Power to the Patients?
Original post made by Tom Cushing on Aug 26, 2013
As reported here in March (Brill's Bitter Pill, RC 3/15), American health care costs have run amok because that market has been virtually opaque to anyone outside the cozy lounge where PPOs and providers do their sensual dance. Wonks could measure and report that health care costs are roughly double the amount here, as compared to elsewhere in the First World -- without discernibly better outcomes, but everyone has seemed much more concerned about "who pays" than "how much." The lounge was smoky, employers (who provide most of the coverage as a benefit) dozed outside and their employees have been basically impotent with nary a pharmaceutical fix in sight.
I'm happy to convey that several things have begun happening that are starting the clear away the fog.
First, Brill's article did astutely diagnose and publicize the condition: increasingly powerful hospitals charge outrageous "chargemaster" mark-ups to insurers, whose whopping "discounts" from those fictitious, unchallenged retail prices fail to offset the gouge. Employers, remarkably, have gone along, often passing higher premium costs on to their employees, who just grumble. Only the near-poor uninsured/uninsurables actually have to pay chargemaster rates and go bankrupt (and who really cares about them?).
Second, in May the federal Health and Human Services Department published comparative cost data that revealed both what Medicare pays and the astounding chasm between that amount and what the chargemasters bill (generally about three-times more). One example, not an exception, is a joint replacement in Oklahoma for $5,300 -- it costs fully $233,000 in Monterey Park, CA. That's Forty-Four Times as much. (Want more? Howsabout a $170 Tylenol pill? A thousand-dollar toothbrush? The abuses go on and on.)
Third, a few clinics, driven by good old-fashioned ethics or the recognition of a business opportunity to attract patients by undercutting the competition (not that hard, obviously), have actually started posting their prices. They are dramatically lower than the competition's hidden ball, and these centers have begun drawing clientele from far afield. Other patients are using the facility's posted prices and plane ticket costs to leverage better deals where they live.
Fourth, and perhaps the most exciting development to-date, employers are actually stirring out of their torpor. They have awakened to the fact that the true meaning of that salacious chargemaster bump-and-grind is that They are the ones getting, well, screwed. They are seeking alternatives that threaten to break up the wanton amusements of the PPOs and hospitals.
Some employers are ditching the PPO model, self-insuring for routine costs, with coverage for catastrophic bills. They then hire one company to negotiate cost-plus pricing, and another to challenge higher hospital bills. Providers are not staffed-up to handle such informed challenges, and against a legal standard of "reasonable and customary" charges, they have so far generally folded their hands. One company has even established a preventive care clinic on-site with the savings.
Others employers, like CalPERS, have started using "reference pricing" announcing in advance what they will reimburse to the employee for each particular procedure. The covered worker can go anywhere for the service, but understands that s/he will pay the difference. Thus armed, employees have shopped for plan-able procedures; predictably, providers whose chargemaster prices previously exceeded $100K have agreed to CalPERS' $30,000 reference price for a hip or a knee. (I suspect it also portends a redoubling of chargemaster's worst efforts on unplanned services, like the ER. If that heart attack itself didn't do you in, one glance at the bill will surely finish the job.)
Granted, these are currently exceptional situations 80% of insured Americans are HMO or PPO members but it's a start. It's also good, free-market stuff, with the government providing only useful data to facilitate the process. It's good news consumers, especially for folks who were uncovered and for issues like American competitiveness in world markets (remember those ads about the worker health care fraction of new car prices?).
Every economic market model assumes that there is "perfect information" on the part of buyers so they can comparison-shop. What America has had of-late is really not a free market, at all, but rather a rigged system of illusory charges that has mightily benefited a few, bothered covered businesses to just-under their action thresholds, and ruined little guys who could be crushed by the power of superior information. Transparency whatta concept!
(Please note that this health care article has been an ObamaCare-free zone. Can we maintain that record in the Comments? Stay tuned!)
on Aug 27, 2013 at 8:54 am
Here's another example of pricing abuse from yesterday's NYT: Web Link
If you are happy paying $546 for 6 liters of saltwater, I have an entire Pacific Ocean to sell you. And I'll give you a volume discount -- 50%, even!
on Aug 27, 2013 at 10:37 am
U.S. healthcare is ineffective and expensive largely due to Medicare and Medicaid, not greedy hospitals.
Healthcare providers must charge as they do in order to remain solvent. Medicare and Medicaid pay healthcare providers a fraction of what it costs them to treat patients. This forces healthcare providers to make up the difference, in part, by increasing the prices they charge to privately insured patients.
Thus, hospitals charge you $170 for a Tylenol, because they lose money on 50-70% of the cancer drugs they give to Medicare and Medicaid patients. Web Link They have to recover their costs somehow. This causes the price of healthcare to rise on everyone else who isn't covered by Medicare and Medicaid or other government programs.
This lack of adequate reimbursement also causes healthcare providers to perform more services, often unnecessarily, and to steer patients toward higher-priced, more lightly regulated treatments.
Costs are also passed on to the privately insured in the form of increased insurance premiums.
It's just one more example of the unintended consequences of "do-good" government gone amuck.
Tom loves the narrative of the "little guy" vs. big evil corporations. But that narrative falls flat in this instance, as 82% of U.S. hospitals are either government run or non-profit. Web Link
The price transparency he mentions might be useful in a true free-market healthcare system. But what's happening in our current system is those who are insured do not care about price, as their medical treatment is "covered by insurance" and they therefore have the false perception that "someone else" is paying for it.
If we switched to a system that was truly free-market based, where people shop around for health treatment based upon price, then healthcare providers who accept Medicare and Medicaid patients would soon go bankrupt, as customers would seek treatment from low cost service providers who don't accept unprofitable Medicare and Medicaid patients. Then, Medicare and Medicaid patients would have nowhere to go to seek medical treatment.
The Atlantic had a great article on the subject back in 2009, when Tom and the other Obamabots were caught up in cheerleading to get Obamacare enacted.Web Link
I won't discuss the disasters that await Obamacare, per Tom's request.
on Aug 27, 2013 at 12:59 pm
S-P: You know, I was working up one of my best McEnroe "You can't be Serious" moments, but then it hit me: you AREN'T being serious. This is one of those instances where you're working on your advocacy chops seeing if you can comfort the credulous by making statements that appear to mean much more than they actually state. I do not know why you do it, but it happens often enough that I could believe it's a hobby, albeit a kind of perverse entertainment.
Item: "82% of hospitals are either government-run or non-profit." While that bare stat may be true on its face, to most folks 'non-profit' suggests charity. The great majority of those providers are non-profit but non-profit does Not At All mean "not profitable."
A typical example from the Brill report in Time magazine: "Although it is officially a nonprofit unit of the University of Texas, MD Anderson has revenue that exceeds the cost of the world-class care it provides by so much that its operating profit for 2010 was $531 million. That's a profit margin of 26% on revenue of $2.05 billion, an astounding result for such a service-intensive enterprise."
As a lawyer especially as one who (I suspect) deals in matters of taxation you know this well. Yet you hang that stat out there like it means something. It does not.
Item: hospitals lose money on Medicare. Also untrue. While there can be fun with numbers, Medicare reimbursements are the Only cost-based approach in the market and it is designed to be Cost-Plus, not a money-losing proposition. Per the NYT, recently, in an article by a Pulitzer winner=no slouch:
"Compare the chargemaster price to what hospital charge Medicare a figure that is around the break-even point. Chargemaster prices are almost always at least 300% of what Medicare pays, and some are 1,000% or 2,000%. Suddenly that 50% [PPO) discount doesn't seem like such a bargain. 50% off a $1000 toothbrush is a $500 toothbrush."
As to any unreimbursed care the hospitals DO provide, even they (their trade association) say it's well-under 5% -- and they compile That number at Chargemaster rates!
As for me, sure I like little guys and I worry about them, too. But as an old Econ major, an antitrust guy and a former corporate careerist, what I REALLY like is Markets That Work. And conversely, I dislike markets that don't work which usually means that somebody is making unearned profits and somebody else is getting screwed. Of course here, you too are getting screwed, but apparently not screwed-enough-to-care.
Lucky you. Maybe you should take up a new hobby.