Healthcare providers, medical institutions, local pharmacies and pharmaceutical companies generally set the price of their products/services well above the payment they expect to receive from all insurers. These healthcare vendors set their fee schedule at 150%, 200% or 1,000% of the maximum payment they expect to receive from their most generous payor.
Here in Massachusetts, when a healthcare product or service is consumed and the patient has health insurance, the vendor submits a bill to the insurance company who specifies the “allowed fee,” which is considerably less than the “billed fee,” and the vendor “writes off” the balance of the “billed fee” from their books.
For example, I recently had some blood tests done at Quest Diagnostics. Quest Diagnostics sent a bill to my insurance company for $660. The “allowed payment” was $110, so Quest wrote-off $550 and the “allowed payment” of $110 was divided between me and my insurance company.
In my practice, where the fee schedule is created by my hospital, the “billed fee” for a level 3 follow-up office visit is about $230. The actual payment received from various insurance companies range from $62 to $164.
The “cash price” for many medications at a patient’s local pharmacy is also far above the amount the pharmacy expects to receive from any insurance company. For example, the cash price for Viagra is about $60/pill but the agreed reimbursement rate, between the local pharmacy and the insurance company, is about $10/pill. The same is true for many other medicines.
As the healthcare vendors’ fee schedules do not closely mimic the actual “competitive market rates,” patients who have either no health insurance or poor quality health insurance are required to pay outlandish medical bills. In this regard, “capitalism” has failed to bring down the price of healthcare services.
In August 2012, Massachusetts created the Health Policy Commission, which set a targeted maximum rate of rise of healthcare spending in Massachusetts. The Commission was to cajole healthcare providers into staying within this limit. In 2015 the Bill seemed to have some effect as the rise in healthcare spending dropped from 4.2% (2014) to 3.9% (2015), although it was greater than the targeted rate of rise of 3.65%. Some argued that this data was proof that the law was having its intended effect as the Massachusetts rate of rise of healthcare spending was lower than the national average (4.9%), lower than the prior year and statistically close to the allowed limit.
I believe that the existing exorbitant (and market disconnected) fee schedules in the Massachusetts healthcare market may be one reason why this law has not been as effective as its designers had hoped. Although there are restrictions which specify how fast the cost of healthcare spending can rise for a medical group/vendor, the fee schedule for specific services/products is so far above the payments received in the prior year that it will take decades before the “billed fee” schedule closely approximates the “allowed payment” fees set by the insurance companies. This huge disparity between the “billed fee” and “allowed payment” will make it more likely that healthcare spending will continue to rise more rapidly than permitted by the Massachusetts Health Policy Commission.
One way to mitigate the rising healthcare spending in Massachusetts might be to prohibit providers of healthcare services/products from setting their fee schedule higher then say 3.65% above the maximum payment they had received from an insurance company in the previous calendar year.
While some will argue that this flies in the face of capitalism, nobody will argue that the cost of healthcare spending is out of control and we must stem the rise in healthcare spending long before it consumes the entire discretionary Federal budget, bankrupts the public and makes our products fiscally noncompetitive around the world. Thus, this restriction on “fee schedules” might be a “healthcare economic experiment” we want to consider trying in a few in states.