OP-ED

Consumer-Driven Medicine’s Fatal Flaw

The possibility that the Supreme Court will strike down all or part of the Affordable Care Act has given new life to Republican calls to put market mechanisms to work in holding down health care costs. The public is certain to hear lots more about it on the campaign trail later this year.

There’s one big problem, though. Markets cannot work when consumers and patients have almost no information about the prices they pay for health care.

Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, has resuscitated his proposal to turn Medicare over to insurance carriers. Future retirees would be offered financial help to pay for policies sold through public exchanges similar to the ones set up under the health care reform law, a.k.a. Obamacare. The subsidy would be limited to the value of the second-lowest cost plan offered on the market. The idea is that over-65 consumers, who would still have the option of remaining in traditional fee-for-service Medicare, would drive down costs by forcing the plans to compete for their business by offering lower-cost alternatives.

Other Republicans and conservative think tanks are touting laws that would allow insurance carriers to sell individuals policies across state lines, which would be coupled with incentives to shift people away from employer-based coverage. Under such plans, individuals could buy catastrophic coverage for expensive hospital stays while using the savings to pay the entire cost of routine health services, just like they pay out-of-pocket now for lawyers, flat-screen TVs or the week’s groceries.

Again, the idea is that people putting up their own money will be much more likely to scrutinize the price of tests, drugs and procedures, and choose accordingly. If they comparison shop, they might even visit the provider down the street.

Where Are The Prices?

Employers are already moving in the direction of giving consumers “more skin in the game,” according to a recent survey by the Employee Benefits Research Institute. One in five Americans are already in high-deductible insurance plans, an all-time high, even though this approach is leading many to skimp on preventive services that could avoid higher health care costs down the road.

Unfortunately for the architects of such proposals, there’s a crucial element missing from their proposals, something that is necessary to make any market work: accurate and easily accessible price information for consumers. Have you ever walked into a doctor’s office and seen a price posted for all the tests, products or procedures that might be offered during your visit? At the hospital? Ever seen a price list at the local pharmacy?

The problem of price opacity in health care is not easily solved. Health care providers are more like airlines than the local Best Buy or Macy’s. They charge different patients different prices depending on who insures them. The uninsured pay the highest prices, the equivalent of a hotel rack rate.

Medicare sets prices. Medicaid patients get the lowest available price. Privately insured patients are offered differing discounts, with larger groups afforded bigger discounts than smaller groups. The prices between the groups vary wildly.

Insurance carriers frequently refuse to turn over claims data, which would enable them to compare prices between the different local providers. “One specific factor driving the high cost of healthcare is the significant price variation – sometimes more than 100 percent – for the same healthcare services in the same geographic market,” said Bobbi Coluni, senior director for consumer innovations at Thomson Reuters, in a recently issued report claiming consumers could reduce health care costs $36 billion a year with full pricing transparency.

One example offered in the report: a typical Illinois employer could save $29,000 or 33 percent off the cost of knee arthroscopy, and the patient could reduce his or her co-pays by $300, simply by switching from the highest cost to the median cost price offered by different hospitals in that employer’s area.

Yet employers are powerless to get the price data, many complain. Their insurance carriers frequently refuse to turn over claims data, which would enable them to compare prices between the different local providers and encourage their workers and families to choose the best value.

The insurers cite “proprietary information and preexisting confidentiality agreements with providers,” charged Shawn Leavitt, a benefits manager at Minneapolis-based Carlson, which owns and operates nearly 2,000 hotels and restaurants worldwide. “These excuses are a cover for health plans’ real concern: to keep health care purchasing decisions as opaque as possible to substantiate excessive administrative costs, and maintain the illusion of well-managed networks and large discounts.”

MARKETING HIGH COST HEALTH CARE

It’s not just insurers. Drug companies offer a wide array of discounts to insurers and pharmacy benefit managers. They’ve even begun offering coupons and discounts directly to consumers to keep them on branded drugs coming off patent, like the discounting recently adopted by Pfizer to keep people on Lipitor instead of switching to generic brands.

Medical device manufacturers that sell implanted heart devices, artificial knees and hips and spinal implants are also heavily into the discount game, which they couple with exorbitantly high rack rates. They negotiate different discounts with different hospitals, and then require each to sign a contract that forbids releasing pricing data to their competitors across town.

Rep. Stephen Kagan, a Democrat from Wisconsin who lost his seat in 2010 to a Tea Party-backed candidate, introduced a simple three-page bill in the last session of Congress that would end pricing secrecy in the medical industry. The “Transparency in All Health Care Pricing Act of 2010” said “any and all individuals or business entities, including hospitals, physicians, nurses, pharmacies, pharmaceutical manufacturers, dentists and the insurance entities . . . shall publicly disclose, on a continuous basis, all prices for products, services or procedures . . . at the point of purchase, in print, and on the Internet.”

Though it received one sympathetic hearing, the bill was not included in the Democrats’ health care reform legislation after intense opposition surfaced from virtually every health care provider group. No one has reintroduced the bill in the current session of Congress.

“Overly broad proposals that aim to disclose confidential pricing agreements and terms could undermine vigorous competition and have a negative impact on patients,” the Pharmaceutical Research and Manufacturers of America said this week in a prepared statement.

A spokeswoman for the American Hospital Association said the group had supported an alternative bill introduced by Rep. Michael Burgess, a Republican from Texas who is also a doctor. That legislation would have had the Agency for Healthcare Research and Quality study the question. It didn’t pass either.

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, The American Prospect, The Washington Post. This post first appeared in the The Fiscal Times. You can read more by him at GoozNews.

Livongo’s Post Ad Banner 728*90

46
Leave a Reply

20 Comment threads
26 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
14 Comment authors
Peter Rousmaniereimortal_danlouisdousBarry CarolBill Recent comment authors
newest oldest most voted
Nate Ogden
Guest
Nate Ogden

The PPACA generally prohibits annual limits on the dollar value of Essential Health Benefits, Non essential benefits can be capped. Most likely, if you have provider agreements that set that as the payment then seeking treatment from someone outside that list would be akin to going to a non ppo provider. If on the other hand you set reimbursement below what any provider would accept they would probably accuse you of setting an illegal limit on essential benefits. For someone trying to circumvent the law that would be one of the first areas to try, i don’t think HHS would… Read more »

Peter Rousmaniere
Guest
Peter Rousmaniere

Nate Ogden — can you explain your comment a few days ago:”In the old days we could just limit the liver transplant benefit to $200,000, that is illegal now.” Where does it say an insurer can;t limit the benefit? PPACA? Calpers in California pays $30,000 to hospitals for a knee or hip replacement; if the patient wants to go to a higher priced hospital, the patient has to pay the hospital above the amount. Is this illegal? Straighten me out.

imortal_dan
Guest
imortal_dan

“Have you ever walked into a doctor’s office and seen a price posted for all the tests, products or procedures that might be offered during your visit? At the hospital? Ever seen a price list at the local pharmacy?”

Have you ever asked? The reason people never ask for the real prices of the procedures/products is that they have already reviewed the “price” they pay and comparison shopped when they picked their insurance carrier. People currently pay the co-pays and make decisions on what insurance plan to buy based on that and what value they get.

Paolo
Guest
Paolo

The article is not about traditional co-pays. It’s about people with high deductible plans that have no way of knowing how much they are going to be paying before getting a service.

Barry Carol
Guest
Barry Carol

Uwe Reinhardt and others have noted that, in theory, all providers could base their fees on the Medicare fee schedule. Once Medicare determines what the value of one RBRVS unit is each year, including regional adjustments for differences in medical input costs, all providers would need to do is to post their “conversion factor” or multiple of Medicare that they charge and/or have negotiated with insurers. The same approach could presumably be used for hospital based DRG’s. The problem, as Nate alludes to, is that Medicare overpays for some procedures, underpays for others, and pays more generously for procedures than… Read more »

louisdous
Guest
louisdous

“Other Republicans and conservative think tanks are touting laws that would allow insurance carriers to sell individuals policies across state lines, which would be coupled with incentives to shift people away from employer-based coverage. Under such plans, individuals could buy catastrophic coverage for expensive hospital stays while using the savings to pay the entire cost of routine health services” Why are you conflating so many completely mutually exclusive concepts? Selling across state lines is completely different from giving an individual the same tax advantage as a company, which is completely different from offering catastrophic coverage options. I do not believe… Read more »

Barry Carol
Guest
Barry Carol

If I heard them correctly, UnitedHealth Group stated on its first quarter earnings conference call this morning that it will be adding enhancements to its web based medical cost estimator over the next several months that will include disclosure of actual provider contract reimbursement rates. They mentioned it in the context of choosing doctors but if it includes hospital costs as well, it could be a huge step in the right direction.

Nate Ogden
Guest
Nate Ogden

It would be very easy system wide to implement a Medicare based fee schedule for physician services and most of your non hospital care. Insurers would pay Medicare times X% and disclose it in the policies. This way consumers would know exactly what their insurance will pay. Providers can post we charge Medicare time X% so you know what the bill will be. If your doctor bills more then your insurance pays you would know your liable for the difference. Hopefully one of the doctors or Steve will answere this possible problem, do physicians value the difference in codes the… Read more »

Paolo
Guest
Paolo

I like your suggested standardized pricing system (seriously). There are only two numbers to remember: the multiplier of your insurance benefit and the multiplier of your health care provider.

If physicians and hospital don’t like the ratios in the Medicare baseline, they are free to propose their own baseline as long as all providers and insurers within the same region agree to it.

Barry Carol
Guest
Barry Carol

Nate – That’s a good and fair point. I think there is a lot more that employers can do, supplemented with efforts by firms like yours, to help employees better understand that healthcare spending is not just about the employee’s personal or family OOP. It should be made clear that the cost to the employer, whether self-funded or not, is part of the employee’s total compensation and the more that can be done to control inappropriate and excessive spending on healthcare, the more room there will be for raises and additional hiring to grow the business and compete in the… Read more »

Barry Carol
Guest
Barry Carol

My understanding is that the most powerful hospitals in Massachusetts originally refused to sign tiered network contracts that placed their physicians and facilities in anything other than the most preferred tier until the state legislature stepped in and made that stance illegal. I think this is a clear example of regulatory power enhancing competition. I think regulators in MA and elsewhere also need to stand up to the hospital, physician and insurance lobbies and put an end to confidentiality agreements regarding contract reimbursement rates. Individual providers could still refuse to disclose contract rates but it would be because they want… Read more »

Barry Carol
Guest
Barry Carol

I think the ability to see actual insurance company contract reimbursement rates would be even more useful to referring doctors than to patients especially for expensive hospital based procedures and care. I know that insurers think disclosure of contract rates could lead to higher prices as the lower paid hospitals clamor for higher rates while the higher paid hospitals won’t willingly lower theirs but I think it’s worth a try at least on a pilot basis. Insurers could try it in a few markets or for the 25 or 50 most common procedures in a given state. A complicating factor… Read more »

Paolo
Guest
Paolo

I completely agree. Furthermore, pricing and quality information should also be available to prospective buyers of health plans. If I have to decide between buying HDHP A and HDHP B, I want to know which one gives me access to the best provider pricing. If that information is not available, you don’t have an efficient market for high-deductible health plans.

Dr. Mike
Guest
Dr. Mike

Not trying to be disagreeable, Paolo, as you make some good points, and I understand your point given the limitations of the current system, but why should we want, in an ideal system, HDHPs tied to the prices insurance companies have worked out in their contracts? Wouldn’t it make the most sense if you could spend your HSA dollars or cash at a place that was able to give you the best price period? It is criminal that current laws prevent this from happening.

Paolo
Guest
Paolo

Yes, you are correct. In an ideal system all market players have complete information, they have equal market power, and profit converges to zero. Microeconomics 101.

However, in the real world, I don’t have the market power and pricing leverage of a large employer or insurer. Maybe some day I will be able to negotiate a better price at MGH than BCBS. But I am not counting on it. In the meanwhile I need to rely on in-network pricing negotiated by a 3rd party in order to pay less.

Nate Ogden
Guest
Nate Ogden

check your state consumer protection laws, you might be shocked exactly how much power you do have.

Nate Ogden
Guest
Nate Ogden

We need to figure out how to incentivise large claims when PPACA caps out of pocket. A recent example of a claim we have; Liver Transplant CC $300,000 Henry Ford $160,000 U of M $180,000 Some outliers and other provisions but this is roughly what we are looking at. Member is going to pay their $6000 OOP either way, what can we offer to motivate them to save the plan $120,000 or $140,000? In the old days we could just limit the liver transplant benefit to $200,000, that is illegal now. These large claims is where the most waste is… Read more »

Paolo
Guest
Paolo

Why not remove from the network any provider that charges more than $200k for a liver transplant? As a consumer, I would rather be told to go to a different provider than being stuck with a $100k bill for exceeding my limit on an in-network provider.

Nate Ogden
Guest
Nate Ogden

that would remove them for all the other services they provide as well. If you compare price or cost of hospitals they aren’t uniformly the highest.

Not sure members could handle different networks for each service.

It raised another issue though, If I can just eliminate all the providers charging over a set amount from my network then what is the point of PPACA eliminating dollar maximums? This would be a pretty good example of a law that accomplished nothing but making legit work harder to do.

Paolo
Guest
Paolo

The point is that nobody who goes to an in-network provider for a covered service gets stuck with a $100k (or more) bill. It’s OK to restrict network size. It’s OK to redirect a patient to a cheaper provider. It’s NOT OK to tell a patient that service X is covered by an in-network provider Y, and then let the patient eat all the cost when limit Z is reached.

Nate Ogden
Guest
Nate Ogden

why not? If someone wants to purchase a policy they can afford that provides 1 million in coverage why can’t they? In your scenerio what prevents someone at the end of their life spending millions on care with little to no chance of even prolonging life? Your arguing in bumper stickers, yes in an ideal world it would be nice if everyone can get everything they want but its not praticle, we need limits. We can’t afford to have people consume 30 million in healthcare by them selves. Know what else would be nice, if auto insurance covered all of… Read more »

Nate Ogden
Guest
Nate Ogden

if limits are so bad why didn’t they start with Medicare and eliminate those?

steve
Guest
steve

Amend the ACA if necessary (not so clear to me that is needed) to let this happen. If patients want the more expensive place, they should pay the difference, with some caveats. Distance should be a factor. This should also be broadened to things like prostate cancer care where you have multiple effective treatments at widely different prices.

Steve

Bill
Guest
Bill

I have “dual citizenship” in that I’m both an academic in health economics and work in the health care industry, and think I can reconcile Nate’s observations with what I’m seeing in the market today. There are a number of intermediaries out there (TPA’s, brokers, consultants) who can readily identify the costs of providers in a given geographical area based on whose contracts they fall under (e.g., what he refers to as the PPO allowable). They’re accustomed to working with historical claims dumps of de-identified data for clients as one of their principal tools to do this. Health insurance companies… Read more »

steve
Guest
steve

I have lunch with our marketing guys every now and then, mostly to trash talk sports (they think the Mets will win something some day), but we also talk business. They realize that it is very hard to move market share. Pricing makes very little difference. A pt with a newly diagnosed cancer does not go look for the cheapest care, they look for familiarity and security. The elderly man needing his knee replaced does not look for the cheapest care, he looks for the hospital that makes it easiest for his wife to come visit and make it back… Read more »

Nate Ogden
Guest
Nate Ogden

“I dont really know if transparency will work, but it will not happen in a useable, easy to find manner unless it is legislated.” What good does it do to legislate availability if you also don’t require use? This is the exact same waste of time we went through with EDI were the government legislated payors accept EDI but didn’t require anyone to use it. The transparency solutions we use have 100% of the network with no hidden prices. We don’t need the government to muddle something that already exist by legislating it, consumers just need to demand and purchase… Read more »

Dr. Mike
Guest
Dr. Mike

In discussing the ideas alluded to as potential alternatives to PPACA, the product for which the consumers need to know the price is the insurance policy, not the cost of the services for which the insurance company will be billed. Hello.

Paolo
Guest
Paolo

If the consumer buys a high-deductible plan, the consumer will be paying straight out of his pocket until he reaches the deductible. Hence the need for the consumer to do comparison shopping for the actual services.

Dr. Mike
Guest
Dr. Mike

Yes, but it is ridiculous to complain about consumer driven health care by pointing out the lack of price transparency when what will drive price transparency is more consumer driven health care. Major medical plans should be taylored to handle the big stuff (thus mostly taking hospital prices out of the equation) leaving mostly doc visits, urgent care, lab, and x-ray. If the number of patients with HSAs and HDHPs increased, there would be more demand for price lists in these areas. It may be difficult currently to find out what your knee replacements total costs are going to be,… Read more »

Paolo
Guest
Paolo

For an MRI of the knee, I can get pricing information for 17 out of 66 hospitals in the region and 16 out of 58 facilities. I can’t get pricing for the premium hospitals in the city, nor for the two suburban hospitals closest to home. And the reason given for the lack of pricing information is simply that the provider has requested not to show it.

Dr. Mike
Guest
Dr. Mike

Not sure how “I can get pricing information for 17 out of 66” translates into difficulty getting a price. Why would you get your MRI at a place that won’t tell you the price? You would in fact go to the place that did quote you a price which, in your region, is apparently 17 locations. That sounds like choice to me. In my little county of about 130,000 population, there are three MRI machines – one at the county hospital were it is difficult to get a price, one at the physician owned speciality hospital where if you ask… Read more »

Paolo
Guest
Paolo

Well yes, 17/66 is a lot better than 0/66. However, none of these 17 hospitals is near where I live, they are not known by family/friends, and they are not places where our physicians refer to by default. I am guessing that the hospitals that do disclose price are probably going to be cheaper than the hospitals that don’t. But I really don’t know for sure. I don’t know how much money I would be saving by going to one of these places. On a practical level, I’d also like to know the difference in pricing between the two (relatively… Read more »

MG
Guest
MG

Pricing transparency effects on taming healthcare costs are largely inflated for several reasons. It helps but it is far from the panacea to cure healthcare inflation that some make it out to be.

The much bigger issue is the lack of safety and quality information though regarding providers and medical equipment & drugs. Been an issue since MMA Act of 2003 was passed and will remain a huge one through 2020.

Nate Ogden
Guest
Nate Ogden

Have to disagree MG, from our block of business and clients that have done it we can cut cost 30% or more just by choosing different hospitals and prescriptions/pharmacies. The profit in Rx and hospitals is an easy double digit reduction in spending without compromising any care.

MG
Guest
MG

I would be curious to see the numbers Nate. I know that multi-tiering of pharmacy benefits along with carveouts/generic substitution have really done a lot to compress pharmacy trend spends the last few years. Just isn’t that apparent to the patient since they just pay the copay when they pick up their script at the pharmacy or get it in the mail. From what I saw if you posted hospital prices in an MSA, the decreases in rates you saw from the higher-priced AMCs and larger urban hospitals would largely be offset by the lower rates from community hospitals increasing… Read more »

Nate Ogden
Guest
Nate Ogden

We use a transparency tool in the Cincinnati, OH market. I can’t share everything due to confidentially agreements but here are the basics of a member that actually used it last month; Carpal Tunnel surgery. Zip 45248 Big name 4 star quality hospital $2502 to $3002 Big name Hospital $6153 to $7383 This is common, not always the same hospitals but the pricing spread is always 2-3 times from lowest to highest. Not sure who Ginsburg is but if he is prominent academic then that is the problem. Hospital prices are meaningless, you need to know PPO allowables. Even in… Read more »

Paolo
Guest
Paolo

I have a HDHP with a fortune 100 employer. I am financially motivated to know the price of elective procedures. The plan is administered by one of the very large insurance companies. When I use the “pricing tools” on the plan’s website this is what I get: Boston area, procedure is C-section: I get a list of 50 hospitals. There is a “price estimate” for only 8 of them. The price ranges from $3000 at a no-name hospital to $10,000 at another no-name hospital. Only one of the 8 is actually in Boston. For the big-name city hospitals there is… Read more »

Nate Ogden
Guest
Nate Ogden

Have your people contact me, we can fix that right away. If you want things done right you don’t go to a very large insurance company, they are more concerned about their relationship with their hospital then they are serving their clients that pay them.

Nate Ogden
Guest
Nate Ogden

I’ll get in trouble if I post links to all the companies and websites that prove your dated and wrong Merrill but this is a great example of what many companies are offering.

http://www.clearcosthealth.com/index.html

Share your PBM and I’ll show you where they cover the Rx part you claim doesn’t exist.

Others have also linked to where your wrong on preventive care.

Nate Ogden
Guest
Nate Ogden

Know what would be a really fun test, is for Merrill to share who his health insurance is with and which PBM he uses. I’ll bet anything of his choosing that both offer the exact information Merrill claims is not available.

I won’t hold my breath on Merrill taking the bet.