Three Formulas

During the last election campaign, Tea Party-backed Republicans across the country rode to power on a tidal wave of advertising attacking health care reform as a cut in Medicare.  It is. If efficiency programs like the accountable care organizations being formed across the country don’t hold down spending by about $500 billion over the next decade, an Independent Payments Advisory Board would make recommendations for holding growth in Medicare spending to the growth in the domestic economy (GDP) plus one percentage point.

In most years when the economy is humming along, that would be about 4 percent. Over the past decade, health care spending for seniors grew at about 6 to 7 percent — the same as health care spending for the rest of the population. So if the Medicare delivery system reforms don’t work, Congress will either have to adopt the IPAB’s recommendations or institute cuts of its own to ratchet down spending.

This week, President Obama upped the ante to meet his budget deficit reduction targets over the next decade. Medicare spending would be held to GDP plus 0.5 percent, another approximately $300 billion in cuts. About $50 billion would come from eliminating unnecessary errors and hospital re-admissions. The rest was unexplained.

Rep. Paul Ryan’s budget plan, which House Republicans will approve today, does nothing to hold down Medicare spending over the next decade (for anyone 55 or older), and it would repeal health care reform. However, it still counts the projected savings in “Obamacare” since its projected savings are on top of the Congressional Budget Office’s baseline budget, which is based on current law. This is just one of many reasons why Ryan’s proposal has been widely castigated by mainstream economists as flim-flammery (see this report from Macroeconomic Advisers, as mainstream a bunch of economists as you can find. In a note to clients this week, they called the Ryan plan “flawed and contrived.”)

So how do Republicans plan to dramatically reduce Medicare spending in the following decade (the 2020s) for people who are now under 55? He would turn the program over to the insurance industry and give seniors a voucher to buy their plans. The value of the voucher would increase by a rate calculated as the consumer price index plus one percentage point. Since the Federal Reserve Board’s target for inflation is 2 percent, that means Ryan would place the program in a straitjacket of about 3 percent a year — cutting the current medical spending growth rate by more than half. No wonder the CBO projected that within a few years, seniors would be picking up two-thirds of the cost of health care out of their own pockets.

Let’s be honest. This is never going to happen. Republicans, once they’re in power, have no qualms about increasing deficits. We’re in the fix we’re in because they repeatedly cut taxes instead of saving for the future. If the nation simply let the Bush era tax cuts expire at the end of next year, it would eliminate $4 trillion in projected deficits — more than either the president’s or Republican’s plan.

So why do I say the Medicare formula in Ryan’s plan will never happen? Half of seniors live only on their Social Security checks. Their outside wealth is minimal. Given an ever-shrinking voucher, they would wind up buying skimpy catastrophic care plans from the insurance industry and eschew routine coverage, which would have to be picked up entirely out of pocket. It would result in self-rationing based on price — with poorer seniors simply forgoing necessary care. Moreover, there’s no way these catastrophic plans would not start lopping off most expensive end-of-life interventions, where most Medicare spending takes place. Those $100,000-a-year cancer drugs that add two months to life, like Provenge? Fugeddaboudit.

So one wonders. Where’s the “we have to have high prices to fund innovation” crowd — also known as the drug, biotech and medical device industries? You’d think they would be raising holy hell about the Republican plan. Yet I’ve yet to hear a word. Have you?

And that’s why it’s so difficult to take Republicans seriously, and why the deep cynicism that average, caring Americans have about the goings on in the nation’s capital is so justified. Everyone knows the cost control side of the Republican’s Medicare reform will never be implemented. They are eager to turn the program over to the insurance industry, period. But a decade hence, there is simply no way they would allow a CPI+1 formula to go into effect. It would simply be too draconian.

As everyone knows, competition among insurers has failed miserably in holding down costs, witness Medicare Advantage. So the truth about the Ryan plan is that it is privatization, pure and simple. It will lead to rising health care budgets, which benefits key Republican constituencies like the drug and device industries and well-off specialists, as far as the eye can see.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, Financial Times, The American Prospect and The Washington Post. You can read more pieces by Merrill at  GoozNews, where this post first appeared.

51 replies »

  1. A Fréjus (Var) où le FN est arrivé nettement en tête dimanche, le candidat UMP Philippe Mougin est sur la ligne “ni, ni”. Il a déposé mardi sa liste pour le second tour des municipales et rejeté des alliances « politiciennes » avec une candidate socialiste et l’ex-maire DVD. Arrivé dimanche en 2e position avec 18,85% des votes, le candidat UMP n’est pas « partisan d’alliances contre nature entre les deux tours ». « Ces petites combines politiciennes sont une manière d’enclencher une machine à perdre. Je reste sur mes valeurs avec mon équipe », a-t-il commenté. Il a appelé l’ex-maire DVD Elie Brun (arrivé 3e avec 17,61% au 1er tour) et la candidate socialiste Elsa Di Méo menant une liste sans étiquette (4e avec 15,58%) « à prendre leurs responsabilités ». Mme Di Meo et M. Brun avaient proposé de former une liste de rassemblement dirigée par le numéro 3 de la liste Mougin, afin de faire barrage au jeune conseiller régional frontiste David Rachline qui a raflé 40,3% des voix au 1er tour.  « La règle républicaine aurait voulu qu’ils se retirent après le 1er tour », a estimé Philippe Mougin.

  2. End of life care usually involves an ICU. I guess that if one could tease out what Medicare spends on ICU’s, one would have a start on answering your question. I think that the amount for the last year of life would be $24 billion, but that is a guess.

    ICU spending may or may not include late life surgeries. To my knowledge, doctors have eased up on doing bypasses for 90 year olds, et al (unless the 90 year old is Gerald Ford.) Dialysis is still done on 90 year olds, I believe.

    Going back to end of life care, one would have to add in Medicare spending on Skilled Nursing Facilities and Hospice care. The Hospice money is all on the dying ($12 billion), and the SNF money on the dying might be 50% of the SNF total of $26 billion –though that again is just a guess.

    That takes us up to $60 billion or so.

    I do not think that defensive medicine is a fiscal backbreaker, for this reason — Medicare does not pay that much for diagnostic tests. Maybe $300 apiece, and $12 billion or so overall for what Arnold Kling call “premium medicine” on the dying.

    Let’s take a break –I have appreciated your input on this blog for years, so keep up the good work.

    My ultimate answer to your question, though, is this.

    If we can ever get Medicare to use prepayment and global budgets for hospitals, then the end of life issue will diminish.

    For example –If a hospital gets $10 million a year prepaid to care for the seniors in its city —
    and not one penny more than $10 million — then we the public will not know or care how much is spent on the dying vs everyone else.

    If the fire department in Minneapolis spends $10 million a year— with a giobal budget vs. a claims based system — I do not know or care how much is spent on grass fires, how much is spent on substandard housing, how much is spent on house fires caused by smokers,

    The spending is a professional decision!

    You can tell I have read all I can of Prof Robert Evans from Canada.
    He has preached for years about the ultimate futility of paying hospitals with user fees.

    I welcome your comments. Read my stuff too. I immodestly suspect that between us, you and I have a lot of truths and insights to share about the financing of health care.

    Bob Hertz


  3. Bob Hertz —

    Do you have an estimate of how much of that Medicare spending relates to end of life care? Just curious. What about defensive medicine?

  4. “However, I believe that the fiscal future of health insurance is driven by the ways we pay hospitals, not doctors.”

    Doctors work in hospitals and drive their billings/income/bonuses.

    “Our first priority should be a national fee schedule for hospitals, that is livable for them and for Medicare.”

    Agreed, but that would be a national/state single-pay system.

  5. The struggles between doctors and insurance companies are important to document, as in the posts above. and in critiques of ObamaCare’s Medicare price commissions.

    However, I believe that the fiscal future of health insurance is driven by the ways we pay hospitals, not doctors. When I dig into Medicare claims data, I come up with over $300 billion out of $468 billion either being paid directly to hospitals, or being paid to drug companies, equipment companies, surgeons, et al for things that go on inside hospitals.

    It appears that Obama promised to essentially leave hospitals alone, in order to get his health legislation passed. Even if there are some fee cuts for hospitals in the new law, my impression is that those cuts will be easy to overcome through upcoding and increased utilization.

    It is economically possible for most middle class Americans to pay their doctor, with or without health insurance. It is not possible (and never has been, per Rosemary Stevens) for average Americans to pay hospital bills without some form of subsidy or shared savings or charity.

    It is also impossible for most hospitals to keep the doors open without Medicare.

    It is understandable emotionally that we blame or praise doctors for health costs. it is not the place to actually find solutions, though.

    Our first priority should be a national fee schedule for hospitals, that is livable for them and for Medicare. Then we need to protect all Americans from crippling hospital bills. Then we need to be grown-ups and actually impose the taxes necessary to cover this care.

    Bob Hertz
    Director, The Health Care Crusade

  6. What I’m trying to say from a Providers positon should not have to commit fraud to receive the exact amount they are owed. Instead of charging $125.00 to receive $20.00. If the differance is $20.00 after co-pay ,You charge only that amount. It looks like smoke and mirrors,But patients know they are being shafted. Even Doctors roll their eyes over the ridulous high pricing to get a Crumbs from Insurance. Often times Insurance skips out of Paying Providers all together. Simply because they can and if the provider says anything ; they are black balled.
    These Global Rate charges are far more than what the market can bear for a large majority of the population. However, the industry has never had competition thus they arbitrarally raise prices without the pressures of Competition. Thus we have a tremendious degree of overreach in profits,expectations, and values. You can say bull! Think a minute ……. No Competition! State and Federal Protection from Competition! Insurance ensures No Competition within contractual agreements .
    I work in the private sector and I assure you people are taking cuts in Pay and Business are dropping service rates . However, the Health Industry continues to help themselves raising rates .
    Please ,prove me wrong and open competitive markets from other Nations to offer services in the United States. See How long any of our Nations Largest Institutions would continue to thrive with real Competition. Maybe we would then be first in Health Care among 40 industrialized Nations. Instead of 38th. Go ahead and make my day!!!

  7. Kaiser is different, Nate. There is one price billed and the same price paid. For non-integrated systems, the price billed does not resemble the price actually paid, so what is the point of giving the patient an inflated bill at the point of service?
    Surely you don’t expect the patient to pay that and then get a refund from the provider once the insurer paid its contracted price.

  8. its not the assignment of benefits that prohibits balance billing it is the PPO contract, and even that doesn’t carte blanch prohibit balance billing. If the payor/group doesn’t comply with terms of the PPO access agreement, i.e. payment in 30 days, the provider contract usually allows for balance billing by the provider.

    Assignment of benefits is just the employee giving their right to reimbursement to the provider subject to terms and limitations of the plan.

    If people demanded a copy of their bill they could get one, for so long people never cared it just isn’t pratice to provide it. Its not that people are making an effort to hide this information its just 20 years of protocal and systems didn’t account for people wanting bills at time of service or to know pricing.

    A few years back we quoted on a contract to do billing for Kaiser when they were rolling out consumer driven plans, they didn’t have the ability to bill and coillect money at the time, it has since changed but it was never the case of them not wanting people to have the informaiton.

  9. “So either those who currently apply to medical school adjust their expectations down to more reasonable numbers, or they take their immense talents into other fields, where I guarantee that most will end up making much less money over an entire carrier.”

    Actually Margalit, many of them would probably do very well financially in the so-called FIRE sector – finance, insurance and real estate assuming they have decent numbers and analytical skills. Of course, these jobs also come with far less job security than doctors enjoy. When downturns occur, many people find themselves laid off from six and even seven figure jobs and can’t replace them at any price. Everything in life is a tradeoff.

    Nate – Help me out here. I thought when providers accept assignment of benefits, it means that they accept the insurer’s payment as payment in full, subject to the policy’s standard co-pay and deductible provisions, but with no right to balance bill. No? I can see why doctors would like to regain the right to balance bill under insurance contracts but how would that benefit patients who still won’t likely know the gross charges ahead of time or what portion of the bill is covered by insurance?

  10. You’ve got to be kidding, Nate.

    The parallel to a grocery store would be that when you walked in, there are no prices posted on any product and you only find out what your cart is going to cost after you get home and cook and eat the food, when the grocer will be sending you a bill.
    To combat this, grocery store shoppers would need to start a website and upload their bills, so other folks would know what the cereal box costs before they put it in the cart.
    Does this sound like a workable solution to you?

  11. Derek,
    I was just looking for data regarding Nate’s assertion that physician incomes have been declining (which they haven’t), and I came across this article in NEJM, which I promise I haven’t seen before:

    “Dr. Jessee [president and chief executive officer of MGMA] cites a vivid example of the changing landscape for heavily procedure-based or -dependent specialties. A few years ago, he explained, he began hearing from some high-dollar-volume practices like cardiology that many fellows coming out had “unreasonable expectations” for starting incomes. ”

    So it’s not just me feeling that something is amiss.
    The rest of the article has some interesting info and I think you guys should read it, and then tell me what exactly seems to be this new and insurmountable problem that those entering medical school today are expecting to face, at the going rates of payments.


    I don’t expect anything to be done for free, and those 20%-30% that Nate is quoting don’t expect that doctors work for free either. They expect that other taxpayers pay the doctor.
    I expect doctors to be paid for all the tasks you mentioned and I expect them to see as many patients in an afternoon as their professional judgment says that they can see and still provide all of them with optimal care (tall order, I know).
    I also don’t believe that greedy physicians, to the extent that they exist, are the cause for our health care problems, since their fees make only for about 20% of expenditures.

    I am not arrogant enough to believe that I have a fix for the system, but I do have requirements for such fix, and those requirements classify me in this new order of things as a liberal, which is fine with me.

  12. Margalit,

    I disagree, this subject is about ideology and politics and becomes more polarized every day as the income gap widens in this country. Medicare/Medicaid expenditures are a hot topic among the talking heads lately.

    I’m curious, what do you consider a reasonable expectation for those future doctors entering med school this August? Give me a number. How do you address high medical student debt and malpractice insurance premiums? Who pays for office and staff? And how many patients do you think is reasonable to see in one afternoon? As medicine is certainly not a 9-5 job, how would you compensate on-call and overtime? Do you expect continuity of care to be accomplished on a volunteer basis? Should physicians all be salaried employees?

    Nobody is arguing that there isn’t waste in the system, however, painting physicians as greedy is inaccurate. We aren’t being honest in this debate without looking at the entire system. Pointing to greedy physicians as the reason healthcare costs so much may be an effective as a sound bite, but it’s off the mark and only distracts from the real problems. I will say that I agree with the “beaten to death” assessment of the Gawande article there are inducements for physicians to utilize more expensive modalities. But not everyone is looking to buy their fourth Bentley.

    By the way, what’s your fix for the system and how does it address the above problems?

  13. Assignment of benefits is not between you and the insurance company, its between you and the doctor. When you go to the doctor or hospital you owe them for services rendered. Instead of paying them right then they will accept assignment of your insurance proceeds. If you don’t sign over your insurance benefits then you would pay them at the time of service and submit the claim yourself to insurance and you would b reimbursed by the insurance carrier. It wasn’t until the 80s that assignment became common, even into the 90s many policies were reimbursement. Undoing assignment of benefits would solve all sorts of issues.

  14. A million out of 50 million didn’t care about the Details of their Loans. Please do not group myself in with those million people who trusted their agent to give them a square deal. Unlike those million , I know that people and business’s cannot be trusted;when it comes to profits. The latest recession had proven it.
    Regarding your comment about health insurance and I’m speaking of Group health Insurance. The option is to accept or decline Health Insurance. I have never seen and /or had that option that my employer had agreed to fund. Interesting though, Could it be yet another secret? Improvised by the insurer? Here is another interesting facet about Health Insurance.Their is never uniformity from state to state.
    Still I would like the know the Total Out of pocket costs prior to a procedure and not be surprised afterward.
    Nate, no one forces patients to accept belated Billing but No one gives the patient the opportunity to make a Choice, to my knowledge. Especially, when it is most likely burried in the fine print. Employers are not good administrators of Health Care. Thanks for the Tid bit.

  15. “However, somewhere along the road, the expectations have outpaced what the population can provide to their healers.”

    Use to be a time 20-30% of the population didn’t expect to be treated for free, might only have paid a chicken or brought some bread but they made an effort to pay.

    Use to be a time patients didn’t sue when they didn’t like an outcome, even with the provider did nothing wrong. I think it is unreasonable to ask doctors to provide care like in the days of old when we treat them the way we do.

    Look at all of the years of healthcare reform that have cut provider reimbursement and not one sincer effort at tort reform….if I was a doctor I would be giving a little under chin sign language as well

  16. The grocery store knows what other grocery stores charge, why should I have to go store to store and compare? Why do they make me clip coupons to get the items at a fair price, if they are willing to sell it to me for $1 off they should just sell it to everyone at the lower price.

    A car dealer knows the bottom price it will accept why doesn’t it just charge me that amount. Why can’t I know all the price options for everything I buy?

  17. ” For example, although it’s not common, some of the more restrictive health plans may prohibit physicians who terminate their contracts from seeing their members for a certain period of time.”

    not common but in a very rare circumstance a doctor who terminates a contract instead of waiting for it to expire, wow Peter lets argue about the 1 in 100 million case, wouldn’t want that to happen.

    We owned a PPO, that is the contract that would prohibit a provider from seeing patients if one ever really did that.

    ” The truth is No reasonable person would buy a car or Home without learning the the details of the purchase prior to closing.”

    Really Gary? I have about 1 million foreclosures that would say your wrong.

    “This position of providing services and billing latter is counter to what a reasonable person would expect before any purchase and /or service.”

    Again, really Gary? You might want to look into assignment of benefits, no one forces patients to receive service then bill latter, every single time it happens is becuase the patient signs the assignment of benefits and ask that it be done that way. If you don’t like it don’t assign benefits.

  18. Derek,
    This is not about ideology and/or politics. I would like you to recall that the profession of medicine used to be highly regarded amongst lay people, and in many places, and for most physicians, it still is.
    The problem, as Dr. Gawande’s beaten to death article points out, is that an element of greed has entered the profession. Sure, everybody wants to make a nice living, and those with lots of education, who contribute so much to society, should. However, somewhere along the road, the expectations have outpaced what the population can provide to their healers.
    Not all healers, because primary care doctors have been as much victims to their more specialized peers’ desires for enrichment, as the average person on the street. And with all the new arrangements coming up, they will probably fare even worse.

    The entire system is out of whack. We all pay based on capricious power plays instead of what we really want and what we really need. Passing the buck down to patients and expecting that somehow the wisdom of the masses (including those hanging out at Home Depot), will fix things is as unrealistic as expecting that those same masses are able to dig deeper into their pockets and produce one more shiny nickel. There is no more money. Period.

    So either those who currently apply to medical school adjust their expectations down to more reasonable numbers, or they take their immense talents into other fields, where I guarantee that most will end up making much less money over an entire carrier.
    Physicians, as a group, are at the very top of the income pyramid. If you remove the primary care docs from calculation, those numbers are even more striking.
    Only 45% or so, of those that apply to medical school get accepted and amongst those rejected there are many with equal or better scores than those admitted.
    There are many young people from modest backgrounds that are very well qualified, but do not apply because they can’t afford tuition even with all the loans available.
    There are large numbers of foreign trained physicians who would love nothing better than to practice in this country for the payments that you consider inadequate, and many are very good.
    At some point, the medical profession, specialists mostly, will have to be very careful about sawing off the branch on which they sit.

  19. Its not that patients want to control the prices and I think they realized how bloated and artificial that Charges made by the Doctor; nets far less returns because insurance has been able to low ball or to skirt compensation all together.The Provider has no recourse because of their contracts; except to have the patient file against Insurance.

    When it takes $125.00 charge just to collect $20.00 from a patient visit .Each insurer pays differant prices and even the doctors are clueless how the system works. However, it would be my guess that most of them don’t care as long as they make the money. Now it is not difficult why patients are suspicious of Insurance as Ceo’s make Multi-Million Dollar Profits on a system that claims they are going broke. However,the evidence shows otherwise.

    Doctors claim that they do not care about the prices they place on a patient, because they want to give services that are best for their patients Health. They are Hero’s until the patient receives the Bill. Sticker Shock! One could say. The Truth is Insurance and Doctors want a Blank check for services. Even when those cost are caused from Medical Error and HAI’s. So when a Doctors and institutions fail to take responsibility for Preventable Errors. It is a insult to demand that Patients continue to pay for their mistakes. If they did . The degree of Lawsuites would Drop! Not everyone is Lawsuite Happy!

    Patients will pay what is fair,and what they can afford. However, Making them pay for your negelgence is something they will not Do Willingly! You cannot and should not wait until after a procedure to tell them the Cost and then expect them to be Happy Campers when they receive Multiple bills on the Procedure. It is human Nature to want to Know these things.

    Doctors need to know these cost to best serve their patients , who have limitations as simple as economics that drives their ability to Pay. As Doctors you may believe that these options are limitless . While the patient Knows his or hers limits that are much more grounded by personal experience.

  20. Margalit,

    I really think you are reading far too much into the comment. I’m unsure why. Medicine is not something you can Google one afternoon for a DIY project. Despite your displeasure with my Home Depot comment, I made a true statement. According to the AAMC and American College of Surgeons we are facing a shortage of physicians, especially, primary care, general and cardiothoracic surgeons in the next decade. Another physician above stated if his revenues dip, he sees more patients and works longer, and at some point needs to consider other opportunities. Addressing physician reimbursement, medical student debt (I have friends with 6 figure debt…and the first digits aren’t 1’s) needs to be part of the equation when reforming healthcare, rather than charges of elitism. As the Gawnde article suggests there are pressures that drive up the cost of healthcare. I would prefer that patients never saw a bill for their care, and could see a physician as often as they needed. As 75% of healthcare expenditures are for chronic disease, many related to obesity and sedentary lifestyles, patients need to shoulder some of this responsibility. But more importantly the discussion needs to go beyond polarized politics, and the idea that healthcare is merely another commodity.

    “…I am growing a bit weary of being told that those with medical skills will leave us all to die unless the country arranges things to their financial advantage”

    Be weary if you must, but recall the decrease in obstetrics services in Pennsylvania because of malpractice insurance premiums. Rhetoric aside, new physicians are choosing specialties based on lifestyle and compensation. Who wants to spend a decade and a half studying and training only to be worked 70+ hours a week AND not be fairly compensated? But this is a country that doesn’t flinch at the NFL’s league minimum pay of $300k, but rarely has a nice word to say to the person who has saved your life after the bill arrives.

  21. As nate says there are no secrets except you have to have the procedure to find what the EOB says it contract agreement . The truth is No reasonable person would buy a car or Home without learning the the details of the purchase prior to closing. Thus I will maintain that prices are secret.

    This position of providing services and billing latter is counter to what a reasonable person would expect before any purchase and /or service. Now I suspect that Nate would say that subscribers do not need to be concerned or have knowledge of these contractual agreements. However,When Patients are often the scapegoats of hugh rate increases. Then I believe that Patients have a Right-To-Know.

    Transparency brings Competion and permits citizens the ability to contribute in seeking reasonable services at reasonable prices. Transparency allows choice and permits Patients to choose. The basic program Herds people into a one size fits all and then spreads patients among providers to pass around. Among 40 industrialized nations ,we rank 38th in Health Care and the reason cost cannot be controlled is due to secret two Party Contracts and the Failure of Transparency. These dynamics are the unchecked drive of Health Care Costs and the cost shifting from underpayment.
    Patients are often targeted for these increase,but much of it has to do with the wants and investments of the industry.Our insurance Commissioners and Legislators are easily swayed by the industry and this allows Insurance to push the envelope. Again escaping Public peer review of Health care profitability and waste.
    The profits of both industries are thriving; but the quality of services are diminishing and Rise of Medical Error and Hospital Acquired Infections are spreading from understaffing and other Routines that has provided minimal Care.
    Patients have to obtain advocates to stay with them 24/7 to protect their friends and Families from Medical errors , understaffing and HAI’s. Patients are being harmed from Preventable Events because the Standard of Care has been Compromised.The Targets”Consumer/Patients” have a Stake in their Care and curbing the “Greed Factor” is providing them a seat at the table.

  22. Actually, Nate, the above remark is a sign of misplaced complacency that will eventually bite back. There are no irreplaceable people and there are no irreplaceable skills in this global economy.
    I don’t know about you, Nate, but I am growing a bit weary of being told that those with medical skills will leave us all to die unless the country arranges things to their financial advantage, and those running Wallstreet will all flee to the Caribbeans if we don’t continue to feed their habit, and whatever other groups state, in order to extract money from the public. There is a term for this and it does not fit well with the classic definition of being a doctor.

  23. “You sure about that? I’m looking at my contracts and I don’t see any such language.”

    Not sure about “your” contracts since I doubt they are the same ones doctors see from insurance companies. My information came from a doctor who attempted to go into a cash pay practice. He had to take a sabbatical in order to see his prior insurance patients, or start from scratch in establishing a new practice.

    “A careful review of health plan contracts is essential to determining whether a cash-only practice could work for you. A cash-only practice, particularly one that serves patients with private insurance who are willing to pay cash and submit their own claims, must avoid several legal and contractual pitfalls. For example, although it’s not common, some of the more restrictive health plans may prohibit physicians who terminate their contracts from seeing their members for a certain period of time.”

    “Ya not like there is some common interface where mllions of people could all go to post information right?”

    Why don’t you start one Nate?

  24. Why? Why should millions of people have to go to a website and post their EOPs for thousands of different providers, per hundreds of payers in dozens of states?

    Insurers know by and large what other insurers pay providers. Why can’t providers have the same information, and why on earth can’t people have that information in an open and orderly fashion, without having to pool their receipts in some makeshift website?

    Who benefits from this absurd semi-secrecy?

  25. He is probably referring to what the Blues were doing in Michigan.

    “The Texas settlement comes on the heels of a department lawsuit filed in October against Blue Cross Blue Shield of Michigan over contracts that require hospitals to guarantee the lowest prices to the Blues plan.”


    I believe that this was before the Blues tried to merge.


  26. “You’d be hard pressed to develop a list of insurance payments from EOBs,”

    Ya not like there is some common interface where mllions of people could all go to post information right? If only there was a place that aggregated data from millions of people then displayed it for all to see, if only technology would advance and provide for us right Peter?

  27. “Nate, doctors who sign insurance contracts cannot establish their own cash pay practices with a patient list derived from clients they supposedly obtained through insurance coverage.”

    Really Peter? You sure about that? I’m looking at my contracts and I don’t see any such language. Then I step back and think about that and it makes even less sense. First a cash pay pratice wouldn’t work for someone insured by a managed care plan unless the person was willing to pay the majority of the cost for seeing a non panel provider. As a payor if a member rather see a non panel provider and pay the claim themselves do you really think I am going to say no? Next you have the issue of people changing carriers, how does United stop you from seeing non united customers?

    Remember what I said about people who think they know insurance becuase they make things up….

  28. One problem with the whole cost of service issue is that current law requires providers to bill everyone at the same rate – the full list price. Medicare and Medicaid will then actually pay its dictated rate and insurers with whom the providers have contracts will pay their contract rate. For services delivered under a capitation arrangement, the price for each individual service is irrelevant to the patient. The uninsured patient or the patient seeing an out of network provider is in a difficult spot to put it mildly.

    Regulators could prohibit confidentiality agreements related to rate disclosure if they wanted to and if the political will to do so were there. I think the system would work a lot better if insured patients could just get a bill that listed the contract rate and their co-pay or payment responsibility within the deductible, if any. For uninsured patients, providers should be able to post a cash fee schedule independent of what they get paid by other insurers, including Medicare and Medicaid and independent of their full list price. If they are going to bill uninsured patients at the list price, they should also be required to disclose the Medicare rate for that service, test or procedure, which is public information anyway, even if they don’t take Medicare so the patient has a benchmark for comparison. It might also be helpful if they had to disclose the contract rate with Blue Cross or whichever insurer they do the most business with. It’s outrageous on its face for anyone to pay four or five times or more what is routinely accepted as full payment from insurers, even if the patient is as wealthy as Bill Gates or Warren Buffett and can afford to pay it.

  29. Nate, doctors who sign insurance contracts cannot establish their own cash pay practices with a patient list derived from clients they supposedly obtained through insurance coverage. There would be a 2 year waiting period. As far as non-disclosure, docs or hospitals cannot reveal what an insurance company pays them for a particular procedure, the EOB comes from the insurance company to the insured, not from the provider. You’d be hard pressed to develop a list of insurance payments from EOBs, especially since you don’t get an EOB without actually having the procedure.

  30. what’s an insurance company non-compete contract clauses? I always get a laugh when people try to establish themselves as insurance expert based on made up terms.

    I also don’t follow this insurance non-disclosure aregument, a doctor can’t turn over an entire contract to someone but any member could publish the pricing. Its not like the information is secert they print it on every EOB.

  31. “That is not a political ideology, it is a law of nature.”

    Is the RUC a “law of nature”? Are insurance company “non-disclosure”, “non-compete” contract clauses a “law of nature”? Is billion dollar lobbying by the health industry a “law of nature’? Is the AMA a “law of nature”? Is the AARP a “law of nature”? And doc Dan, just how do you calculate your prices, “supply and demand”? I always get a laugh when people try to establish themselves as economics experts based on the words “supply and demand”, you’d think economics books are just one page with the words, “Supply and Demand” printed on it, why that’s all we need to know isn’t it.

  32. With liberals like Margalit it is never just home depot, it’s a sign of capitlist oppression of honest hard working people who are being used by rich people at a level just above slavery.

  33. Actually, I just happened to be at Home Depot buying a hammer. Sometimes Home Depot is just Home Depot.

  34. “…there aren’t many people hanging around Home Depot who have the knowledge and skill to remove your pancreas…”

    Does Home Depot have a special personal meaning to you, or is it just a generic reference to a place where the unwashed masses congregate?

  35. I agree in principle with Mr. Lampman that price competition is needed, but right now, at least at the level of the individual doctor, what one charges has little relation to what one is paid. You can charge whatever you want, but what you get is what the insurance company decides, or what you’re contracted to get. It is determined either by Medicare/Medicaid bureaucrats, or by the “usual and customary” function of insurance companies in one’s area. Where people are paying out of pocket for services, beyond the pre-determined copay, it is definitely desirable for doctors to make their prices known. Where that happens, there is competitive pressure to lower prices. It doesn’t work well, because of the third party payer arrangement. I can tell you that I would be willing to publish prices where I am allowed (insurance contracts are secret by insurance company policy, not by my choice). Part of my practice is prepaid, and patients always know what it costs. I have told anyone who is interested how the price is calculated.

    Regarding what doctors and anyone else deserves, that is only of interest in an ivory tower or a theological debate. What we need is to pay enough so that there is an adequate supply, neither a deficiency nor an excess. If you study economics, you see that prices determine themselves according to supply and demand. Nobody knows what the price should be. The price is a dependent variable. That is not a political ideology, it is a law of nature.

  36. Dr. Urbach,

    I appreciate your comments. I personally would prefer some sort of single payer type system. We all know the insurance industry is not going away, nor should it. Any plan that did not include private insurance would not be politically viable. What attracted me to the EMBRACE plan was Tier 2, as there seems to be an incentive for insurance companies to compete for customers who have the financial means to purchase this “extra” insurance and at the same time be relieved of the sicker patient population that tends to be underinsured and cuts into their profit. I really have no faith that there will be any substantial changes in health care coverage during my medical career (and I’m still near the beginning).

    Mr. Lampman, there is waste in the medical industry as in many others. Most in this profession are thinking of what is best for the patients health before what’s best for the patients wallet, as the way it should be. There’s room for improvement. However, this is a highly skilled group of people who should be compensated fairly as there aren’t many people hanging around Home Depot who have the knowledge and skill to remove your pancreas, keep you alive after a major trauma or treat diabetes and heart disease properly. The lights need to be kept on, nurses, techs, housekeeping, malpractice insurance and med student debt need to be paid. I’m not sure if you’ve read the New Yorker article by a surgeon named Atul Gawande a couple of years ago (http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande). It was very interesting and I believe illustrates a weakness in our system. On the other hand we also have a morbidly obese, sedentary population who enjoys smoking, drinking, and driving fast, who are underinsured and aren’t utilizing preventive medicine. There are plenty targets for improvement.

  37. Dr. Guirand, Thank you for this reference. I hadn’t seen this article. My comments are just first thoughts. I think the division between Tier 1 and Tier 2 services will be fought over tooth and nail, and I think that division is not essentially different from the above-the-line vs below-the-line division in Dr. Kitzhaber’s plan. However, in his plan, the entire list is on the table, and the line is theoretically agreed upon ahead of time (though constantly being debated). In the plan in the article you reference, there seems to be less flexibility. I’m also skeptical of an all-powerful board that makes these decisions, though of course somebody has to have authority or else nothing is ever decided.

    Regarding what the right moral choices are, or what providers should accept, or what services should cost, etc, I would just say that the health care system is made up of a huge number of human beings, all of whom have the choice to work in health care, or not, or to switch what they do within health care. Maybe people’s jobs aren’t that mobile, but future choices for next generations are, and we are trying to design the future. You can tell people what they should make but you can’t force them to agree. If my office income goes down and my overhead goes up, then I take home less, and usually my workload goes up. At some point, I look for other opportunities. Most people are like that. I don’t sit down at the Health Care Blog to see if commentators feel like my choices are moral or not.

    Like I’ve said before, prices, supply and demand are data, and we have very little ability to decide them ahead of time. Price controls will affect how much people spend via the controlled sources, and if money is not available from other sources, as described by Peter, then providers of all kinds have less ability to hire, they have incentive to find other money sources or kinds of work, etc, and services decline.

    I don’t disagree that some sort of single payer plan may work better than what we have, and I don’t really think we have to reinvent one, like the tier system. If we had the choice to implement one, there are several decent models in the world. However, I don’t expect this to happen in this country, given the current political mix.

    Our health care system is a very complex, seriously ill patient, and we don’t know yet what effect our interventions will have. It is unwise to try to do everything at once.

  38. So I dare any provider to Publically display the costs of procedures ,Products and services . Then justify to these Patients by itiemized list, Line for Line , why the costs of services are what they are. I expect honest and detailed information that is clearly supported. Then Lets delve into the Insurer Con jobs.
    The drive for larger profits and the secrecy has permitted this industry to run unchecked and permitted them to have their way on the public. So until transparency of this industry is so ordered. The Public will continue to be subjected to excessive billing and expoiltation. Controlling cost can not and will not suceed until consumers have a seat at the Table .

  39. Regarding EMBRACE, it is a commendable attempt, but again shuffling around who pays for what, with patients invariably ending up paying more, and the article acknowledges that, is not going to change what is paid for health care in aggregate by all payers, private, public and individuals.

    At some point, those who provide health care services and products, and those who mediate these provisions, will have to accept lower payments. This includes, reducing the price for each unit of service and reducing artificially inflated volumes of highly profitable services.
    If this is not possible, then, yes, we will have to continue, and sharply increase, rationing of care by ability to pay.

    We just need to understand that the reason for accepting an immoral and inhumane distribution of medical care is not due to “scarcity of resources”, but it is due to our inability to restrain the greed of corporations and the selfish expectations of individuals.
    It all boils down to what type of society we want to be, and from what I see, we will be rationing care for the many rather than inconvenience the powerful few.

  40. “It results in cost-shifting for underpaid services”

    As long as here is a high price and a low price for the same service the low price will be viewed as an “underpayment”, just the way people think. As long as there is no universal budget for health care there will be no pressure on providers to stay within any price/usage structure. The ability to go outside a certain price structure (Medicare/Medicaid) means costs controls are useless. In Ontario Canada when physicians were “price controlled” they came up with extra billing as a way around the law, until that too was outlawed. There, prices are controlled through negotiation and are fixed across the system with no ability to “price/cost shift” anywhere. Hospitals are held to budgets where (unlike here) staying within budget does not mean creative billing, and CEOs are not paid anywhere near the same or paid for empire building.

    Seems most other industrialized nations do quite well “price controlling” health care with the same pressures we have here. if we paid for universal health care through taxes then taxpayers would need to vote their own money and balance that decision with access. Training doctors from financially affluent families sets an expectation of what the “right” price is.

  41. Interesting discussion. I would add that there is a plan published in the Annals of Internal Medicine in early 2009 http://www.annals.org/content/150/7/490 . The plan is 3 tiered and based more on best evidence than economics.

    Tier 1 “would be lifetime, basic, publicly funded coverage for the entire population on the basis of the best evidence about which therapies are considered life saving, life-sustaining, or preventive” (including mental health). As I understand it VA, Medicare, and Medicaid funds would be combined.

    Tier 2 “Optimal coverage would be funded by private insurance and cover all therapies considered to help with quality of life and functional impairment”. From what I understand private insurance would be regulated at this tier, and would not be allowed to offer tier 1 coverage…which would probably be a boon for insurance companies as their most costly customers would be in tier 1.

    Tier 3 Items considered to be luxury or cosmetic would generally not be covered, as is the case under the current system.

    Dr. Urbach, I’d be especially interested in reading your comments on this plan.

  42. There is a rational system of rationing already in existence, designed by John Kitzhaber, MD, current governor of Oregon. It was never really implemented because it applied only to Medicaid-level care, and was fatally underfunded. It is very appealing, however, at least in theory. It is a prioritized list of services, with funding going to priorities as far down the list as funding is available. Anything below the funding line is denied, and that’s the problem. Nobody wants to admit that we haven’t paid for everything we want.

    “Rationing prices” is already happening, and it’s called price controls. It results in cost-shifting for underpaid services, and often unavailability of those services. And it has resulted in arbitrary overpayment and therefore unnecessary overproliferation of specialists and facilities in areas that are overpaid, and in distortions of what lawyers call standard of care, favoring usage of those services.

    We are clearly overpaying for some medical care and underpaying for some. If we can’t come up with anything but price controls to try to fix that, then we need a government agency that is intelligent, rational, and not subject to political pressures, but that is nevertheless accountable for its decisions, to decide on the right prices. Nobody knows what the right prices are, so they need to be flexible. A government agency that fits that description has never existed in the history of humanity. I don’t think simply using price controls to fix our system will work at all. One of the better European systems would probably work, if there were a way to make it happen despite our political system. I don’t believe in magic, so good luck with that one.

    Right now I think we need to make some rational choices and wait to see what happens once we’ve made them. A short list would be: increase age of Medicare eligibility gradually, to maybe 75; allow prices to fluctuate somehow (I’m open to suggestion on how to do this); apply means testing to Medicare, so that some money comes from those who can afford to be billed beyond Medicare fees (i.e., balance bill them). If these changes were made now, I bet 10 years from now the government’s part of the health care budget would look a great deal better, there would be less cost-shifting, and there would be a much better supply of primary care.

  43. Clearly, The Ryan budget is not going to be signed into law. But assuming that it did, it would be as useful and successful as the SGR formula of the 90s. Putting an artificial cap on spending 15 years down the road is not a plan; it’s just wishful thinking. Seniors today might not care because they are not affected. But seniors 15 years from now will care and will simply vote to lift those caps.

    I suspect Dan is correct about some form of rationing being needed. But unless the rationing is seen as fair, reasonable, and efficient, it will not succeed.

  44. “If we want to pay less, we will have to accept less. This means rationing care. There’s no way around it”

    This assumes that we are not currently overpaying. What if we are? What if we could ration what we pay, not what we get? What if we put pressure on suppliers to seriously manage costs down? What if we demand that profit margins for all suppliers become more modest?
    As in all service industries, health care has a large component of costs that is set based on what the market can bear. Maybe that component can be reduced seeing that the market cannot bear the current rates.

  45. Interesting Dan. So your death panels are well indocturnated within these insurer/ provider contracts. Something that Republicans complained about the Fed running Health Care. So let talk truthfully. Middle Class and lower class Health is largely rationed by economics or affordability. So we are rationed to die sooner based on our ability to Pay Premiums and out of pocket expenses. However, if we begin to talk about transplants, first your God Playing Doctors have to convince a panel if a organ would be wasted on a person and secondary is a Hefty Pay out to be placed on the Wait List.

    So, We can say that the wealthy are granted access thus extending the chances of life and cheating Death. The Human experience is not a exact science and their are many varibles. Though, insurers and providers have found ways to accomplish hugh profits while providing a persona of providing care. However, what we have found are physicians that run patients through a myraid of wasteful testing and then onto their fellow specialities and on and on. Duplications and repetitive procedures do little that raise cost without concise results.
    Health Care is only sick care and the means by which these institutions operate is expensive and is profit motivated . Which in turns rations the number of care givers,which increases Medical Errors and the rise of Hospital Acquired Infections
    Which in its self rations life as well. Really,Rationing?
    The truth is the for Profit structure of Health Care is reactionary and is poorly suited for healthy Life styles. Thus we find more specialist than Primary Care Doctors. Which if find over rated in comparison to the primary care Physcians in the trenches.
    The facts are people are paying more and getting much less for their dollar,as the industry finds more ways to exploit patients.

  46. I once heard somebody say, “Why is divorce so expensive? Because it’s worth it.” Our problem is that health care is expensive, and price controls don’t change that fact. If we want it, we will have to pay for it. If we want to pay less, we will have to accept less. This means rationing care. There’s no way around it.

  47. “He would turn the program over to the insurance industry and give seniors a voucher to buy their plans.”

    Remember the senior fear mongering by Repugs in the last election claiming “Obamacare” would reduce spending on Medicare; now let’s see them run the 2012 election on senior vouchers. Let’s see, I’ll bet most seniors will have pre-existing cronic ailments, or at least they’ll have them soon, wonder how the Repugs are going to price those vouchers for what kind of plan? But wait, that 25% top tax rate for the suffering wealthy, maybe that will help seniors pay for this, yea that’s it, the old Reagan trickle down con.

  48. We find Ryans plan that basically does away with Medicare. Providing coupons of a preset value that will have seniors jumping from a cliff once that amount has been reached. Then economics will drive the rationing of care. So the private Industry will expodentially and artificially exploit seniors by artificially raising cost of Services and materials.
    Simular to the 20th century when corporations paid low wages,and raised the company Stores prices to the extent that they remained indebted to the company. Ryans Plan does the same! Medicare Patients will end in Higher out of Pocket costs,that many could not afford.
    The truth is Insurance and providers will make tremendious profits at the expense of vulnerable Seniors.

    Sucking up their life savings is the goals of this Health Insurers and Providers. However , quality of life would clearly deminish and of course their savings. Which gives credence to the Republican Montra “If your going to die;Die QUICKLY!!”

    Republican scams are normally Motivated by Greed and the trading down Health Services by focusing only on the Profit. Often we find a revolving door with the elderly, because of understaffing, symptom based medicine, communication issues,and improper follow up . Elderly symptoms are largely dismissed and seldom given a comprehensive understanding of patient needs and/ or potential problems. Reasons are varied but one thing comes to mind . These are people who have out lasted their usefulness to society. As most people value those who are useful,joyful and young. Our seniors are not well represented or respected within the realm of the living . So it is easy to explain the deaths of those retired seniors who have exceeded their usefullness. Living in dignity is not the strong suite of the Republican Party as they have sold their soul to the all mighty Dollar. Placing patients at risk and undermining the premise of pro -Life! Which in their view stops at Birth.

  49. “As everyone knows, competition among insurers has failed miserably in holding down costs, witness Medicare Advantage. ”

    What competition in Medicare Advantage? You have a small list of carriers approved by the government offering a defined benefit package also defined by the governemnt in a heavily regualted industry. Thats like saying look how competition has failed to lower the price of milk in states with a floor on milk prices.

    Exactly what cost are you claiming they have failed to mitigate? The cost of an office visit hasn’t sky rocketed, the cost of generic drugs have dropped. What has increased is consumption, in a system where they are forced to provide customers what they want how are they to ration?