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POLICY/HOSPITALS: THCB agrees with Tenet, shock horror probe

 In a WSJ article about Glen Alan Hubbard, Bush’s man on transparency, the following little exchange occurred.

In addition, doctors and hospitals are wary of Mr. Hubbard’s push to publicize their prices. Providers’ skepticism was obvious at a meeting last month of hospital executives. After calling for increased openness on provider prices, Mr. Hubbard got into a testy exchange with Daniel Waldmann, vice president for government relations at the Dallas hospital company Tenet Healthcare Corp. Mr. Waldmann said insurance plans, rather than hospitals, were the best source of price information for most people. Hospital prices, many hospital officials say, have little relevance for people with insurance, because their health plans typically negotiate reduced rates and the patients pay only part of that cost.Mr. Hubbard didn’t buy the argument. His voice rising, he called providers’ reluctance to hand out prices “absolutely indefensible,” and asked, “How can you look at yourselves in the mirror?”In an interview later, Mr. Hubbard said he was shocked by Mr. Waldmann’s comments and said it was “un-American to not make price and quality information available if the customer wants access to it.”Mr. Waldmann, responding to those comments in an email, said Tenet has been a “pioneer in embracing transparency in all aspects of health care,” but it must be “relevant to helping consumers make informed decisions.”

Painful though it is for me to agree with something from perhaps the most scummy of all the for-profit chains (although apparently their CEO says that all that naughtiness is behind Tenet even if veteran NME watchers feel they’re stuck in Groundhog Day), but perhaps we should at least try to be accurate. Painful though it may be for the right-wing free-market crowd to hear this but no patient actually has the hospital “price” that is on the chargemaster paid for their care. Either the hospital is paid a discounted rate organized by the patient’s insurer (e.g. the DRG case-rate Medicare pays), or the uninsured pay some fraction that they can—which is the subject of a contentious but separate debate. The relevant number for Hubbard and the consumer payment crowd is, what does the consumer actually pay out-of-pocket for hospital care?  And the answer is, even with a high deductible plan, if they go near a hospital they pay pretty much their max out-of-pocket, and then not too much beyond that. And so the hospital’s pricing schema is irrelevant to them. Which is why hospitals don’t care about what their consumer pricing is and why they find it impossible to explain it.

The only way to change that is to get rid of insurance all together and have everyone pay out of their pocket for hospital care. That is a brilliant idea which I’m sure every hospital CFO in the country will be flocking to Washington to defend!

So not that I am often found defending Tenet, but their man is quite right and Hubbard—despite hanging out with luminaries like McClellan and loony Rooney from Golden Rule—doesn’t seem to understand how this works back in the real world.

Of course, there might be some good reasons for formularized pricing for physician office care — i.e. the bit of spending below the deductible, but for the gazillionth time, the 80/20 rule means that that’s a small fraction of health care spending. However, even that is in doubt. A couple of weeks back Paul Ginsburg showed that the commonly used example of Lasik being the perfect cash market was not exactly as true as the gung-ho marketers believed. That of course hasn’t stopped Hubbard trotting it out in the NY Times again today! Amazing that he gets in both the WSJ and the NY Times to spout this stuff on one day.

And of course that doesn’t even start on what Hubbard and his buddy Rooney want to do to the risk pool, but there’s no need to go into that all again—I’ve explained it ad nauseum over the last three years, but take another look here if you must. And to be fair his pals in the insurance industry are destroying that risk pool dead quick anyway. The major insurer Hubbard was on the board of seems to be doing it ex-post facto these days!

Finally, it has to be said that there is a problem with the absence of price transparency, and it’s a problem at the level at which we ought to be concerned about price. That level is not the nickel and diming of fee-for-service at the delivery level but the monthly/annual average insurance premium (or pre-payment cost) for a population. Most employees are insulated from that price and have no idea what it costs—and have no choice between different plans anyway so no ability to shop around on price at that level. Meanwhile no one in the individual market is exposed to that average price because they access (or often cannot access) insurance policies that are aggressively underwritten and therefore are not reflective of an average population cost.

The solution, as Alain Enthoven showed over 20 years ago, is to make people conscious of the cost of their insurance premium and to have clearly defined standardized benefit packages on a community rated basis, so that it’s possible to make an apples to apples choice between different plans. But we’ve know that for a long time, and if we had gone down that path in the early 1990s, then Golden Rule wouldn’t have been able to make so much money, and Hubbard, Reggie Herzlinger et al wouldn’t have done so well on the lecture circuit spouting their half-thought gobbledygook.

CODA: Funnily enough I’ll be talking to fellow “free marketer” Grace-Marie Turner tomorrow. Perhaps she’ll set me straight?

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Tom LeithSteve Beller, Ph.DMarcRickG. Leo DuMouchel Recent comment authors
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Tom Leith
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Tom Leith

> or [hospitals] have no clue what their > actual costs are Under DRG style contracts, they have a clue. However: I can’t prove this, but I have a strong suspicion the uncertainty in most hospital cost estimates is greater than their profit margins. When they have a profit margin. About 1/3 of hospitals lose money. The well-managed can probably tell clear winners, and likewise clear losers (for their hospital, their patient population, their docs’ practice patterns, blah, blah, blah). But the for the cases in the middle, all I think they can say is “We just can’t tell. Might… Read more »

Peter
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Peter

Slightly back to the transparency issue of this blog, last year I needed cataracts removed from both eyes. I tried to be a responsible healthcare user and attempted to get some idea of my out of pocket costs. At the time I had a $2500 deductible and a 20% co-pay to $2000 max. I phoned my local (semi-quasi) state hospital, University of North Carolina Hospital to get a quote. They have an outpatient eye clinic with OP room for surgery. Well it became obvious I had asked a question that no one had ever encountered before. It took me about… Read more »

Barry Carol
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Barry Carol

Dr. Hinson, I wish I could be as optimistic as you are about fraud not being much of a problem. However, the New York Times series suggested that in New York, which spends far more than any other state on Medicaid ($44 billion last year), as much as 40% of the expenditures could be fraudulent. There have been numerous scandals over the years involving billing for procedures never done and fictitious patients, yet the systems in place to combat and investigate fraud are pitifully inadequate. With respect to the administrative burden, I am a patient at a very busy group… Read more »

G. Hinson, MD
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G. Hinson, MD

Provider fraud would not be as much of a problem if the government payer reimbursement levels were fair to begin with. But in many cases, Medicaid or Medicare pays less than our costs (e.g., flu shots, make sure everyone gets their flu shots, and then Medicare pays $3/injection when it costs $10/injection for a Dr. to buy it). But I do not see provider fraud as being a big deal. All of my colleagues have been scared into undercoding even, so as to avoid a Medicare audit. And yes, with the ideal single payer system there needs to be sufficient… Read more »

Barry Carol
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Barry Carol

Peter, I appreciate your perspective of having had experience with the medical system both here and in Canada. With healthcare costs now consuming 16% of GDP in the U.S., there is certainly plenty of room for honest debate about how to both lower costs and most efficiently and fairly allocate these finite resources. Since the elderly are, by far, the heaviest users of healthcare, I would like to see the Medicare program restructured along the following lines: (1) combine Medicare Part A and Part B, keep beneficiary premiums where they are now, but establish a $2,500 deductible after which Medicare… Read more »

peter
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peter

Barry, I am a Canadian living in the U.S. and have used both systems. You are right about over utilization problems with the Canadian system. Emergency wards were being used instead of family doctors. As well people were free to go to the doc anytime they felt bored or slightly sick. Canada has grappled with user fees but I’m not sure where they stand at present. User fees do limit legitimate visits. I would be interested to see utilization rates for people here with low co-pays. My co-pay being $30 is not any real deterent to me to see the… Read more »

Barry Carol
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Barry Carol

I was actually encouraged to learn that private insurers are not the problem as it relates to hospitals covering their costs. This suggests that the pricing negotiations between large insurers and large hospitals or groups of hospitals is a fair fight that results in a fair outcome. That further suggests that those reimbursement rates are the appropriate level to charge self-pay patients. Though I know that a single payer system holds the promise of significant savings in administrative costs, I find it hard to believe that the number is anywhere near $400 billion, though the administrative hassle would probably be… Read more »

G. Hinson, MD
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G. Hinson, MD

I am not a hospital administrator, and have no formal education in the field, but the problem is generally not the private insurers. With the exception of “critical-access, rural hospitals,” medicare pays hospitals without regard to their costs. They pay according to the diagnosis. If you submit charges for someone admitted for pneumonia, they calculate how long someone should be in the hospital for pneumonia, and how much it should cost to treat it, and they pay that. Whether or not the person is generally healthy and discharged the next day, or whether the patient has 30 co-morbid diagnoses and… Read more »

Barry Carol
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Barry Carol

I understand that a system of cross subsidies for hospital charges has evolved over time to help pay for all the free care and reflects the inadequacy of Medicare and Medicaid reimbursement rates which are dictated and not negotiated. However, in light of the huge gap between the chargemaster or retail prices and the much lower reimbursements accepted as full payment from all third party payers, if hospital executives, doctors, health economists or consultants were on the receiving end of the chargemaster rates, they would (rightly) view them as outrageous. Therefore, how can they look any self-pay patient in the… Read more »

G. Hinson, MD
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G. Hinson, MD

You can call it “padding” or you can call it “fraud” but you might as well call it like it is. This is what hospitals have been forced, by declining reimbursement rates, to do in order to balance the books, in most cases. Yes, there are some profitable hospitals, but the majority are just trying to stay open to meet a community’s healthcare needs.

Peter
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Peter

Quote: “If a hospital needs $1000 a night per patient to break even. It has to charge $3000 a night in order to get Medicare to pay it $750, and health insurers to pay it $1250. Contracts with the insurers and Medicare PROHIBIT the hospital from charging the self-pay person $1000. With all of the free-care that is provided, expecting a paying self-pay person to pay the whole $3000 is another way to subsidize all of the free-care.” Posted by: G. Hinson, MD | Apr 3, 2006 8:36:03 AM Either the hospital is guilty of padding(nice term for fraud) or… Read more »

Tom Leith
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Tom Leith

> But in the end, kind of a small problem.
I mean for the system. For the individuals, it can be a disaster, notwithstanding it was a disaster of their own making.
t

Tom Leith
Guest
Tom Leith

> What I object to is people getting the free ride.
OK, man, but its not what you said.
I agree free ridership is a problem with ~30 to ~50% of the uninsured, depending on how you want to count. But in the end, kind of a small problem.
t

Steve Beller, Ph.D
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This is what these comments say to me: Because we haven’t spent the time and resources needed to get the knowledge we need to make healthcare it as efficient and effective as it could be, and because we have ridiculous policies and payment systems that often reward mediocre (or poor) care and discriminate against the sick/old and working poor, then we must endlessly debate fiscal strategies in the irrational hope that it will somehow fix the healthcare crisis and bring high-quality care to all! Of course money-matters are very important, but discussing them outside the context of continuous improvement in… Read more »

G. Leo DuMouchel
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G. Leo DuMouchel

If we’re talking pie in the sky–The Lifecyle Approach to Healhtcare finance This system would force everybody from birth to make contributions to a health account based on a percentage of income up to some maximum level. The parents of children would deposit a fixed amount for each child until age 19. (Sounds a bit like Medicare to this point.) The average contribution rate would be actuarilly set to cover expected expenses over a lifetime. This would be a person’s health account. It would be kept in his/her name but be deposited in a health “bank”. It could be invested.… Read more »