A friend of a friend runs a small HMO for a university (students, faculty, staff). Part of his job is negotiating with vendors for procedures and hospital care. “[A local academic-affiliated hospital] charges $2800 for a colonoscopy. I got a deal with a colonoscopy center, though, for $900. Same doctors. Same procedure. Same anesthesia.” Was there anything else that affects the price? “On top of these charges, the centers encourage patients to ask for Propofol as an anesthetic. That’s the Michael Jackson drug. It doesn’t work any better, but it has to be administered by an anesthesiologist and the centers and hospitals are able to tack on another $1000 in charges. Insurance companies will pay for it so the providers try to convince patients that it is better so they will ask for it. We tell them that we won’t pay for it!”
10 thoughts on “Efficiency in the health care market”
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Another example of practices figuring out how to milk the system: For a few years, Medicare covered patients with congestive heart failure receiving frequent IV infusions of expensive recombinant drug Natrecor, despite that being an off-label use. (See http://www.nytimes.com/2005/05/17/business/17natrecor.html?pagewanted=print) In 2005 the evidence was in that this was bad for patients, and Medicare stopped paying for its outpatient use. Recently the manufacturer was fined for all the work they put in to promoting all this soak Medicare with off-label use activity. (See http://www.pharmalot.com/2011/09/jj-pays-85m-fine-over-natrecor-marketing/)
Just a great example of how our current healthcare system has no price discovery and thus tends toward ever higher costs. Very few people would choose the $2800 procedure if they were actually bearing the cost.
The problem with socialized medicine is the choice to take the higher cost procedure will be removed, or alternatively the procedure will simply require a longer wait than is currently required. We ration every day in our daily lives, I would love to drive a Lamborghini but reality does not allow it. Somehow that basic trade off we make every day is regarded as evil when we make it with respect to healthcare
The Market Ticker blog has pointed out repeatedly that in most industries it’s against the law to tailor prices to each customer the way the health care industry does. That site has long advocated for a law requiring all providers of health care products and/or services to publish their prices, and to honor those prices regardless of how the patient is paying, under penalty of loss of license and criminal prosecution.
I would much rather have had that simple law…less than a single page and no loop holes…then all 906 pages of ObamaCare.
It’s amazing how it costs more than eye surgery & the price has nothing to do with the cost of the procedure but how much money the government mandates we spend.
I can tell you from personal experience that Scripps Hospitals here in Southern California practice price discrimination. They charge you more if you are poor and don’t have medical insurance. Several years ago they lost a class action lawsuit over this. I took my son to the ER at Scripps last year and got the bill. To summarize:
Total: $2400.00
Ins paid: 345.00
When I called (before the insurance kicked in) Scripps offered to discount the bill 40%, still substantially above the $345 the insurance company paid. I documented the whole thing here:
http://itsabouttheweb.wordpress.com/2011/12/19/scripps-encinitas-er-have-they-learned/
There may be a lot to dislike about the ACA, but the idea that we have anything like a free market in health care is delusional.
Brian’s example is nothing new. All healthcare related charges are elevated and then a portion is “written” off depending on the negotiated insurance amount. Private insurers pay the best, Medicare and Medicaid pay the worst. The ACA is not going to change this fact other than put more people into the latter category.
As Jim says above, the ultimate issue is that patients are only responsible for a fraction of the cost (or perceived cost). Brian only had to pay $15 for the ER visit. Most people would not care if the total bill was $2500 or $25,000 if they only pay $15.
DT’s comments are not entirely correct. It is illegal to have a different fee schedule for different patients. Healthcare providers must have ONE fee schedule and then negotiated discounts based on who is paying. They are allowed to set up higher discounts for people without insurance. This is mandated by the Federal Govt (Medicare) – that there can only be one fee schedule.
I cannot think of any other industry where there is one price and everyone pays differently based on employment status, etc and you never know the cost until after the procedure or work has been done due to not knowing how the insurance company will pay.
We don’t need healthcare reform. We need health insurance reform.
Sorry about the last post.
“There may be a lot to dislike about the ACA, but the idea that we have anything like a free market in health care is delusional.”
The #1 thing to dislike about the ACA is that it does nothing to solve our structural health care problems, and in fact adds new structural problems. Then it forces every American to participate in our broken down insurance system or face the wrath of the IRS, thereby penalizing the poor.
I honestly don’t understand how or why most liberals support ACA. They talk about it as if it’s single payer universal care. It’s not even remotely close to that.
Negotiating a discount means you get 5% off for paying within 10 days. Charging poor people $2300 or $2300 less 40%, vs. $345 for the employed or the wealthy, all for the same service is not a negotiated discount. It is cost-shifting: Robbing Peter to pay Paul.
I care about the cost of medical care. I certainly care about the health care premium I pay every month. I don’t feel that I have much control over these costs, and even if I did, I lack the knowledge to choose.
I support ACA because I believe it couldn’t possibly be worse or more wasteful than what we currently have. Also, I believe ACA is improvable in ways that the current system is not. The prospects of improving ACA depends on the government and the people working to improve it, something I do not see much faith in on this blog.
Patrick,
Please spend an hour or so to familiarize yourself about the ACA. It is in fact health insurance reform. It doesn’t dictate what medical treatment you can/should receive but how the costs of that treatment are manifested.
Stating that Medicare/ -aid pay the worst is looking at it the wrong way. It’s more like – private insurance pays more. Medicare/ -aid payment levels are based on national benchmarks for whatever procedure or treatment is administered. Some places will charge more (not cost more but charge more) while others can administer the same treatment for less.
@Brian: The reason why you (and I) “lack the knowledge to choose” is because of what the system has become: too complicated and buried behind too many doors. And thanks to ACA, we are now adding yet more bureaucracy to the system.
Here is a personal example: my wife was in the ER earlier this year (we were there for about 6 hours.) Some three weeks later I got the bill break down which shows what the hospital would charge me ($5970.71), what it actually charged my insurance provider ($2150.36), and what is my portion ($537.15).
We had a follow up with our Dr. and here is a break down of that (in the same order): $727, $332.58, & $83.15 (my provider doesn’t use a co-pay system, they use a % and kind of service system to calculate my cost (I tried to understand the system but thanks to bureaucracy it was over my head).)
This pattern is consistent across the board with all insurance and providers; there is zero negotiations with your health provider because your care goes through the insurance company. Why is this the case? After all, if we negotiate directly with our dentist, and Optometrist (to name two), why cannot we do the same with our Dr. and hospital [1]?
The problem with ACA isn’t “Robbing Peter to pay Paul” to take care of everyone, it’s hiding the true cost of care, it’s the system that will further dumb down Peter and Paul.
[1] A ER visit doesn’t fall under “negotiation” but a follow up to the hospital for X-Ray, MRI, exam, lab work, etc. does.