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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  1. > 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 make a little, might lose a little.” But some finance types will go to a service and say things like “You’re losing $157.73 per case!”
    This is just silly — the service might just as well be clearing $157.73 per case for the hospital: the hypothesis “we have broken even” is within the uncertaintly in the measurement. Most docs are scientist-enough to understand the problems with the measurement system even if they can’t articulate their criticisms very well. And so they blow-off the finance types, and everybody butts heads, and nothing improves.
    BTW: in practice it will be impossible to determine a standard error for cost estimates. We may have a clue, but not The Answer. This can’t be fixed.
    Hospitals of course know what their total costs are. Most know very well what the cost of running (say) a cath lab is, or the total cost of pharmacy in the hospital. They tend to do some very simplistic things to allocate hospital and system-level overheads, and I can grouse about and criticize any scheme out there. It does matter how they do it, but not very much in the scheme of things. But still — when you’re on razor-thin margins, it can matter to decision making.
    They probably don’t know very well what individual procedures cost them, but this is at least in principle more do-able for them than case costing.
    Even if I could implement the most perfect scheme I can dream up, it would not be immune to criticism (even from me) and I still could not prove that the uncertainty in my new estimate is within the (thin) profit margin. But I would be more confident, and I think my clinical colleagues would be too. Some medical centers are implementing modern cost systems, and I have to think this will spread.
    In lots of ways, hospitals act as “contractors” to the docs. If the doc orders a test, the hospital does the test. If the doc uses three hours in the OR, then the space, equipment, and staff are his for three hours, and it gets billed to you. If he uses four hours instead, there is nothing the hospital can do about it. Especially for an inpatient stay, it is unfair to ask the HOSPITAL what resources your doctor will consume on your behalf. Which is one reason they’re reluctant to talk about prices for a stay or a procedure.
    > medicare pays hospitals without regard to their costs
    This is mostly true, but. Medicare pays differently for different kinds of hospitals in different regions. And the differentials are based on the reported costs of those hospitals. So, medicare pays an individual hospital without regard to its costs, but they do take (reported) costs into account for hospitals of its type in that region. At least this is what CMS tries to do — until congress needs to balance a budget and cuts everything 5% across the board. That really fouls things up.
    > [Medicare pays the same]
    > Whether or not the person is generally healthy and
    > discharged the next day, or whether the patient
    > has 30 co-morbid diagnoses and needs a two-week
    > long stay because of the disease’s severity.
    This isn’t quite true. Medicare pays the same over a fairly wide range in the length of stay and billed charges, but outlier payments do kick-in when there’s a train wreck, and pays less when there’s a quick discharge (probably to the morgue). A few years ago, Tenet got in trouble because they figured out a way to game this system. I think it had to do with a delay between the time they were allowed to bill higher charges, and the time the government got around re-adjusting the thresholds for outlier payments to Tenet. Tenet was making the outlier payments kick-in “early” for a significant number of months every year. I don’t think it wasn’t strictly speaking illegal. But they promised to stop 😉
    Medicare does pay more for comorbidities: the patients get in higher DRGs with modifiers when they’re sicker. Matthew has blogged about an apparent perversity where the higher payments for letting patients get sicker are greater than the savings from keeping them healthier.
    The Medicare payment scheme is not all bad: I think they’re doing the best they can with the (limited) data they get from the hospitals. OK, anything can be improved: maybe it is not the best than can be done. But pretty good considering the constraints they’re under, which includes several political processes over which they have little influence. (I never thought I’d hear myself defending CMS. Wow.)
    > the problem is generally not the private insurers
    Commercial payers end up paying more than Medicare but they have caught on, and are beginning to bargain up from Medicare prices, rather than down from list (charge master) prices. Medicare is setting the price expectations in the market now.
    > If Medicare and Medicaid rates are, in fact, not
    > sufficient to allow hospitals to recover their full
    > costs, how could a single payer system possibly work
    > if the entire population were covered by one of these
    > two programs
    Depends on what you mean by “work”, including whether you’re willing to allow some hospitals to fail.

  2. 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 5 initial phone calls, and several follow-up calls to finally get a “loose” number of about $8500 per eye,retail. Now cataract surgery is pretty much a cookie cutter procedure for healthy people with known inputs. I then tried to get my insurance costs and so phoned my insurer BCBS. Of course BCBS would not divulge my costs. Faced with this big unknown I finally went to Canada to my eye surgen there who had done my RK surgery. I got his cost over the phone with one call, and I then phoned the local hospital he works out of and got their cost in one call and one transfer, all these costs were net cash costs to me. Even though I’m Canadian I don’t get the option of going over the border to use their system for free, so I was paying cash and submitting bills to BCBS here. My total out of pocket costs in Canadian dollars was about $6000 FOR BOTH EYES. That worked out to about $2500 per eye U.S. dollars. After a 6 month struggle with BCBS to get them to pay these two simple claims (I believe I was being punished for going out-of-network)I appealed to try and get my co-pay reduced from the 30% out-of-network use to the equivalent 20% in-network charge as I had done such a good job at keeping everyones costs so low. DENIED!! Now there’s a system that encourages cost controls. If I wanted to shop around I had no way to do it as each provider has different reimbursment contracts with BCBS. Great free enterprise system. In Canada docs negotiate their reimbursements with the government and each procedure is billed the same no matter where the patient goes.

  3. 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 practice in New York City with 8 or so doctors with various specialties. Aside from the doctors, they have techs that draw blood and set up patients for stress tests and other procedures, people to transcribe reports, schedule appointments, call pharmacies, and, yes, send out bills and call insurance companies. If there were a single payer system, I’m not sure any of those people could be eliminated. For large hospitals, you might be able to eliminate a few people in billing and elsewhere, but I doubt it would be more than a nominal percentage of their total cost structure.
    The most obvious source of savings would be getting rid of the insurance companies and their people and profits as well as private employer personnel involved in negotiating health insurance contracts and administering self-insured plans. If much of this saving went to increase provider fees, we would still have the issues of fraud and excessive utilization of resources in a single payer system.
    With tax money currently funding about 7 – 8 percentage points of the 16% of GDP that we spend on health care, we would need to come up with another 8 – 9 percentage points of GDP to replace private insurance and cover the uninsured if overall spending were held at its current level. To put that in context, the current federal income tax brings in between 9 and 10% of GDP depending on the year, while total federal taxation over the last 30-40 years has averaged about 18% of GDP. Contrary to what some may believe, there is not a small number of wealthy people who can be soaked ad infinitum beyond what they are already paying in order to give everyone else a free ride. The tax increase required to make this happen would be enormous for the middle class. It would most likely take the form of a value added tax or national sales tax. Even if all employees with employer provided health insurance were given a raise (which would be subject to both income and payroll taxes) to reflect the employer’s eliminated healthcare cost, most people with employer coverage now would probably be worse off financially with the single payer system.
    My understanding of why healthcare spending is lower than here in most other developed countries is that it relates to explicit rationing and that healthcare professionals (mainly doctors and administrators) are paid less. I happen to think that doctors, especially those in primary care, are already underpaid here and certainly would not want to see their income squeezed any further.
    Finally, if we got to a single payer system, there is a very high probability that it will cost more than the experts estimate, and politicians will deal with the overrun by squeezing provider payments.
    I think there is plenty that we can do here to make our current system more efficient, take cost out, reduce errors, and cover more of the uninsured. I hope we continue to pursue those improvements.

  4. 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 out of pocket costs in the form of deductibles and copays so as to keep everyone motivated to not over-use the resources. The deductible and copays need to vary person-to-person according to a person’s ability to afford the services.
    As for the administrative costs approaching $400 billion, here is my reference:

  5. 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 would pay all costs. For the prescription drug program, establish a separate $2,500 deductible after which Medicare pays 100%.
    Beneficiaries could handle the deductible in on of three ways: (1) pay it from their own resources (current income, savings, investments, etc.), (2) purchase what amounts to a pre-paid healthcare policy in the Medigap market, or (3) if they can satisfy an income based means test, taxpayers will pay the deductible portion for them, but it will be tracked and ultimately become a claim against the estate after the death of the beneficiary and his or her spouse, if any.
    Very high cost cases of, say, over $100,000 of expenses should be subject to oversight and coordination.
    Beneficiaries should be strongly encouraged, if not required, to execute a living will or advance directive for healthcare.
    With respect to some of the new very high cost biotech cancer treatments that are coming along, Medicare should be specifically authorized to consider price vs incremental life expectancy in determining whether or not to cover and pay for the drugs.
    There should be flexible default protocols in the absence of a living will to allow doctors to apply common sense depending on circumstances without having to worry about being sued. This would include opting for hospice care if deemed appropriate.
    For the private insurance, non-Medicare population, insurers could simplify life for everyone if they streamlined their offerings and paid 100% of costs after the deductible is satisfied which is the way every other form of insurance works.
    Gradual implementation of electronic medical records could reduce costs as well as medical errors throughout the system.
    To combat fraud in the Medicaid system, both beneficiaries and billers should have robust ID cards that include a picture and fingerprint.
    Finally, malpractice cases should be tried by specialized health courts instead of in front of juries so judges with expertise in the medical field can render more consistent and objective verdicts based on sound science, not junk science.

  6. 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 doc. As well people feel that if they are paying premiums they attempt to get their money out. It also seems like the big reason providers and insurers here give for increased costs (compounded double digit) is more “utilization” of the system. I was never in favor of no co-pays in Canada and I think ER’s have really started to assess patients for suitable care and turn them away to their GP. As to the “rationing” comment, well here we have rationing, it’s just price generated. In Canada they use triage to assess need. Is’nt that a better system? Should not a scare resource like healthcare be allocated by need, not by ability to pay? In Canada doctors are making those decisions not insurance companies or bean counters. But the rich in Canada who can pay cash or go freely outside the country always get the care they want. There are problems with access due to resources but costs in Canada are much lower than here. There isn’t an MRI on every corner that needs to be used to pay for the investment. The Canadian system is not perfect but I would much rather see it here than the mess we have now where profit rules. Healthcare should be considered an expense not a profit center. As to the honesty, well I have’nt seen much honesty here, especially when a provider sees you have insurance. In Canada the problem is mostly docs who try to work the system for their own gain as they are paid by service or patient.

  7. 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 materially simplified for solo and small group physician practices.
    The key risk I see in a single payer system, especially if deductibles are very low or even non-existent, is that utilization of the healthcare system could increase sharply. This could take the form of everything from rushing to the doctor for every sniffle or cough to an astronomical increase in the demand for long term care from people who are currently being cared for by family members at considerable emotional and financial (had to give up their job) cost to the family but no cost to taxpayers. Rationing, as in Canada and Europe, would likely be an inevitable consequence. If we ever go this route, I hope the system at least leaves room for the education equivalent of private schools for those willing to pay for faster access to services.
    The other risk I see is fraud which is already a large problem from the provider side, especially in the Medicaid program. In a recent series of articles, for example, the New York Times documented rampant fraud in New York’s Medicaid program with precious little being done to combat it. It seems that whenever there is a large taxpayer financed program whether in healthcare, housing, education or construction, there is no shortage of clever, dishonest people eager to exploit it for their benefit.

  8. 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 needs a two-week long stay because of the disease’s severity.
    Then why would we want a single payer system that might make this worse by acting like an expansion of Medicare? Well, presumably you could find a way to capture the $400 billion that is spent annually on the administrative burden of our healthcare system and channel that money back into increased levels of reimbursment by the single payer created by such a system (along with some of the money going back into the taxpayer’s/insurance purchaser’s pocket, and some being spent on improving the IT functionality and the overall quality of our healthcare).

  9. 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 eye and say: you have to pay the full list price or close to it so we can capture the cross subsidy we need to make ends meet? Clearly, the system is wrong and unsustainable.
    As an alternative, I suggest that hospitals push back harder in negotiating with private insurers, especially in markets where they have high market share and hold out for pricing that will allow them to earn an adequate return. It would also be helpful if they had a much better handle on their costs by implementing more robust cost accounting systems and could satisfactorily demonstrate that their overall cost structure is approximately in line with their most efficient regional competitors. Self-pay patients should pay no more than what the large insurers pay.
    If Medicare and Medicaid rates are, in fact, not sufficient to allow hospitals to recover their full costs, how could a single payer system possibly work if the entire population were covered by one of these two programs, even assuming, then, no uncompensated care and a one time savings in administrative costs?

  10. 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.

  11. 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 they have no clue what their actual costs are, or both. Part of the problem is that nobody outside the institution knows how the hospital arrives at its costs. More importantly no one cares what the costs are as they can just pass them on with a good amount of mark-up. Do the contracts with insurers contain a clause that specifically prohibits charging the non-insured the same as the insured? If so then that sounds illegal in a free market environment. Or is this just a case of the provider taking advantage of the most vulnerable to boost their margins. This is just a case of pay-day-lending attitudes transferred to healthcare.

  12. > 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.

  13. 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 quality (aka cost-effectiveness) is, imo, not very useful.
    When talking money, we should focus on answering questions such as: How should we spend it in order to squeeze inefficiencies, errors, omissions, etc. out of the system? How should we spend it to overcome the knowledge void so we can know how to deliver the most cost-effective care are prevention services to each and every person?
    I contend that a patient lifecycle wellness approach, using a quality though knowledge strategy, is the only sensible way to go. And I argue that if we start following this path now, we’ll all have a better future.
    We have just completed our white paper, which addresses this and offers 18 tactics addressing policies and practices that, if implemented, would radically transform our healthcare system and benefit all stakeholders. You can get it on our new wiki at Wellness Wiki. I look forward to any feedback.

  14. 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. You would pay for your healthcare expenses from this “bank”. If you are short, you take a loan from the “bank”. A person’s credit would be unlimted, but the account would be cleared from his/her estate at death. Any surplus would revert to the estate.
    This is a lifecycle apporach. Save during your healthy younger years to pay for higher expenses later.
    There would be total transparancy in the healthcare system–prices, practice style, outcomes, relative efficiency and cost of all drugs, testing, appliances and procdures.
    Clinicians would be required to discuss all options and their costs before an elective test or procedure.
    The admin costs would likey be be in the 1-3% range. The savings would easily pay for any shortfalls at death.
    The system would reward efficiency, be self-rationing, encourage healthy lifstyles and promote innovation on merit.

  15. Of course the more well off will always subsidize the poor. That’s the way it works in our society. That’s pretty much the way it works around the world.
    What I object to is people getting the free ride. People who can afford insurance but refuse to buy it for whatever reason, and then demand care and don’t pay for it.
    The plan in Massachusetts is a start, as long as the make good on the threat to forego tax credits or to garnish wages for non payment of medical bills, but even that has its problems.
    I prefer a VAT or sales tax ear marked for health care. The more you buy, the more you pay. That way the rich will pay more, because they will purchase more stuff, and those who don’t want to subsidize the less fortunate can stop purchasing stuff.
    I do prefer the VAT implemented at the point of manufacture, as it takes the underground economy out of the picture for the most part.
    Then my answer to your question would be NO, I don’t mind helping out the less fortunate with the cost of health care, because I know everyone would at least be paying what the could afford.

  16. I said that historically doctors and hospitals had monopoly pricing power, and engaged in price discrimination, charging richer people more so that they could fulfill their mission to serve the needy. Anyone with health insurance was “richer”. The cross-subsidization took place within the medical community. This old bargain broke down when payers got enough market power to dictate prices to doctors and hospitals, permitting them to cease paying for the health care of those who don’t have insurance.
    Under any scheme that has a snowball’s chance, one way or another, you will end up paying paying for the health care of those who don’t have insurance now. Maybe your mandatory premiums will be higher and those of poor people will be lower, even free. Maybe you will provide a direct subsidy to poor pepole through the federal or a state tax system. If there’s level community rating and you are young and healthy, your premiums will be higher and those of older and sicker people will be lower than they would be in a world where premiums are tied to current, individual risk. When it is “mandatory” to buy health insurance, maybe we’ll throw poor people in jail for not buying health insurance like we throw `em in jail for not buying “mandatory” car insurance, and you can pay Correctional Medical Systems to take care of them in jail. If we keep the current system, you pay for Medicare & Medicaid.
    One way or another, like it or not, you will end up paying for the health care of those who don’t have insurance now.
    I hope this is clearer.

  17. Marc says:
    > I don’t like paying for the health care of those who
    > don’t have insurance, that’s why I advocate for
    > mandatory health care insurance.
    But Marc! Under any kind of mandatory health insurance scheme that has the least chance of being enacted, you will be paying for the health care of of those who don’t have insurance now. You will be doing it differently from the way you are doing it today, but you will be doing it. A scheme could be designed to avoid the worst of the “intergenerational wealth transfer” problem, but even if we toss into jail those criminal, non-compliant poor people who scoff at your mandatory insurance law and go without, you will pay for their health care.
    The old social bargain had been that doctors were given a monopoly and were allowed monopoly pricing, and in return they did pro bono work in such proportion as their means and dispositons allowed. This bargain has broken-down almost entirely now — and it has been the attitude “I don’t like paying for the health care of those who don’t have insurance” that caused the breakdown.

  18. Boy Steve, if only that were possible. Maybe someday, but I doubt that I will see it.
    And TMBN, you’re right, there is not always “one” best solution. There are way to many unknowns, to know with certainty all the time, what is best. Isn’t that why they say doctors “practice medicine”? But it is also why we rely on doctors, whose knowledge and expertise can help us sort thru the various options.
    Ultimately it is the patient’s decision, and we have to be better consumers in sorting out the differences in treatment options, based on the likelihood of success, the risks involved and the effectiveness of the treatment.
    Cost really shouldn’t enter into the equation unless all the above are equal, or when evaluating the skill of the doctor/surgeon, which I believe to be impossible today, due to the many unknowns.
    But unfortunately we don’t live in Utopia and cost is a big factor, and as long as the population continues to age, costs will continue to rise. We as a nation just have to decide how we are going to deal with the increased health care cost, either by trying to spread the costs more evenly through the population, the increased application of rationing or maybe even by settling for a slightly inferior quality of health care.

  19. Being a dreamer like Matt and agreeing with TMBN, I envision a future in which all healthcare policies and practices focus on one thing: Achieving perfection. That’s what “anti-muda” is all about — “whittling inputs and outputs at every stage to no more than what is needed, when it’s needed, where it’s needed and only in the amount needed.”
    That means our goal should be to provide optimal quality (anti-muda) care to every person for the lowest possible cost and with the best possible outcomes. This would require that our healthcare system focus on making meaningful changes in policy and practice, such as monetary investment in scientific research, advanced HIT, wellness/prevention, and patient-centered care; establishment of practice processes focused on continuous quality improvement, learning and knowledge gain; thorough biosurveillance and post-market drug surveillance; etc.
    As I said in a comment to another post, it means setting our sights on a vision of healthcare in which there are no errors, no omissions, no overtesting, no overtreating, no overrefering, no undertesting, no undertreating, no underrefering, no misdiagnoses, delivery of only the most cost-effective evidence-based treatments to every patient based on their precise constitution and needs, motivate every patient to comply completely with valid prevention and maintenance programs, continually collect and analyze clinical outcomes data and use that information to establish and evolve evidence-based practice guidelines.
    When this happens, THEN transparency of pricing and practice would be more useful.
    The consumer would be able to say, “Well, Dr. A has an anti-muda practice and it will cost $X to be treated by him/her. Dr. B doensn’t practice anti-muda, but cost less ($X-$Y). I will trust my life with Dr …”
    The same would happen with insurance plan selection: Plan A requires its providers to practice anti-muda and it will cost $X, while plan B provider don’t practice anti-muda, but cost less ($X-$Y).
    Actually, I’d bet that in the longer term, anti-muda providers and plans would cost less due to their greater efficiencies and effectiveness — better outcomes at lower cost. This would translate into shorter length of stays, fewer readmits/relapses/complications, faster recovery, more effective management of chronic conditions, healthier patient lifestyles through prevention and better patient edcuation, etc. That means overall expenditures will likely decline even if payers compensate PCPs for spend more time with their patients and coordinating care, even if providers spend more on a next generations of HIT systems with advanced decision support, even if more is spent on clinical outcomes research for evidence-based medicine, and even if employers spend more on wellness programs. Not to mention the positive impact such a system would have on our country’s productivity and ability to compete internationally, and the security we would get from population protection of biologic threats!

  20. Marc,
    The problem is that for too many treatments there is no consensus on how you define “best”, let alone what fits the criteria.
    People do get second opinions for a reason. In the end it is a judgement call between patient and physician. Even then how often do you have 100% confidence?
    In the ideal world the money would never enter the consideration, but we live in the real world. Someone gets the thankless task of denying or restricting certain options, for cost reasons. No matter what the options are someone has to weigh $$$ against %%% chances of keeping or extending life. Does not matter if this is the public or private health plan.
    What if you want a 3rd opinion? What if you want a new experimental $1M brain surgery (i made it up)? What if you believe that you need a bypass NOW or you will die, while insurer does not care or public waitlist is 1 year or whatever?
    Now if you disagree in good faith with decisions of what is or is not important, made by your insurer, what do you do? If you have an option to get it yourself at a fair price, good. If not your only recourse is to fight your insurer or the government. Here I purposely equate rationing by American HMOs and any kind of public health plan, Medicaid or Canada. I agree with Matthew when he says rationing happens everywhere.
    I am all for sensible universal healthcare to help spread the risk. But we have to recognize that there has to be a role for a fair self-pay market to pick up where insurance design fails.

  21. Medical Blog Network, I don’t like paying for the health care of those who don’t have insurance, that’s why I advocate for mandatory health care insurance.
    And when you talk about different treatment options, what exactly are you talking about? Do you mean picking between treatments that have different levels of success, and you might decide on the cheaper one because you’re not interested in the best chance for success, only one that might give a reasonable chance of success?
    Just how often does the opportunity for different treatment options arise? Please provide examples.

  22. Matthew,
    I had no doubt you thought about some basic protection. Still there is always risk of getting hit with something insurance does not cover. Or covers in such a way that you wish it did not.
    Rightfully, price transparency is NOT the answer for solving the problem of uninsured & adverse selection as some overzealous promoters may want us to believe. There is no getting around having some government role in providing universal coverage and stabilizing risk pool.
    BUT, inevitable rationing in ANY insurance plan (public or private) means that there will always be a “premium” self-pay market for what is not covered well. Not just for millionaires but for less wealthy, who happen to have ‘quirky’ coverage.
    Putting individual purchasers at disadvantage is not fair. Fixing this imbalance is not in conflict with designing the system you like.

  23. Alex — I love it!
    TMBN–Dont worry. I’m dumb, but I’m not dumb enough to not carry insurance while I have assets a collection agency could come after, and a dog who can be sent to the workhouse, while I purse the joint sport of paragliding while snowbaording.
    And you are right. The current situation is a total gong show, and transparency of pricing would help some people. But what would help the system is to get real competition over standardized benefit packages in a mandatory community rated universal insurance system. Then the insurers and providers would be forced to integrate and not fight each other, and work out how to provide the same benefits for the least amount of money. i.e. they would be rewarded for improving efficiency and removing muda!
    I would also take single payer or European style mutli-payer with price controls as a second best option. I’m not fussy.
    Sure I know I’m a dreamer, and probably the only one!

  24. Did his bill look anything like this?
    Plumbing Code: 92156, 95689, 62157
    Total Charges: $15,042.36 (insert any random number you like)
    Amounts Not Covered: $8363.45
    Deductible/Coins: $500.00
    Amount Due: $2412.58*
    Please pay immediately. THIS IS NOT A BILL.
    *Also, you will be getting billed by plumbing facility that you assumed I worked for, but that is a separate bill due to some bullshit thing that my union buddies and I worked up and everybody has gone along with. Sorry I never told you about it at any point during the process. Consider this your notice. Also, you may get a separate lab bill because I had to send off part of your sink for analysis even though I already knew what was wrong. That one is going to hurt too. (This should be in 3 point type).

  25. “Transparency of pricing — for insurance premiums”
    What a questionable notion.
    How can you seriously call it transparency if you do not know for sure what is covered and what is not? Till you need it? Till they have you? Till you get hit with charges insurer does not pay for?
    This is worlds apart from auto market when you can configure-to-order your car and know that for +X you get this engine/mileage, for +Y you get this set of wheels, for +Z you get GPS navigation and so on. How many insurers really operate this way?
    Presumably you like insurance because it spreads the risk. Fair enough, this IS a good idea. BUT, self-pay market is not going away anytime soon and individuals get screwed.
    Matthew, I understand you do not have insurance now. If you get hit by a car tomorrow, with your hospital bills you would subsidize Medicare and BCBS.
    Does not it sound really ridiculous?

  26. Great Marc. Now how do you feel about paying for the care of everyone else ?
    The point is not to get “lowest bidder working on my body”. It is to be able to put both price and quality side by side and make an informed choice.
    Whenever there are different treatment options cost can always be consideration.
    It already is for anything insurance does not cover.

  27. All this talk about price transparancy is such hogwash.
    We’re remodeling our kitchen and the cabinet maker made a huge design error, designing one of the cabinets too big so it wouldn’t fit beside the hot water pipe.
    Hopefully I’ll be able to work a deal with the cabinet maker for the cost of the plumber, because I didn’t want to wait for the cabinet maker to get around to getting it fixed. So I went and called the plumber we use for everything in the house to move the pipe. Trust me it’s easier to do that, then wait for the cabinet maker to get some cheap plumber to fix it. And if you’ve ever lived through a remodel job, you know where I’m coming from.
    But the point of all this is, I called my plumber, and he came right over to fix it. I didn’t ask how much. I didn’t care, I wanted it fixed, and I know he would do it right. I don’t need the lowest bidder to come over and screw things up even worse. I trust my guy to do it right and not to cheat me. We live in a house that is 50+ years old, so things aren’t as easy to work on as in some newer houses.
    And if I can’t work out a deal with the cabinet maker, so bit it, I’ll deal with the extra cost. The peace of mind is worth a lot more than a few bucks.
    I feel the same my auto mechanic, and I most definitely feel that way about my doctor. I don’t want the lowest bidder working on my body, and I don’t know anybody who would.
    I want the best for my body. Cost is irrelevant, even if I have to pay for it on my own. You only get one body, and you just can’t replace it as easily as you can replace your car, or fix your plumbing.

  28. Rick. THCB is a major league publication, which scoffs at hitting T-ball home runs off the T, even it that’s what the President favors. So I read that line, but left it alone. He’s proving he’s “challenged” by his arguments, rather than just by his associations.

  29. Matthew, you missed the money quote, but probably because the WSJ buried in the last paragraph of the story:
    “In the 1990s, Mr. Hubbard chaired the Indiana Republican Party and was deputy chief of staff to Vice President Dan Quayle.”
    Need we know more about him?

  30. Most employers that I know give their employees an annual benefits statement that clearly indicates the employer’s share of their health premium. Benefit brokers now emphasize the cost of health bnenfits to employees on a regular basis.
    Employees for all size firms are incrasingly getting more choice of plans. Even the smallest employers are offering dual and sometimes triple options of plan designs from the one insurer/managed care company.
    Fortune 500 employers offer a wide variety of plan designs from multiple vendors at varied costs to the employees.
    Hubbard’s HSA example in the NYTimes today is flawed. HSA’s are typically associated with PPO plans, as in his example. Here in the group market in Georgia, PPO premiums are 30-35% above POS premiums,and 35-40% above HMO premiums. Addtionally POS and HMO plans are now being offered “Open Access”, eliminating the selection of a PCP and the need for referrals to specialists. “Open Access” plans costs 2-3% more. An “Open Access” POS plan offers more benefits than than a PPO plan; the only downside is a slightly smaller network of providers and that HMO or POS plans may not be widely available in rural areas. When an employer is confronted with the choice of a POS plan or an HSA-PPO plan, you can rarely make the case for the HSA plan.
    The HSA story is really a canard. Out of those 3 million with HSA plans, only 60% have funded the account at all–mostly with employer money. Less than 12% of HSA’s are fully funded. I know that you can retrospectively fund these accounts–but like FSA’s, there is not much employee interest to date in funding these accounts.
    However, I do believe in the usefulness of high deductble plans in curbing some excesses, but they are not a panacea.
    Alex, new technology accounts for at least 50 to 60% of the annual increases in health care costs. As long as drugs, appliances or techniques are shown as to be as “safe and effective” as current treatments, it is allowed in the marketplace. There is no economic rationale in its approval or eventual grudging acceptance by health plans. Given that most insured consumers pay the same (except drugs), they will always demand the best–even if it is only marginally superior to second best, which may cost half as much.
    Re price transparency–Prices in the insured and group marketplace are negotiated by the networks. Some insurers own their own networks; others rent local, regional or national networks. All self-insured employers rent networks. The rise of networks led to consolidation among medical providers over the past eight years. Networks are reluctant to disclose negotiated prices because two providers in the same geographical are generally compensated differently. The networks do not want providers comparing notes.
    HealthMarket (now called Chesepeake something or other)was a earlier puvayor of consumer-directed heath plans. They have a web site using the PHCS providers where you can get some idea fo relative producer pricing within the network. It’s interesting.
    Remember that price is only one factor of the cost equation. As Wennberg and his associates at Dartmouth have pointed out, practice style is a more important cost consideration.

  31. a) If GM’s windshield costs were going up 15% a year and they tried to pass it on to the consumer direct, Toyota would figre out how to reduce windshield costs, and the consumer would buy a Toyota instead. In the health care business, the insurers hide the cost and the consumer is not paying for a Toyota
    b) Barry is sorta right. It’s getting better but it’s just not true that people know the full cost of their employer’s premium payments. More importantly they have no options to do anything about it because they are rarely given the ability to choose between plans with real marginal dollars. (ENthoven’s lament long time)
    c) And finally, of course if we all moved to a work of high deductible plans under current market conditions, sick people couldnt buy health insurance — that might make high deductible plans nice and cheap for everyone else, but isnt exactly much of a solution for health care coverage. But explaining underwriting to the free-marketeers is another challenge…

  32. Three points with respect to insurance policy pricing transparency. First, more and more large employers are providing their employees with annual statements that show, in addition to annual salary, the employer’s cash cost for benefits provided to the employee including life, health and disability insurance as well as 401-K plan matching contributions, employer’s share of FICA taxes, and any other benefits for which the employer pays cash. The idea is to give the employee a better and fuller understanding of and appreciation for his or her total compensation, not just the highly visible salary.
    Second, with respect to health insurance plan benefit design, to supplement pricing transparency, there should be consistency across the insurer’s offerings with respect to how much it pays for covered charges. That is, if Aetna, for example, has 10 different insurance plans and they all cover a particular procedure, then they should all reimburse a given provider or facility at the same rate. They should differntiate their offerings based on deductible, co-pay, out of pocket maximum and scope of coverage instead of offering plans that reimburse at 35%, 50% or 75% of usual and customary charges, etc.
    Finally, if the tax preference for employer provided health insurance were eliminated while raising the standard deduction, expanding the earned income credit and widening the lower income tax brackets so the federal government does not raise any more net revenue, I think the demand for high deductible policies, even without Health Savings Accounts, would increase tremendously. In that case, demand for pricing transparency from all medical providers from hospitals to labs to physical thereapists would also greatly increase.

  33. If prices at Toyota were raised by 10-15% every year and virtually all of the increase was due to increased prices in windshields then something would have to change.
    Adding to your analogy:
    And we want to know the price of the windshield because it goes up every single year by 10-15% and when we find out about the windshield we learn that one of the reasons the windshield is so damn expensive is because the windshield company is providing free windshields to folks who don’t have them and marking up the price to cover it.

  34. Perhaps the terms of the hospital contracts with Medicare and private insurers should be changed (legislatively if necessary) to allow hospitals more flexibility regarding what uninsured patients are actually charged.
    Also, as I mentioned in a previous comment, hospitals that treat a disproportionate number of indigient, non-Medicaid patients and/or perform a teaching function should be compensated for those “excess costs” via direct state and/or federal subsidy, instead of loading them onto the backs of a small number of upper income uninsured patients.

  35. Hey kids. Remember that brave Mr Hubbard wants hospitals to share their pricing for its impact on CONSUMER behavior. I am pointing out that consumers do not make choices based on hospital pricing, and there’s no reason that any of them ever shall apart from Mr Carrol’s mythical uninsured millionaire.
    I DO believe in transparency of pricing — for insurance premiums. BTW Eric Novack agress with me and we both know that almost no one with employer-provided insurance knows ther actual insurance cost.
    Think of it this way. You know what a car costs. You don’t know what or how Toyota paid for the tires, the dashboard, the doors, etc. That they work out with their suppliers. Think of an insurer as Toyota and a hospital as a windshield manufacturer.
    In Hubbards vision we’re going to price out windshields. But what’s useful for the consumer is to know what a car costs!
    PS OF course writing late at night I got the wrong Hubbard. This one is Allan current Bush advisor. I call him Glenn, former Bush Advisor. Glen wrote the Healthy Wealthy & Wise book that the article suggests Alan created.

  36. 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.
    Now to complicate matters even further, Medicare will not pay the $750 for a single charge, like a bed charge. They may only approve $300 for the bed, which makes the hospital have to make up for it in other ways. $250 for the chest x ray. $25 for the Tylenol. $150 for the blood culture. Being forced to spread all of their costs over every possible charge item is probably part of the reason why hospitals seem embarrassed to make transparent their pricing.
    (I just made these amounts up to make a point. I am probably missing a zero or two!)
    I am not saying that pricing should not be transparent, just offering an explanation as to why this is so tough.

  37. As I have learned from other commenters on THCB, there are plenty of complexities surrounding the price transparency issue. That said, let me offer the following scenario: A patient is fairly wealthy but, for whatever reason, has chosen not to purchase health insurance but is prepared to pay his own bills within reason. He has heart disease and his cardiologist sends him for an angiogram. The angiogram shows that bypass surgery is required. It will be done by a surgeon recommended by the cardiologist at the hospital where the surgeon has privileges.
    The patient then receives a bill at the full chargemaster rate that is 2-3 times what the hospital accepts as full payment from Medicare and at least two times what it accepts from private insurers. Why should anyone, even if wealthy, have to pay far more for the same (expensive) services than insured patients pay?
    Of course, the hospital could easily make this more acceptable if it told the uninsured patient something like: don’t worry about the chargemaster prices; nobody pays those. We guarantee that if you are uninsured, even if wealthy, you will pay no more than the higher of what we receive from Medicare, Medicaid, or the private insurer with whom we do the most business, and we are prepared to document those actual reimbursement rates to your satisfaction upon request. New York state has legislation similar to this moving through the legislature now, but it only applies to patients with incomes up to three times the poverty level.
    Hospital could go a long way toward deflecting the price transparency issue to some extent if they credibly assured uninsured patients that the amount the hospital actually expects to be paid will be similar to the combined amount it collects on behalf of insured patients from third party insurers plus patient co-pays.

  38. Point of education: when physicians sign contracts with insurers, the insurers generally refuse to provide a list of the reimbursement for all services. Physician practices, in many cases, can only get the information 20 codes at a time (out of greater than 10,000).
    The day that every insurer publishes their fee schedules (which is difficult since the contracts are negotiated one medical group or hospital at a time) is the last day physicians need to participate in any plans. Frankly, it would be wuite freeing, as the overhead costs would plummet since the one doctor- one biller ratio would go away as would the space requirements for the billers to work. Oh, and it would improve cash flow for the small businesses known as doctor offices since payment would be at the time of service.
    Oh yeah, and it would actually create competition, and prices would go down…

  39. It would be interesting to see how well some primary physician practices are doing which charge a fixed fee for annual service no matter how many office visits a patient makes. I know of a couple in my metro area, Grand Rapids, MI. They have been doing well and one of my neighbor’s children goes to one and gets very good service. It literally has been the only way that this person has been able to get some of her health issues looked at. Plus, it has saved some ER room time for local hospitals and all the problems associated with health care provided primarily through an ER.

  40. “Daniel Waldmann, vice president for government relations at the Dallas hospital company Tenet Healthcare Corp. said insurance plans, rather than hospitals, were the best source of price information for most people.”
    WRONG!! Ever tried to find your net costs from an insurance company prior to using the insurance. Truth is they won’t give it – it’s a SECRET or as they like to say “proprietory”. They just expect you keep your mouth shut and pay the bills when they come in. No other industry in this country would be allowed to operate this way.

  41. Too many words that fail to obfuscate the obvious: Lack of transparency *IS* indefensible.
    Where do the infamous high rates of medical bankruptcy come from? From uninsured consumers hit by hospital prices that have no relation to reality.
    Fighting against transparency means pushing more people to medical bankruptcy.

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