Healthcare consumers in the U.S. face two towering challenges: we can’t get the care we want, and the care we get costs too much.
The new coverage provisions under the Patient Protection and Affordable Care Act, which finally went into effect last week after years of bureaucratic preparations, coding, and court challenges, are designed to fix the access problem. But the reforms collectively known as Obamacare don’t do much to contain price increases. And that problem won’t go away, many observers argue, until consumers have a clearer idea of what healthcare services actually cost—and are able to do some comparison shopping, just like they would at the grocery store or the auto showroom.
The cost problem in healthcare is finally getting some serious attention. 2013 saw the publication of two landmark journalistic studies—Steven Brill’s special Time issue “Bitter Pill” and Elisabeth Rosenthal’s New York Times series “Paying Till It Hurts”—that exposed just how poorly hospitals, pharmaceutical companies, and other healthcare providers are able to explain or justify the prices they charge for everything from stitches to saline solution to statin drugs.
That’s leading to widespread calls for greater price transparency in medicine. And in a few corners of the healthcare establishment, we’re seeing the first signs of free-market economics: real cash-on-the-barrelhead marketplaces where providers post descriptions of their products, services, and prices and prospective patients can make an informed choice about where they’re going to spend their out-of-pocket dollars.
One of these marketplaces is PokitDok. Lisa Maki, a software designer and former Microsoft product manager, started the company in 2011 in an effort to make it easier for healthcare consumers like herself to shop for the best products at the best price, just as they would at an e-commerce site like Zappos. PokitDok is a matching service where you can enter your location and the type of health problem you’re looking to have fixed; browse price listings from local providers; and, if you find a provider you like, pay cash for the service right then and there.
If it all sounds too radically simple to be true, it’s because Americans have become accustomed to a healthcare economy where secrecy and opaqueness are the rule. Price transparency in medicine is “a real mind-bender for people,” says Maki (shown at center in the photo above). “Somewhere along the way, we as consumers bought into some brainwashing—into a way of experiencing healthcare that isn’t really doing us any good. We demand less from our healthcare system than we do from our cars, or from Zappos. I should at least have the same information when I purchase healthcare as I do when I purchase shoes.”
More than 1,000 providers have put their price lists on PokitDok. Maki says the company decided to start with primary-care doctors and other independent specialists because they’re being hit by falling insurance reimbursement rates and need better ways to connect with potential customers outside of the traditional insurance system. Getting hospitals to cough up pricing information, she says, will be a much longer road.
To bring more physicians into PokitDok, the startup has raised $5.4 million in seed and Series A funding, with New Atlantic Ventures and Rogers Venture Partners as the biggest backers. When I spoke with Maki in the second half of 2013, the company had a dozen employees and was growing fast. Its headquarters is in San Mateo, CA, and co-founder Ted Tanner runs an engineering office in Charleston, SC. Our interview, reproduced in edited form below, covered everything from the beginnings of the company to Maki’s take on the impact of Obamacare. (Maki will speak in Las Vegas this Wednesday as part of the Digital Health Summit taking place alongside the International Consumer Electronics Show.)
Xconomy/Xperience: What’s the origin story at PokitDok?
Lisa Maki: How I came to this initially was, I had a back injury which led to a recommendation that I have my spine fused. I’m a very active person—I’ve competed in sports since high school—and I didn’t want to accept that diagnosis. So I went out to look at options on my own. I eventually found a study—by researchers at the same hospital where surgeons had told me my only recourse was to have my spine fused—about a different treatment that had great outcomes with much less cost overall. So it took me six months to go 100 yards. It woke me up to the fact that regardless of our health plan, we do have the option to shop for the best treatment, and choice as to what we will pay to get what we want.
I’m the classic example of the kind of person we are seeing starting to shop for healthcare. I’m on a high-deductible plan so I can get the lowest premium. I pay cash for a lot of procedures because it’s not worth the trouble to file a claim. When something happens, I’ve got some cash in the bank to help me deal with the deductible, and I’m fine with that. At the end of the year, I net out lower as a result.
We are also seeing more and more consumers go to cash-based physicians because it’s a better experience. All of a sudden they get to spend an hour talking with their doctor about everything, which means fewer return visits, and they typically get to [figure out] whatever is actually wrong, because you can’t do that in 15 minutes.
Our job is to make sure those consumers and those providers are meeting in the marketplace.
X: To what extent is this trend toward greater out-of-pocket healthcare spending a product of Obamacare?
LM: This didn’t start with Obamacare—these trends started long before the Obama Administration. After we sold our last startup to a benefits data company, we spent a year and a half looking at the data to see what kinds of [insurance] products were being created, where employers were shifting employees to, and how much more employees were spending out of pocket. This trend started years ago. More of us will be paying more out of pocket for basic care. As technologists, we can connect the dots and create a marketplace where information is more freely exchanged, and create the basics that are needed for providers to price their products and for consumers to find them.
LM: The way I differentiate us is that we are a true marketplace, setting up the basic information that will allow demand to drive supply, to drive a market price. Castlight gives you great information on past data, using claims data to tell you how much [a service] has cost in the past, but a true marketplace is based on what it’s going to cost me today. BetterDoctor and ZocDoc are much more like directories with scheduling services—managing inventory and working with providers to understand how they call fill slots. So that’s inventory management, as opposed to a marketplace. We give health providers their own storefront and let them control their own information about treatments and services and how they price them. We give them tools to market themselves in this new marketplace, because clearly that’s something they have not had to do before.
X: Traditionally, physician practices and hospitals and drug companies have set their prices as high as the market will bear—the “market” being insurers and the government, mainly. Consumers have never been given much insight into that process, which seems to happen behind closed doors. So I’m surprised to hear that physicians are willing to publicize their prices at all, or that they can even figure them out.
LM: When we started PokitDok, we got a lot of pushback. People said there wouldn’t be anyone out there willing to post a service for a price. We were told that doctors would never show up to this. Our hypothesis was that no one had ever asked them. So that is what we did. First and foremost, it was about getting some standardized ways for providers to present the information so that consumers could understand it—super simple and quick ways to put the information [about services and prices] into our platform and publish it.
We found that it’s hard to find this information in a hospital, but if you go to a surgical center or an independent doctor or an imaging lab or a walk-in clinic with nurse practitioners, they know what those prices are. It can vary by region—it shouldn’t surprise you that if you go to a clinic in Hollywood it is going to cost more than if you go to Burbank. But that’s the same in any marketplace.
At most specialists, if you go in and say, “I’m going to pay cash today—this isn’t a bill-me thing, I’m putting the money in your pocket—what is that price?,” that is a very different price [from the one they quote to insurance companies], and that is about as close to the retail price as we have right now. There are people out there ready and able to state that price, and our job from the beginning was to collect enough of that pricing data to create a market. Once seen, it can’t be unseen, and it will drive true market pricing.
What providers can’t do is quote a cash price lower than what CMS [the Centers for Medicare and Medicaid Services] will reimburse, because then they won’t qualify for Medicare payments.
X: Can you get similar pricing data from hospitals?
LM: We have not entered into hospital care, except that we have some groups that are willing to post a bundled price for a surgery or a procedure that might include some time or space in a hospital. Right now, it’s for quality-of-life things that are either primary-care or elective in nature. Those are our targets initially, and I think that’s where we will help to define the marketplace. It can evolve from there.
X: How many people are going to be in this position of wanting or needing to pay cash for medical services in the future?
LM: For a lot of people, it’s just going to happen to them. Whether they like it or not, they are going to be moved to high-deductible plans and HSAs [health spending accounts], because it’s the only choice available or the only choice they can afford. Then they will be forced to optimize the return on their HSA to make sure it covers everything they want.
X: What elements go into building a user-friendly healthcare marketplace, from a product design and development perspective?
LM: We bring deep experience, from semantic search to machine learning to data mining, to ultimately establishing this arbitraged marketplace in health. It’s deceptive that we are taking such as simple approach in the beginning, and we intend to keep it simple for consumers and providers, but also return to them extraordinarily powerful metrics, and the ability to recommend and model pricing. So a lot of it is under the hood, and a lot of it you can’t see yet.
I hired away the creative director for all health products at Frog Design, because part our initial goal was to make sure it was easy and efficient for the providers to get their information out there, and on the consumer side, that there were super simple ways to digest this information. When we show up at Zappos, we are pretty sure that we want a pair of shoes. But 80 percent of the time, people show up to the doctor not really knowing what’s wrong. So there are a lot of reasons why a healthcare marketplace can’t just be a directory. We started out with a very content-rich, Pinterest-like approach to the decision process of what you need to do and who you need to do it with. In the beginning, that aspect of our product was very similar to what Ron Gutman is doing at HealthTap. But we took it out just to streamline the process of choosing a doctor, choosing a treatment, seeing a price, and paying for it.
It’s interesting to think about how we might work with some of those companies that are triaging individuals, whether it’s American Well or Ringadoc or HealthTap. There is always going to be a large population that needs assistance figuring out what’s wrong, but once you figure that out, you really want to understand what your options are for services and what it’s going to cost. That’s us.
X: Can you walk me through an example of how a consumer would use PokitDok?
LM: A classic one that I just went through myself is, I wanted to have a mole checked. I moved to Menlo Park a year and a half ago, and I have not established a dermatologist in the area. I wanted to understand what it was going to cost before I went. I wanted to know who is close by, who has been used by others, and how much it would cost to have a cursory mole scan. So I went on to PokitDok and searched, and it showed me all the dermatologists close to me both at home and where I work, so I could choose what was most convenient. Then I could request a quote directly, and tell them my budget and what I was looking for. They could either respond and say, “Yeah, I’ll do it for your budget,” or they could say, “We’d like to ask you some questions, can you give us a call.”
I can get comparisons across a few different providers. And a really important part of this is that the dermatologist who ultimately gets my business is probably the one I am going to stay with. I have gone through the effort of getting some initial information, understanding who is convenient and who is willing to respond to me. So it’s about me, the consumer, finding what I want, but it’s also about giving the provider the tools to win my business and do it cost-effectively.
X: You’re able to see the prices that doctors are quoting to prospective patients, and presumably you can see the final price that the patient paid. So as a company, you must be developing a good sense of the actual retail prices for various issues and procedures.
LM: Yes, but let me be clear—we don’t think there should be just one price for something like a knee replacement. As a consumer, I want there to be several prices, and I want to understand how they differ, and I would like to understand what goes into those differences, and I would like people to market to me based on what those differences are. If I’m going to charge $300 to set your broken arm, maybe you get a foot rub too, to be a little facetious. We are collecting data to inform price points starting with the top 50 procedures, and making sure that the consumer has the information they need to make some comparisons, and that the provider has some basis of comparison as they are figuring out what kind of care they want to do.
So the data has already become very useful. It’s funny to me—I will show some of the pricing we have from a local ambulatory surgical center to a center from another part of the country, and they will be like, “We can do better than that!” And I will say, “Not if you aren’t posting your prices!”
I keep using Zappos as an example, not because I think healthcare is as simple as shoes, but because sometimes we prevent ourselves from exploring new models in health because we treat it as too precious, instead of just thinking about it as something we have to purchase. We have to have information about it in order to make smart choices. If we quit being so precious about it, we could just start. That is what we did at PokitDok.
X: I’m sorry, my head is spinning a little bit. It’s just so strange to think of healthcare as a real marketplace where we can make decisions based on price.
LM: Yes, it’s so such a no-brainer, and yet it sounds so crazy. It’s a real mind-bender for people. It makes us realize that somewhere along the way, we as consumers bought into some brainwashing—into a way of experiencing healthcare that isn’t really doing us any good. We demand less from our healthcare system than we do from our cars, or from Zappos. “It’s too complicated” is not an excuse.
X: How does your business work? Are you charging for access to the marketplace, or do you collect a commission for referrals?
LM: It’s not a referral model, but yes, there will be an associated fee. If you get paid, we will process that payment, and take enough to cover our costs. We have a full financial backbone behind the site. Providers list their treatments and services for sale on PokitDok, and the consumer can purchase it directly, right there, often for the greatest savings. If you put in a credit card and say, “I’ll pre-pay for my mole exam and I’ll come in tomorrow,” that gets you the lowest price.
We aren’t looking to take a big slice. Our objective is to grow the volume of transactions, not to take money out of doctors’ pockets just when they’ve finally got some there. It’s very important to us that they not view it as a commission. It’s the cost of processing the payment, because we are hosting all of this—their site, their content, the whole marketplace—for free.
X: How is the creation of the new healthcare exchanges under the Affordable Care Act affecting your business?
LM: It’s a great thing for us. One of the reasons we chose to build PokitDok was that even way back in 2010, when we saw the way employers and insurers were preparing for the eventuality of 2014 and beyond, they were already saying, “We have to put more of the cost onto the employee.” Payers knew that they had to be creating more high-deductible products with attached HSA accounts, because that was going to be presented as the lowest-cost option in these exchanges, or presented by employers as the preferred choice.
So we knew those consumers needed a way to find the right choices for them. Whether they liked it or not, they were going to be in the position of having to make their HSA dollars meet their goals. They might never hit their deductible in a given year, and all of a sudden their focus would be on, “How can I maintain my health and take care of my family but keep my costs affordable?”
On the flip side, there’s what I would call insurance reform—reimbursement rates are going down. So where are the revenues going to come from for doctors? Are they positioned to compete for these out-of-pocket dollars? Definitely not.
Healthcare reform provided a situation where these two groups were seeking each other out. But there was no forum online where they could connect and do business. That is what PokitDok is about. We have been heading toward this point for a while, but the Affordable Care Act really crystallized that market force of rising out-of-pocket spending and falling reimbursement rates.
[The above conversation took place in late July 2013; for the final question, below, I checked back in with Maki via e-mail last week.—WR]
X: Any recent developments to share?
LM: We are finding great traction with payor and provider enterprise customers who desire a way for their members and employees to shop for and purchase non-acute healthcare treatments and services based on the highest value for cash vs insurance. For those customers, we improve the quality and value of health provider referrals by combining provider profiles with local market pricing. On the provider side of the market we are being engaged by health providers to grown their qualified patient acquisition, diversify their revenue stream (cash), and reduce the cost of collecting payments, both cash and reimbursements via our platform. We are seeing sustained growth in both interest in an open market for non-acute care and for PokitDok as a true marketplace where consumers and enterprise customers can shop for that care. We will start displaying national price data we’ve collected starting next week in time for CES.
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