In just a few years, consumer-directed health care has moved from the shadows of healthcare policy to the center stage of healthcare reform. Employers, the purchasers of health insurance for most working Americans, are rapidly moving toward these mechanisms to give workers and their families more choices (something consumers have been demanding for a long time) and to rein in spending by transferring the up-front costs and more overall financial responsibility to their employees.
Although employers and developers of consumer-directed health plans are marketing them as pathways to progress through consumerism in health care, no one knows for sure whether these plans will actually produce the promised improvements. Many industry observers and policy experts see significant gaps between the theory of informed, satisfied consumers and a potential reality of confused, frustrated patients. The sudden rise of CDHPs does not necessarily mean that they are a good idea or viable solution to the vexing problems of paying for health care.

However, CDHPs and their funding mechanisms–health savings accounts, medical spending accounts, and other health reimbursement arrangements–are ushering in a critical era for finance departments in hospitals and medical groups. Providers will increasingly be drawn into personal healthcare financing for consumers on multiple fronts. For better or for worse, the emergence of new financial realities for healthcare consumers creates serious and unprecedented challenges for leaders in healthcare finance.
Developing Consumer-Friendly Pricing

Consider a fundamental aspect of CDHPs: the belief that consumers will use a wealth of data to make informed healthcare decisions. With millions of consumers now covered by plans built on this premise, hospitals and medical groups will need to adapt quickly to the new world of consumer-directed health care. First, providers need to develop information systems that produce the quality and cost data being demanded by employers, consumers, and public and private payers. Second, providers need to be directly involved in developing the mechanisms that will be used to define value from the purchasers’ points of view.

For starters, providers will need to make sure their billing statements are clearly understandable to patients. Successful organizations will need to learn how to work with consumers who engage in price-based comparison shopping. Consumers paying the first few thousand dollars of care with their own money (not to mention coinsurance beyond the new, higher deductibles) will want to know prices in advance. Because payment has never been consumer-centric, however, pricing medical services remains one of the least transparent elements in our opaque healthcare system. Providing a comprehensible and accurate answer will not be easy, but neither will it be avoidable as rising consumer responsibility for health services becomes fact.

CFOs will need to analyze the true costs of every service that patients want to buy, whether it’s a gall bladder operation, hip replacement, or normal childbirth. “It depends” will no longer be an acceptable answer to the question, “How much does it cost?” for price-conscious, value-seeking CDHP patients who are shopping for elective care. Open-ended pricing will be acceptable only in the case of unpreventable complications and life-saving emergency care. Indeed, CDHPs may be the development that finally forces providers to standardize care (i.e., to eliminate avoidable deviations from acceptable practice) according to the imperatives of patient safety, error reduction, and evidence-based medicine.

In a sense, CDHPs will force providers to do for consumers what the prospective payment system forced upon hospitals with diagnosis-related groups in the 1980s and upon physician practices with resource-based relative value scales in the 1990s. Much like Medicare announcing it would henceforth pay only standard, predetermined prices for comparable services, consumers enrolled in CDHPs will oblige providers to offer consistent pricing across all categories of basic care. In short, transparent, up-front consumer pricing will be to the first decade of the 21st century what prospective payment was in the last two decades of the 20th.

Very important, hospitals will be pressured to develop bundled pricing for the majority of their services. There will always be exceptions–unusual procedures for which it will be impossible to estimate costs in advance. But exceptions will represent a tiny percentage of all services. As a general rule, a growing number of consumers with CDHP-style coverage will expect to be quoted a reasonable base price for a needed health service. Many price-conscious health consumers will also want to know the price of “extras,” such as 24-hour nursing care or a private room, in much the same way they would consider adding a bigger engine, more memory, or a first-class cabin once they know the base price of a ear, a computer, or a vacation cruise. Like their retail counterparts, healthcare providers will need to learn how to make profits from the add-ons, not the basic products.