About Rick Louie
Over 25 years of experience with hospital benchmarking and operations improvement, with emphasis on hospital pricing. Co-founded Market Insights — a healthcare informatics firm, including software development and database management. SVP of Business Intelligence at Health Data Insights, a Medicare Recovery Audit Contractor (“RAC”) contractor for Region D (17 States & 3 Territories). Management Consultant at Deloitte Consulting and American Practice Management (APM). Studied Economics at Harvard University.
About Hospital Pricing Specialists, LCC
Hospital Pricing Specialists LLC is a boutique data analytics company that benchmarks hospital prices for hospital CFOs and strategic pricing consultants. HPS is the creator of award-winning consumer-driven hospital price lists that meet CMS price transparency requirements.
U.S. Domestic Medical Travel (USDMT): Tell us about your model, how you got started in this business and your prospects for success.
Rick Louie (RL): I started in the early 90’s. Originally I was a management consultant, I worked at Deloitte and Touche, and another firm called American Practice Management.
As a consultant, my primary focus was hospital operations improvement and cost reduction work. We would set up cost reduction targets in the first phase through benchmarking. looking at the client hospital vs best practices, local market productivity ratios, cost per admission, length of stay and these types of measures.
What I noticed was that the process that consulting firms used to do the benchmarking was very inefficient.
The work was often done by the junior analysts who would work with these large databases from CMS and from other public agencies. Each time the junior analysts got promoted to a more senior consulting role or moved on to business school, the “number crunching” analytics were re-learned by the new junior analysts. It was really inefficient.
One of my college friends from Harvard was working at McKinsey & Company and had the same observation.
USDMT: What was the tipping point?
RL: In 1993, my friend and I left our respective management consulting firms to start Market Insights.
Its sole mission was to do hospital benchmarking and to create boardroom-level reports and analytics for the C-suite at hospitals and health systems. In addition, we sold our refined analytics to consulting firms so they didn’t have to endure the same inefficiencies we experienced.
Eventually Market Insights was sold to a venture capital firm and became Health Data Insights — a CMS RAC auditor. As a RAC auditor, we covered 17 states and 2 territories and audited all CMS claims to determine if there were any overpayments. I served as Vice President of Business Intelligence for a couple of years and then took some time off to pursue real estate investments.
After my non-compete was over, I had several clients urge me to get back into healthcare so I started my current company called Hospital Pricing Specialists. As you can imagine by the name, it is mostly focused on hospital prices.
USDMT: How does your solution differ, for example, from what CMS is doing and what other hospitals are doing to be transparent in their pricing?
RL: As of the first of this year (2019), CMS has issued a new law that requires hospitals to post their standard charges on the internet. Most hospitals are barely meeting this requirement by posting their chargemasters, and nothing else. If you’ve ever seen a chargemaster, it’s almost incomprehensible, even to those in the industry. For example, you might see a service description like, “TLIF 1 LVL ZAVATION” and a price of $12,600.
Our solution translates the descriptions into consumer friendly language that a patient understands. Moreover, we compare our client’s prices (for the same service) to the average price of their competitor hospitals. By providing the comparison prices, a consumer has a good understanding if the price is fair or not. Consumers know what to pay for a gallon of milk or a loaf of bread, but they have no clue what a reasonable price to pay for a healthcare service like a colonoscopy.
With the rise of high-deductible health plans, it’s really important for consumers to compare prices across hospitals and make informed decisions on their choice of providers. Next, we will incorporate quality measures so the consumers can compare hospitals on both prices and quality.
USDMT: Explain to our readers about Charge Masters.
RL: A chargemaster is essentially a menu of a hospital’s list price for every one of its services. The problem is that every hospital has a different charge code for the same service. In addition, every hospital has a different description for each of its services, often with cryptic descriptions that include a lot of abbreviations. I’ve been in the industry for over 20 years and I still have problems deciphering a chargemaster.
At Hospital Pricing Specialists, we identify the common services that patients expect to see prices for, and translate the chargemaster description into a consumer friendly description.
USDMT: In your experience, do employers understand what pricing transparency is all about?
RL: In my opinion, employers are focused on the discounts they can negotiate with providers. However, if an employer negotiates a large discount with a provider that has exceptionally high prices, it’s not beneficial to an employer.
An employer needs to do price benchmarking to ensure the providers in their network have prices that are in line with the market.
The problem that employers have with contracts that pay for discounted services is on the utilization side. For example, if an employer has negotiated a high discount rate, but the provider over utilizes services, it still translates to a high than expected cost to the employer.
The industry is moving toward a bundled price arrangement, where a fixed price is set for service, such as hip or knee replacement. This fixed price covers all the costs, including physician professional fees and hospital costs.
USDMT: Do you think that consumers even understand bundled pricing? How would they be influenced if they were getting their care from their employer benefits program?
RL: Yes, I think consumers will naturally gravitate to bundled pricing where there aren’t any surprises in the bill. This is evidenced by the growing market share of ambulatory surgery centers and overseas medical facilities that apply bundled pricing.
USDMT: It seems some sort of medical travel was already included in the bundled price.
RL: Medical travel is the perfect example of bundled prices. As you know, a consumer can easily do an internet search and price out the full cost of getting a hip or knee replacement abroad.
U.S. hospitals realize there’s a large opportunity to cater to affluent foreigners for their medical treatment. Right or wrong, there’s still a perception that the U.S. offers the best health care that money can buy.
The challenge for U.S. providers is to manage their costs down so that their services are competitive with the growing middle class in countries like China.
USDMT: Do you help the hospitals come up with the bundled prices?
RL: Yes, we meticulous go through a hospital’s prior claims data for the last few years to determine the routine services they provide for a specific medical condition. Then, we look at that hospital’s cost structure to calculate the approximate cost for providing all of those services. Once you have that data, you can apply a regular profit margin to create a bundled price.
USDMT: Do you see that there’s a big call for this kind of opportunity?
RL: Absolutely. This is the future. Bundled pricing and price transparency.
However, to offer a competitive bundled price, a hospital has to manage its costs. In other words, you can’t offer a bundled price that is competitive with the market if you’re losing money every time you offer the service.
I see providers evolving into “focused factories” where they concentrate their efforts on services where they have a core competency. Studies have shown that increased volumes in a medical service lead to better outcomes and lower costs for providers.
USDMT: Do you see a change in hospital pricing now that CVS is in the primary care business?
RL: The more prices are published that actually relate to the costs that a patient has to bear, the greater the market pressure on hospitals to defend these prices. I love the quote from Bill Simon, the former CEO of Walmart, “In healthcare, as in the rest of the economy, when price matters, consumers respond.” I couldn’t agree more.
USDMT: How will the Amazon deal going to impact hospital pricing?
RL: There are three components to winning market share in any industry:
- You have to be competitive on price
- You have to have high quality
- You have to generate good customer/patient satisfaction.
I think you can look at some of the areas in healthcare that have published prices.
A lot of the elective medical procedures, such as eye lasik surgery or botox are extremely price competitive. The reason why these elective medical procedures are highly cost competitive is because they’re already price transparent.
With respect to quality, CMS is making a big push on standardizing quality measures. Lastly, with patient satisfaction, there’s a proliferation of healthcare ratings websites from Yelp to HealthGrades that are addressing this area.
USDMT: So, you can shop around for a mastectomy or any kind of surgery?
RL: Yes, exactly.
And that is why my hospital clients are interested in this evolution. If you ask any of them who they consider as competitors, it would always have been this hospital or that hospital twenty miles down the road.
But now it is more like the key competitor is this ambulatory surgery center that is kicking my rear-end because they have a fixed price for a hernia repair or joint replacement.
They just can’t compete with a free-standing imaging center where their MRI prices are much lower than the hospital.
USDMT: Now their competitors can be overseas — or it could be a hospital across the country. What is a hospital to do?
RL: Besides competitive pricing, hospitals have to control the narrative on their product. You pay more for a Mercedes over a Ford because there’s a perception that it’s higher quality.
Hospitals need to do the same by emphasizing they have better technology, newer equipment, more experienced doctors, etc.
Back this up with CMS quality measures or other quality measures from objective, third-party organizations, such as the Leapfrog Group.
USDMT: Can you also then lower your cost of doing business?
RL: Yes, it’s completely circular. If you are competing on prices via price transparency, you must lower your costs or else you’re out of business. It’s as simple as that.
USDMT: Eventually, is all of this going to settle out? Do you think there’s going to be closer vigilance on price going forward or will it just be a question of what is the value? Do you think people are really going to want to travel for lower prices?
RL: Absolutely. The genie is out of the bottle. Every other industry competes on price and healthcare is the last one. There’s no turning back unless we move to a single payer system and prices are moot.
USDMT: In your opinion, how far do you think people would be willing to travel for significantly better pricing? A thousand miles? Two thousand miles?
RL: It depends on the circumstances and the magnitude of the price differential.
If a consumer is getting a colonoscopy and can save $500 by traveling another 50 miles, he’ll probably do it. That same consumer won’t travel overseas to save the $500. However, if a consumer is getting a major procedure done, such as a hip or knee replacement, and can save over $10,000 by going to Thailand, it’s a compelling case to make the trip… especially with the 4-star accommodations.