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The Laboratory of Democracy

Paul levy People from other states would be wise to watch the sequence of events happening here in Massachusetts with regard to health insurance rates. As I described below:

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned downproposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Now, Rob Weisman at the Boston Globe reports on yesterday’s hearing in Suffolk Superior Court. The insurers argue that the action by the Insurance Commissioner is arbitrary and capricious, the traditional standard used to overturn a decision by a regulatory agency. The Division of Insurance argues, in part, that the insurers have not used up their administrative remedies before the agency, another traditional argument. A ruling is expected on Monday.Meanwhile, columnist Scott Lehigh offers thoughts on “The State’s great health care standoff,” noting that “Unease is in the saddle in the state’s health care sector, and chaos looms on the horizon.” He says,

Everyone is awaiting the next big political development. And here it is: Senate President Therese Murray will step into the breach when she speaks to the Greater Boston Chamber of Commerce Wednesday, unveiling a proposal she hopes will resolve the great health care standoff.

Senator Murray is a thoughtful and decisive person, and I, for one, look forward to her taking the reins here as many other elected and appointed official ignore the remarkable conclusions reached by the Attorney General. Just a few weeks ago, the AG issued a report, after months of study, in which she clearly explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that pay some providers substantially more than other providers. “Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.”

She also noted that the movement by some insurers and providers to capitated contracts did not result in a different growth rate in underlying medical costs from the traditional fee-for-service payment method. “Variations in providers’ per member per month expenses are not correlated to the methodology used to pay for health care, with expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis.”

In a comment below on one of my posts, astute observe Barry Carol offers the following thought. While he focuses on just one of the better paid hospital-doctor systems in his first paragraph, his second paragraph makes it clear that his approach could apply more broadly to others as well:

As I see it, the key problem from the insurers’ perspective is that employer customers felt it was absolutely essential to have Partners in their networks because that, presumably, is what the employees wanted. While narrow or limited network insurance products are quite well accepted in CA especially, it’s a different story in MA. Harvard Pilgrim, I believe, offered an insurance product that did not include Partners in the network but it didn’t gain much traction with customers.

This is why I keep coming back to disclosure of contract reimbursement rates and quality information to the extent that it’s measurable to help referring doctors steer their patients toward more cost-effective healthcare choices. I think that’s the best and most viable way to create countervailing power against Partners and other hospital systems with significant local or regional market power. Insurers could develop a mechanism to reward referring doctors who actually do this most effectively but they would need the price and quality information first. I think I know why insurers resist disclosure of contract rates but I don’t know why the regulators do.

To which I add one other thought in my comment on Scott’s article:

Let’s also look at the 10% of premiums used by the insurers for administrative costs, a percentage that has stayed remarkably steady over the years. As overall premiums have gone up, the number of dollars collected for non-medical costs has risen dramatically. Other financial services industries have been able to achieve improvements in their administrative and transaction-related expenses. Why has that not been possible in the health insurance field?

And just to make it clear that providers have a role, please review what I have said below about the potential for real quality improvement and cost savings to be achieved. An excerpt:

[I]t is possible for the participants in the health care system to accomplish major changes in the rate of medical cost inflation. Two articles have this theme. One is by Business Week’s Catherine Arnst. The other is by Lucien Leape, Don Berwick, and others in Quality and Safety in Health Care. Both are worth reading, and they overlap in recommending several areas — reducing infections and other preventable harm; empowering patients and families to participate in their care; and disclosing and apologizing for mistakes.

[T]here is a remarkable consensus on these items, and yet hospitals and doctors often fail to implement them. . . .

It is not unusual for industries facing structural change to be slow to move. Why? Because the leaders of those industries were promoted based on their success in the past financial, political, and social environment. They were hired for their ability to maintain the status quo, rather than for their ability to make change. Eventually, though, societal forces make themselves felt. If an industry does not adapt, the government will step in.

That is what we is happening right now in Massachusetts. Watch us closely, other 49! Do we go the route of short-term political expediency and bad regulatory policy, or do we show the wisdom and maturity to put in place directionally appropriate policies? There is an old legal expression: Hard cases make bad law. As things founder in the judicial and executive realms, brava to Senator Murray for having the courage to step in.

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39 replies »

  1. It’s a really good article for me, Must admit that you are one of the best bloggers I ever saw,keep up the nice work, and I will be a frequent visitor for a very long time.

  2. Paul, I expected you to answer that your contracts with insurers prevent you from disclosing prices by insurer, but I was surprised that you mentioned anti-trust law. Can you (or anyone else) explain?

  3. Great discussion here. My sense of this is that the situation calls for mandatory disclosure requirements for providers of price, volume, quality and outcomes data in a format which is understandable and actionable for patients.

  4. Peter,
    On your question: “Just wondering Mr. Levy, if I called your hospital and asked what the hospital paid for a particular procedure to the insurance company(s), would I be told?” The answer is no. We are prohibited by contract and by the anti-trust laws.

  5. To Barry’s excellent analysis I would like to add high costs to the hospital for medical devices (15,000 for hip implant prosthesis, not sure of $$ but huge for CT and MRI scanners, several thousand per implantable defibrillator and coronary stent) and then of course pharmaceutical prices. I bet none of these cost the same in Europe. Anybody know?

  6. Margalit – On the non-hospital based physician side, I can point to at least three factors that would account for higher costs here. First, physician income expectations, particularly for specialists, are much higher in the U.S. Second, malpractice insurance premiums are far, far higher in the U.S. than anywhere else. Third, there is more administrative complexity here that probably requires more staff per doctor even if each individual staff member is paid comparably to their European or Canadian counterpart. Supposedly, administrative simplification is coming and the savings will accrue mainly to providers as jd notes.
    For hospitals, there is the obvious issue of uncompensated care. Private rooms cost more to build and maintain than semi-private rooms though they should pay some dividends on the patient safety front in the form of fewer infections, medication errors, and more opportunity for patients to rest. There could also be considerable differences in case mix as I believe many patient days in Europe are for care that would take place in a rehabilitation center or nursing home here. Salaried doctors employed by hospitals are, presumably, paid a lot more than equivalent doctors in other countries while the hospital pays their malpractice premiums as well. Maybe one of the hospital experts out there could shed more light for us.
    As I noted once before, one of Paul Levy’s financial executives wrote on his blog that Medicare is actually an OK payer for inpatient services but pays horribly for outpatient care. The commercially insured population is much more heavily weighted toward outpatient care as compared to the Medicare population, at least at BIDMC.

  7. Here is another thing I don’t understand. When comparing what Medicare pays for services, our fees here are much higher than Europe. Yet, physicians and hospitals insist that Medicare reimbursements are below cost, thus the infamous shifting to private payers.
    So is Medicare really paying too little, or are the costs inflated by inefficiency and “unreasonable” expectations?

  8. Last year I spent time in a Swiss hospital visiting a patient. The service was quite good. I hope Barry does not need to see one, but if he does, I think he will be fine.
    Switzerland controls medical prices by regulating them. Prices are publicly available and are set via some sort of collective bargaining between all private insurers and private providers with the canton (state) supervising. The process is similar in other countries. The US is unique in having an extremely opaque and mysterious medical pricing system.
    Having more skin in the game may help lower utilization (specially for minor issues). It’s likely that Switzerland has lower utilization than France because of this. However, having more skin in the game is unlikely to be a major factor in reducing unit prices. Humans being confronted with tragedy are generally not very good at shopping for the best deal.
    I think that ideas like more price transparency and tiered copays/coinsurance are good. They may create downward pressure on unit costs. This should be tried out first. However, if this is not enough, some amount of price regulation (particularly for basic or ER procedures where shopping is most difficult) may be required. Time will tell.

  9. Nate – While that’s one contribution I hope I don’t make, I did buy good travel insurance just in case.:-)

  10. Margalit,
    I just want to point out that the price-signalling effect is likely to be highest for inpatient care. The consumer-directed theory tends to work reasonably well for the lower cost treatments of people who do not have a serious chronic disease, so they have an expectation of not using up the entire deductible. Of course, that is only around 10-20% of all medical costs.
    Most people will also be dealing with some co-insurance, so I don’t think there will be a rush to higher cost venues, but at the same time don’t expect a rush away from them. For that we need a cultural change. But we need that anyway, in order to control costs by any means, including top-down price controls.
    There is more than one way to skin the health care cost cat, as Margalit points out, other nations do it with cost-sharing that is lower, higher and about the same as ours. We’re really the screwballs here.

  11. Margalit – While I think it’s pretty clear that utilization will decline overall as out-of-pocket costs, rise, I doubt that it’s the main reason why Switzerland spends only 11% of GDP on healthcare and we spend 17%. My guess is that the main reason why healthcare spending consumes a much lower percentage of GDP in other developed countries is their prices per procedure / episode are far lower. While I don’t have data, I believe other important reasons include the following:
    1. Rationing – especially in the UK and Canada (both single payer systems).
    2. Litigation environment – much more defensive medicine in the U.S.
    3. Fraud – probably lower elsewhere, especially when government is the payer.
    4. End of life care – far more heroics here.
    I don’t put as much blame on fee for service medicine vs. capitation or whether the system relies on private insurers as payers. Interestingly, in the U.S., dental costs are not exploding well beyond the country’s ability to afford it. Only 40% of the population has dental insurance and even those who do find that it often pays little more than half of the costs for what it covers. Also, it’s pretty easy to find out what things costs before services are rendered. So, both transparency and “skin in the game” seem to be important to controlling costs.

  12. Barry for the sake of science can you incur some major and prolonged expenses while there to get the complete picture on healthcare and how it compares, couple hundred thousand should do it

  13. Something doesn’t make sense here. Switzerland indeed has large out-of-pocket expenses and they spend less on health care than we do.
    However other less privatized countries, like France Germany or The Netherlands, have much lower out-of-pocket amounts and they spend even less GDP on health care.
    Are we sure that the “skin in the game” is the deciding factor? Or maybe there is something else in play here….

  14. bev,
    As it happens, my wife and I have booked a vacation to Switzerland for this August. It’s an organized tour so I expect to have an opportunity to learn a lot about the country including the healthcare system. I also wonder about their healthcare prices as well as the transparency issue. For everything else, it seems to be a very expensive country both to live in and to visit.

  15. I agree with the principle of skin in the game and have it myself, but what are Switzerland’s prices? Do they charge 10K for a PET scan? $200 for a specialty office visit? Are they public and knowable beforehand?

  16. Finally, someone points out that the patient has skin in the game where their appears to be magic cost controls. Universal is easy when the patient must participate in writing the check for the service. He determines the value. America must do the same.

  17. “If all we have is price transparency, it may very well encourage even more utilization of the high priced venues.”
    Margalit – This would be a risk if the patient co-pay were no different no matter which provider he chose or was not sufficiently high to get his attention when choosing the high cost provider. I agree that the quality information is also extremely important but there needs to be a substantial out-of-pocket penalty for choosing the high cost provider when the quality of care is comparable. This is why I also prefer tiering, especially for hospitals.
    Under the current system without transparency, the high cost market dominant providers have actually gained a couple of points of market share in Massachusetts in the last few years. Finally, according to a recent article by Gary Becker that was brought to my attention, out-of-pocket healthcare costs in the U.S. account for only 12% of total costs as compared to 30% in Switzerland which is generally considered to have a good system with universal coverage and private insurers. That difference in out-of-pocket exposure could be an important reason why Switzerland spends only 11% of GDP on healthcare (2nd highest in the world) and we spend 17%.

  18. I want us not to miss the point jd made about high prices being perceived as indicator of quality.
    If all we have is price transparency, it may very well encourage even more utilization of the high priced venues. We must have both price and quality indicators published simultaneously and hope that there is an inverse correlation. I am not optimistic though.

  19. Sadly, you guys may pontificate 24/7 and feel good about it, all to no avail. The robber barons have invaded health care, facilitated by Congress and the profession. The rich get richer, the poor get poorer. Corruption abounds. Patients suffer. The ship is sinking. Class warfare in the near future.

  20. “no one should be paid less than whatever the market can bear.”
    John — As a consumer, I expect companies from which I buy products and services to pay their people enough to attract and hold employees who can perform their jobs in a competent, efficient and professional manner. I don’t want them to pay more than that and pass the cost along to me. I expect the same from the medical community. As a taxpayer, I expect the same from government. Unfortunately, in the case of state and local government, public employee unions drove pay and benefits, especially health insurance and pension benefits, well beyond what’s needed to attract capable people and well beyond what taxpayers can afford as well. I sense that the outrage is starting to approach a tipping point regarding state and local government pay and benefits. The tipping point for medical costs, especially hospital costs, is probably not far behind. That’s my opinion anyway.

  21. As an addendum, “medical professionals” includes everyone from the highest-compensated specialists or GP all the way down to technicians, housekeepers and food service people. There is plenty of room in America for everyone and no one should be paid less than whatever the market can bear.
    Until the Sixties all hospitals were “not for profit” but when the profit-driven hospital business model came into existence, along with physician-owned clinics and group practices, a “moral hazard” came along at the same time. A fee-for-service billing model plus referrals to for-profit institutions became the engine of health care inflation guaranteeing that over time parasites would eat their hosts. Sure enough, that’s where we went.
    Somewhere along the way the notion of healing sick people (which leads to a smaller revenue stream) got lost. I read somewhere that in Sweden hospitals are paid for empty beds as well as those in use. That notion is based on the quaint idea that the mission of hospitals is keeping the community healthy, so empty beds means that goal is being reached. I don’t anticipate such a crazy idea will ever come to pass in this country, but the thought is worth contemplating.
    Please excuse the ramblings of an old Saturday morning curmudgeon. I’ll try not to trouble you again.

  22. As a layman who has followed the health care reform debate going on two years now I am still waiting for clarification of a few basic realities.
    1. PROFESSIONAL COMPENSATION IS NOT THE SAME AS PROFITS. What doctors are paid is different from what corporations report as profits. Unfortunately, the corporate view is that professional compensation is an “expense” (and a drain on profits) but for doctors the same amounts are how they earn a living.
    2. HEALTH CARE IS FURNISHED BY MEDICAL PROFESSIONALS, NOT INSURANCE COMPANIES. Most people wrongly believe that health care is provided by insurance but the mission of insurance is to manage the costs of medicine, not medical efficacy.
    3. TWO KINDS OF RISK MANAGEMENT ARE CONSTANTLY BEING CONFLATED: MEDICAL risks (expertise of medical pros) and FINANCIAL risk (expertise of actuaries working as insurance pros).
    Universal health care should mean the end of cherry-picking for medical pros and insurance companies. It won’t, of course, because we live in a free country and will always have boutique doctors and insurance policies in the same way that we have high-end retail shops, private clubs, gated communities and chauffeur-driven transportation. The sooner the shakeout, the sooner the dust will settle.
    Meantime, professionals, both medical and insurance, need to get over thinking they have the whole market to themselves. Insurance companies and medical providers are now in the position of the Allies after WWI and WWII. It’s time to divide the spoils and get on with what comes next. It’s sundown time for cherry-picking.
    And patients (remember them?) need to understand there is a limit to what medicine can and cannot do. But those limits are two-fold: medical (what is scientifically feasible) and financial (what can you afford?).
    And the tough part is this: it’s up to BOTH MEDICAL AND INSURANCE PROFESSIONALS TOGETHER to speak these hard truths to their patients/clients. Those who imagine that political types will do so are living in a fool’s paradise.

  23. Working in health insurance, I’m well aware of why since 1998 insurers have been losing battles with hospitals to control growth in costs. Several reasons were given already by Paul Levy and other commenters.
    Now that universal health care has passed, it seems that we have a historic opportunity to change the dynamic.
    When insurers were confronted with a refusal from the state of MA to allow higher premiums, why not take this as a mandate from the state to engage in harsh rate negotiations with the dominant providers? The insurer, more than before, can run for cover to the state, saying the state made them do it.
    This will only work if regulators and politicians stop beating up on the insurers and blaming them for problems. In MA, progressives need to use the AGs findings as their pivot point to allow them to treat insurers as a useful bad cop to control costs.
    The state also has to be honest about what it is doing. It can’t pretend there is some vast amount of money to be saved from insurer profit or administration. It has to be clear that it expects the insurers to take a harder line with providers in order to be able to hold the line on premiums. That has begun to happen in MA, but they clearly have a ways to go still.
    Paul’s comment about 10% admin cost in MA is distracting. First of all, in MA the Medical expense ratio is around 90%. That is considerably higher than the rest of the nation. There is almost no profit among insurers in MA. Admin ratios are lower than the rest of the nation (10% vs. 12-13%). So, with MA’s costs among the highest in the nation, one thing you cannot peg this on is insurer admin and profit in MA.
    Nate is also right that the admin costs often serve a purpose to control costs. When insurers justify adding another dollar in admin, they often do so explicitly in the judgment that this will save over a dollar in medical costs. And what if you do knock the 10% down to 5% in admin costs? That is not even one year’s worth of medical cost trend, so you will be right back where you were next year….and less able to do the utilization management, etc., that puts checks on the growth in expenses.
    Having said that, there are two significant opportunities to reduce admin costs: insurance standardization and simplification. This is coming, and AHIP is already engaged in industry-wide efforts here that are expected to save billions. But we’re talking about 1% of total costs. Almost all of the cost control is going to have to come from providers and suppliers of care. Even admin simplification will mostly reduce costs on the provider side, not the insurer side.

  24. “Kickbacks in medicine have been illegal for years. Only now it might benefit government so you are willing to have them?” -MDHELL
    If by “government” you mean the people who pay for premiums and taxes, then yes. The reward would be a bonus for saving money, not a bonus for making money. Minor differences.

  25. No one in this thread has brought up the well-known economic phenomenon of using price as a signal of quality. Other things being equal, people associate higher cost with higher quality.
    A $5,000 a night hospital with spit-polished marble floors, private rooms and extensive remodeling in the last 3 years is perceived as much higher quality than a $2,500 a night hospital that has had only minor aesthetic upgrades in the last few years, linoleum floors and many shared rooms. Who really thinks that perception of quality will track actual quality of care, as measured by either process or outcomes?
    You might actually get more people to think that the lower priced hospitals can’t be as good, and avoid them more than they would have without knowing costs. This is particularly true for hospitals, where even if you have a health plan with substantial cost-sharing, you are likely to quickly blow through the deductible no matter which hospital you choose.

  26. Margalit – The objective of disclosing contract rates, in my view, is to ultimately drive market share away from providers whose high reimbursement rates are due to market power and not superior quality. I think people within the hospital sector are well aware of what’s been going on.
    I see two problems with trying to extend the Maryland all payer approach to other states. First, both Medicare and Medicaid would have to agree to pay considerably more than they do now so that private insurers could pay less. That’s a tough sell, especially in the current fiscal environment. Second, as I understand it, the Maryland approach tries to set rates so that all the hospitals can cover their costs based on local wages, real estate costs and other medical input costs, case mix, the number of uninsured, etc. I don’t see any mechanism for rewarding hospitals that drive costs down and quality up.
    Nate – My knowledge of how Medicare pays teaching hospitals for their medical education function is extremely limited. I did find this ten plus year old article, however, that suggested some changes.
    http://www.aamc.org/advocacy/teachhosp/medpac/rethinkingmedicare.pdf
    I don’t know to what extent the recommended changes were implemented.

  27. “This is why I keep coming back to disclosure of contract reimbursement rates and quality information to the extent that it’s measurable…. ”
    I don’t think this is going to work under the current contract/reimbursement model just because the contractual amounts are not related to quality, but as is the case in MA, they are related to market power. Insurers will have a riot on their hands if they publish the information.
    The solution, in my opinion, will have to be a unified reimbursement model, including CMS, much like the hospitals in MD seem to have, only it should include all types of care providers. Only then, with everybody at the table, can measured quality be rewarded. And only then, will providers have a clear incentive to improve quality and measure outcomes.
    Somehow this regulated system seems significantly more equitable to me than the current “might makes right” system.

  28. http://www.nytimes.com/1997/02/18/nyregion/us-to-pay-new-york-hospitals-not-to-train-doctors-easing-glut.html?pagewanted=all
    “In a plan that health experts greeted as brilliant and bizarre, Federal regulators announced yesterday that for the next six years they would pay New York State hospitals not to train physicians.
    Just as the Federal Government for many years paid corn farmers to let fields lie fallow, 41 of New York’s teaching hospitals will be paid $400 million to not cultivate so many new doctors, their main cash crop.
    The plan’s primary purpose is to stem a growing surplus of doctors in parts of the nation, as well as to save Government money. But the payments are manna to New York’s cash-starved hospitals, which are struggling to trim the size of their staffs and adapt to the world of managed care.”
    Wish they would name these experts, and it sounds like teaching or not teaching they are inefficient and high cost.
    “Dr. Siegel said that the increasingly powerful health maintenance organizations had pushed hospitals to rely less on residents. He added that as managed care companies were insisting on shorter hospital stays and were reducing the number of hospital procedures, many medical centers were finding they no longer had enough patients to train all the residents they employ.”
    “The hospitals’ executives said the program would allow them to wean themselves from their dependence on the cheap labor of residents rather than having to go cold turkey. Hospitals currently receive up to $100,000 a year from Medicare for each resident and pay these doctors-in-training $40,000 for a 90 hour workweek. So residents often do tasks that could be performed by less highly-trained personnel or sometimes even machines.”
    All of our healthcare problems seem to have a common element, government tinkering

  29. “teaching hospitals have much higher overall costs than community hospitals. Just look at the difference in number of employees per licensed bed.”
    Never understood this, they are getting paid millions to train those extra doctors, how does free staff make them the most expensive? For awhile in the 90s we were paying then to train doctors and not train doctors at the same time. Always seemed like dubsidies for bloated cost not related to the actual cost of training.

  30. I think the biggest time bomb in this whole adventure is the too-small-penalty affixed to not securing health insurance. By my reckoning if you pay a steep premium each month for health plan that has high deductible might you just be better off NOT buying anything and then buying it the day you find you need it…? Penalty plus waiting period (Speaking of which: Oh boy; can’t wait to see what this does to current wait times to actually SEE a doctor?!) but don’t see that in legislation just passed…?
    http://www.vitalityhealthinsurance.com has a blog that offers some interesting commentary on finding hospitals if anyone is interested.

  31. MD as Hell has it right. It is ultimately going to come down to single, standard fee schedules for hospitals and physicians. When that happens there will be services people desire that won’t be covered at all and there will be shortages for services that are covered. There simply are not enough physicians in the country today to provide sufficient care to the “insured” population, so extending that to the uninsured will present a real problem.
    Yes, many people are speculating that there are better ways to organize and reimburse patient care that should lead to lower global cost. The fact is no one has been able to prove it and we still live in a fee-for-service world. Who is going to take the risk especially given all of the structural changes this new bill drives?

  32. “until we get to a world where consumers shop for care aggressively, posting contracted prices is likely to push costs up, not down — as providers receiving lower contracted rates will immediately push to get higher rates achieved by some of their competitors.”
    Kim – This is the argument that I hear from insurers for why contract rates should not be disclosed. However, to the extent we can measure quality in areas like infection rates in hospitals, complication rates, risk adjusted mortality rates and 30 day readmission rates, some hospitals achieve higher quality than others which would justify a higher payment per case / bundle / episode. Second, teaching hospitals have much higher overall costs than community hospitals. Just look at the difference in number of employees per licensed bed. Community hospitals, in turn, generally have higher costs than ambulatory surgical centers (ASC’s). So, to the extent one hospital has lower costs than another should allow them to charge or accept lower payment rates and still earn an acceptable return on their capital.
    Clearly, teaching hospitals are often the only places that very sophisticated complex care is available and patients need to go there in those instances. They don’t need to go to teaching hospitals for routine care that any decent community hospital could handle perfectly well. ASC’s were supposed to be focused factories that could do a narrow list of procedures very well and efficiently. I know they are accused of skimming the cream – the easy and well insured patients while leaving the uninsured and the poorly paid for the community or teaching hospitals to treat. That should be less of a problem once we have reduced the number of uninsured
    For other care, we already have the ability to find out what different drugs in a therapeutic class cost or what the same drug costs at various pharmacies. I don’t think it’s unreasonable to expect a prescribing doctor to suggest the most cost-effective drug unless there is some reason to suspect that we can’t tolerate it. Stand alone imaging centers are reimbursed considerably less for imaging than teaching and community hospital radiology departments. If referring doctors could readily determine this, they should send us to the less costly center as long as it has reasonably up to date equipment and competent technicians. Management of chronic disease like asthma, diabetes, hypertension, etc. might lend itself best to capitation arrangements. For end of life care, we probably need to reassess how good sound medical practice is defined and applied. Ultra expensive cancer treatments are probably candidates for QALY metrics to determine whether or not we will pay for them. Different pieces of medical care require different approaches, but the bottom line is that we all, both individually and collectively, need to start to care a lot more about costs even when insurance is paying and, to do that, good price and quality information, including contract reimbursement rates, would be extremely helpful.

  33. “Let’s also look at the 10% of premiums used by the insurers for administrative costs, a percentage that has stayed remarkably steady over the years. As overall premiums have gone up, the number of dollars collected for non-medical costs has risen dramatically. Other financial services industries have been able to achieve improvements in their administrative and transaction-related expenses. Why has that not been possible in the health insurance field?”
    Its very possible, Medicare processes a claim start to finish much cheaper then private payors, but their bare bones admin cost them 10 times as much in fraud and waste.
    It is a very labor intensive profession, around 65% of my expenses are salary. I could fire my adjusters and outsource it to India and save a fortune, don’t think that is what people are looking for either though.
    Processing a check at the bank hasn’t changed in years, and only sligthly with check21 or what ever the last update was called. Besides COBRA and HIPAA we had EDI mandates. For years the government told us to stop using SSNs then when we finished collecting them they told us to collect SSNs and report to CMS.
    That doesn’t even touch on advancements in disease management and wellness. I spent 2 hours yesterday setting up a canadian mail order claim, by the time I spoke to the patient, the group, the doctor etc etc a good chunk of my day was shot. I saved $40,000 in claims cost but increased the administrative cost. To counter the initial argument I just made my ratio considerably worse, this is a good example of looking at the wrong metrics. Focusing on the 10% without breaking down what goes into it and what you get in return leads to a lot of noseless people.
    Would anyone object to paying me 50% of total spending if I could deliver all the care everyone wanted and do it at 1950 prices?

  34. “This is why I keep coming back to disclosure of contract reimbursement rates”
    Just wondering Mr. Levy, if I called your hospital and asked what the hospital paid for a particular procedure to the insurance company(s), would I be told?

  35. Insurers do not want to post prices because they are screwing a lot of providers by paying some less than others. Federal law makes it illegal for doctors to talk about contracts with each other. Forcing the insurers to be transparent would be a boon for docs. It would also be fair and get prices down by competition.
    It would also help if Medicare did not try to undercut what they pay. Just pay a fair price that all pay, with or without insurance. But , no, the feds decreed they would pay a deep discount; they would determine their allowable price, and then they would determine what they would pay and what they would allow as a deductable and a co-pay.
    In other words, our present mess is brought to you by the Congress of the USA throughout the last 45 years.

  36. “As I see it, the key problem from the insurers’ perspective is that employer customers felt it was absolutely essential to have Partners in their networks because that, presumably, is what the employees wanted.”
    You have identified the problem, which Congress failed to admit and correct, I.e., that the employer is the customer. And they are “presuming” what the employee/patient wants.
    The relative value of network participants vs cost is question best answered by the employee. Instead of presuming what is important to them it would be preferable for them to make that value choice themselves at the point of purchase, armed with clearly differentiated policy prices that directly affected them.
    Until we get the employer out of the equation we are stuck with these convoluted non-alinged price-value choices.

  37. Rewarding doctors for referring to a particular consultant with a reward as an incentive is called a kickback. Kickbacks in medicine have been illegal for years. Only now it might benefit government so you are willing to have them? How wonderfully hypocritical. Sell this to Pete Stark.
    It is still a supply and demand world. Shrink the supply of money for a particular event and you will induce competition to a point where the number of providers begins to shrink. Then the price goes back up due to the demand of the population for a now rare and valuable service.
    The only thing missing is value and who determines it. Value determines what a product is worth to a consumer, not to a third party payor. The third party payor is using a different measure of value, namely the risk-reward potential for covering an event for a defined population at a given premium.
    All you people who want free and universal care are sure happy telling everyone else what to do and what to sacrifice and what to pay. What are you going to do, sacrifice and pay? Who are you to determine what I value and what I want? Get ready to fail and go broke. Even Bart Stupak is going away. The rest of you bozoes need to follow his lead.

  38. I generally agree with your post, as well as your excellent post “Its Easier to Beat Up On the Insurers.” The situation in Massachusetts manages to be both shocking and predictable at the same time. The AG report hits on the key cost drivers, and I’m amazed and dismayed at how little attention & discussion it has resulted in.
    One thing that you and several others have hit on is the need for insurers to post contracted rates, to help highlight the variation. I am a big fan of transparency in pricing and quality, but there are two issues that need to be considered in doing so. One is that unit prices are fairly useless by themselves, since few health services are bought piecemeal, but rather are delivered in a bundle (although sometimes seemingly haphazardly assembled!). The second is that, until we get to a world where consumers shop for care aggressively, posting contracted prices is likely to push costs up, not down — as providers receiving lower contracted rates will immediately push to get higher rates achieved by some of their competitors.
    On balance, I’d always vote for more rather than less disclosure, sooner rather than later, but people need to understand solutions often carry unintended consequences with them.

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