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Pay patients to get treatment? Here's why it makes sense

Plenty of savings are available because of the often wide differences in what health providers within miles or even blocks of each other charge for the exact same services.

Hey buddy, wanna earn a quick 50 bucks? Then don't get your blood drawn at that place that your doctor recommended; just go to the cheaper place down the block.

Doctor and patient
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That sounds a little shady. But it may actually be a way to significantly reduce health-care expenses for millions of people — while giving some patients a nice chunk of change in process.

The idea is that insurance plans can realize significant savings by paying patients — in cold, hard cash — to get a whole range of procedures and tests done from providers who charge less than their competitors. The bigger the savings for the plan, the more the patient is paid.

The money that insurers save can in turn be passed along to patients in the form of lower premiums. And plenty of savings are available because of wide — often very, very wide — differences in what health providers within miles or even blocks of each other charge for the exact same services.

"The plan wins, the patient wins and the employer wins. The only entity that loses is the overpriced or under-quality provider. And they should lose." -Mitch Rothschild, CEO, Vitals

The concept is "a game-changer," said Mitch Rothschild, executive chairman and founder of a company called Vitals, which contracts with plans to help control the medical costs of members.

"The plan wins, the patient wins, and the employer wins," said Rothschild. "The only entity that loses is the overpriced or under-quality provider. And they should lose."

Vitals last year acquired SmartShopper, which specializes in paying members of insurance plans to get treatment and services at lower-cost providers. Those services tend to be "commodity" type services, including blood draws, mammograms, radiological imaging and drug infusions.

Unlike other efforts to control costs, which may include making patients pay more for pricier providers or only covering treatment with preferred doctors, SmartShopper just cuts a check to patients who in effect agree to cost their insurance plan less.

"Let's say there are 20 places you can get a CAT scan," Rothschild said. "We'll say, 'Here's the 20 places you can go to. Five of them don't get good quality ratings. Here's the 15 you can go to.' We'll say, 'If you go to these five, you get $200. Then the next five, you get $100. The next five, you get nothing.' "

In addition to telling plan members the amounts of cash they can receive, Vitals SmartShopper breaks down how much they will need to pay in out-of-pocket costs, such as co-payments or co-insurance, if they go to the providers available.

Rothschild said the lowest amount Vitals SmartShopper pays to plan members is $50 for a medical visit, and that the highest amounts are $500 to $600 per visit. On average, he said, members receive $200 to $300 for going to a less-expensive provider.

In its first year of operation, in 2010, SmartShopper paid out $43,000 to patients who opted for such offers. In 2014, the now-renamed Vitals SmartShopper paid out $1.3 million to 16,000 patients in five states where it reported results: New Hampshire, Massachusetts, Connecticut, Indiana and Kentucky. The payments in turn reportedly led to savings in procedure costs of $10 million.

Vitals now is working to expand the program in coming years to the 20 states where Vitals does business. New York and Florida are the next big areas where SmartShopper is planned.

Rothschild said that he ultimately expects Vitals SmartShopper to be available to 20 million of the 27 million plan members that Vitals is contracted to handle in the 20 states. All but one of the 25 plans Vitals deals with has committed to the concept, and the remaining plan has not rejected the idea, he said.

A recent NPR Radio "Planet Money" episode detailed how significant the savings can be for plans using SmartShopper.

In one case cited by "Planet Money," a patient who dealt with SmartShopper had been receiving Remicade infusions treatment for his rheumatoid arthritis condition at a hospital that charged his insurance plan $22,000 for each treatment, which he gets monthly.

After speaking with SmartShopper, that patient started going to a free-standing clinic which offered Remicade infusions for just $3,500 per treatment. By agreeing to go to the lower-cost provider, the man received $500, each month, from SmartShopper and saved his health plan more than $200,000 per year.

Vastly different prices for the same thing

Brad Nihls, vice president of consumer engagement of the Florida-based health-shopping comparison site NewChoiceHealth.com, noted in an interview with CNBC.com that "It's very common that you're going to see prices double from one provider to another" for the same procedure or health service.

"It can be 400 percent" difference in prices, said Nihls, whose company specializes in comparing prices for high-volume, outpatient procedures such as radiological services, scoping and surgeries for things such as hernias.

NewChoiceHealth.com says its price-comparison function has saved 3 million people a total of $54 million in reduced medical costs since 2009. And Nihls said the company's business has been helped by the trend of patients paying higher deductibles, copayments and co-insurance fees.

"The type of patient we typically see is high-deductible plan participants and cash-pay participants," Nihls said. "Patients who have some financial incentive to lower" their out-of-pocket payments, he said.

But Nihls also said that "I think that most outpatients out there ... would say they had no idea" about either their ability to go to providers other than one recommended by their doctor or hospital, or that such a choice "potentially has a significant financial impact."

An analysis released this month underscores how consumers across the United States "pay wildly different prices for medical services ... not just from state-to-state, but within the same city," according to Castlight Health, a health-care management company.

Castlight Health found that in Dallas there was roughly a 21 times difference between the lowest-priced mammogram, which cost women $50, to the highest-priced test, which was $1,045. There was a 15 times difference in the prices of mammograms in New York City, which ranged from $130 up to $1,898.

New York is also the place where the lowest-priced lipid panel test for choloesterol, at just $14, is a whopping 76 times less expensive than the priciest version of that test, which costs $1,070, Castlight Health said. In Philadelphia, a test for HPV virus can cost anywhere from $32 to $626, depending on the location, a 19 times difference.

"It's equally disturbing that women and their employers could be needlessly overpaying for mammograms and other critical health services," said Kristin Torres Mowat, vice president of strategic alliances and data operations at Castlight Health.

"Overall," she said, "the data demonstrate that medical price variances continue to reflect larger systemic problems in the U.S. health-care system."