Consequently, many healthcare experts have concluded that in a fee-for-service world, physician income will drop as visits decline.

What’s not clear is whether physicians will find ways to offset the financial impact of fewer visits-although some believe the increased number of insured patients entering the system through the ACA will help keep office schedules full-and the impact fewer visits will have on overall care quality.

“Any time you see patients responsible for more of the front-end cost, they don’t go to the doctor as much,” says Bill Hannah, principal of healthcare at the accounting firm  Dixon Hughes Goodman, and a member of the National CPA Health Care Advisors Association. Some patients skipping care might have chronic diseases and require  regular check-ups, Hannah says.

More physicians are joining accountable care organizations, which will have the effect of incentivizing physicians to keep their patients healthy-which means, in turn, that physicians will have to be proactive about ensuring that patients are getting the care they need. As a result, practicing population health will become a necessity.

In addition to fewer visits, practices could face other financial hits as a result of more patient responsibility. The American Medical Association’s annual health insurer report card found that in 2013 patients were responsible for nearly one quarter of total medical bills. This is potentially bad news for medical practices, because collecting from patients can be notoriously difficult. And when patients are faced with financial hardships, medical bills usually don’t take priority.

The National Center for Health Statistics published a report in January, 2014 that found one in four families experienced trouble paying medical bills in 2012. One in 10 had bills they were unable to pay at all. At the every least, practices can expect to see the length of time invoices spend in accounts receivable to grow.



What physicians can do
The new reality for physicians is that they will be forced to have more conversations with patients about the cost of care, says Thomas Graf, MD, chief medical officer for population health at Geisinger Health System. And they will be forced to think about the financial implications of every decision they make, adds Graf, who directs the ProvenHealth Navigator, Geisinger’s medical home.

“There are times when we may be, let’s say, overly complete in the evaluation and a more stepwise approach may be more prudent,” Graf says. “So rather than ordering all the tests the first time you see the patient, perhaps you start with the most likely elements and work to the less frequent causes of it in an effort to support the patient in their desire to limit their out-of-pocket expense.”

Patient education also needs to improve. Patients often think that the newest or most expensive treatment is the best option when it actually might be bed rest, says Mark Bogen, chief financial officer and senior vice president of finance at South Nassau Communities Hospital in New York.

“Some physicians aren’t real excited about having to lay out what the cost of everything is,” says Sherri Sellmeyer, vice president of advisory services at Decision Resources Group, a healthcare research and consulting firm in Burlington, Massachusetts “I think it’s probably a healthy thing for the system for people to know what things cost.”

Research presented at the 2013 meeting of the American Society of Clinical Oncology by S. Yousuf Zafar, MD, MHS, a gastrointestinal oncologist at the Duke University Health System in Durham, North Carolina, showed that a majority of cancer patients think it’s important to talk to their physicians about treatment costs. But only a small percentage actually have that conversation because they fear that bringing it up will lead to the doctor prescribing a cheaper option, which in their minds is inferior. But the researchers found that  when the conversation does happen, the cost of care is generally lower.

Now that patients are paying more out-of-pocket, these conversations may become easier. Graf says he has noticed that patients in high-deductible plans are “suddenly much more interested in my explanation about why they don’t need a CT [computerized tomography] scan than they would have been in the old days when in some situations you could talk for 10 to 15 minutes, knowing the chance of the CT scan showing anything real is all but zero. But they were so worried about it that they sort of insisted on getting that done.”

Employers should take the lead when it comes to talking to employees about how their health plans work, Hannah says. “Call it healthcare economics 101,” he says.

“Employers have an obligation to educate employees on costs and how to promote better health.”

Think like a business
In this new environment, practices will also be forced to think more like a business. Because a large portion of the medical bill has traditionally been paid by commercial insurers, Medicare, and other third-party payers, many practices simply aren’t set up to  collect copayments from patients efficiently. Many small practices, for example, still don’t accept credit cards or have an online payment system, says Bogen. Even worse, when the patient tells the practice that he or she will pay next time, practices aren’t following up to ensure that the patient actually does pay.

Many physicians don’t want to discuss payments out of concern that patients will  think it’s all about the money, says Bogen. Physicians can still offer some flexibility while maintaining the attitude that they are entitled to be paid for services rendered, he says. “When you combine the cost shift of these high-deductible plans with the shrinking payments that the commercial insurers and Medicare are already moving toward, you have to collect every nickel you are entitled to,” Bogen advises. “They shouldn’t feel ashamed they are asking to be paid.”

Many studies have found that practices are more likely to be paid if they collect before or at the time of service. This may mean investing in upgraded revenue cycle management systems that can check eligibility, tell the practice whether the deductible has been met, and calculate the patient portion before the appointment.

It’s likely that practices will start issuing refunds as their collection practices change, says Laura Palmer, FACMPE, senior industry analyst for the Medical Group Management Association. It’s not uncommon for practices to run an eligibility check that shows the deductible has not been met. But that situation may change sometime between the appointment and the time the bill is sent. Practices need to establish policies for how the patient will be refunded for an overpayment.

A practice’s billing policy should also include a process addressing the situation of patients who have trouble paying, and a menu of options that can be presented to the patient, says Palmer. Options may include community programs that assist with medical bills, or referrals to facilities that offer free or significantly reduced care costs.  Options may vary depending on the patient’s circumstances, which the practice should make every effort to understand, she says. There’s a difference between someone who is refusing to pay and someone who simply cannot.

The policy should also detail who in the practice will talk to the patient and where that discussion will take place. Palmer says conversations about overdue bills or a patient’s inability to pay should never take place at the front desk. The conversation should be held in private.
If all other efforts to collect from the patient have been exhausted, physicians can terminate their relationship with them, says Graf. But that option should be reserved as an absolute last resort, and it must be handled delicately. Patients should be given ample warning, and they must be referred to another care provider.

This new world of high-deductible heath plans can produce the intended results as long as incentives are aligned for all stakeholders, says Graf. He tells physicians to gain an understanding of their relationship with each insurer, and their patients’ relationships with the insurers. Physicians should try to “set up a system where the patient can win, I can win and the health plan can win,” he says. “If you can find that middle ground, which is often challenging, but if you can find it then you are going to do really well. Probably better than if you are stuck in a situation where in order for you to win, someone else has to lose.”

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