Tag: Costs

The Insanity of Health Care Pricing, aka Alice in Medical Land

Mar 1, 2011• 6

By DAVID E. WILLIAMS

One of the interesting things I learned in business school is that not only is it typical for a business to earn 80 percent of its profits from 20 percent of its customers, but that 75 percent of its customers may represent 120 percent of its profit. In other words, not only are some customers more profitable than others, but a fair fraction of the customer base is unprofitable. This kind of pattern is evident in a normal (i.e., non-health care) business. The main drivers are usually cost of customer acquisition and cost to serve. For example, some customers demand a lot more service than others and some customers that cost a lot to bring on only buy once. Price is usually a secondary factor, with more powerful or shrewder customers negotiating discounts.

Once businesses understand their true costs and profitability by customer segment they can take steps to improve profitability. For example, if customers recruited through advertising on Facebook are unprofitable, the company can advertise elsewhere. If some customers use a lot of service, the company can start charging for service explicitly.

Health care is a lot weirder than that, as Ambulance-Bill Chasing in the Sunday Boston Globe Magazine illustrates. A non-health care person wrote about how he tried to understand the bills for his mother’s ambulance rides to and from the hospital. The more he dug, the more bewildered he became:

As a reporter, I’m used to dealing with complex material, but this drive down one of the countless, curvy roads that merge into the Health Cost Superhighway left me both more informed and more confused. Maybe it really is easier to remain clueless and indifferent about our medical bills. The alternative, as a friend who has spent decades in the health care trenches told me, is “to be clueless and terrified.”Continue reading…

Getting an Estimate

Feb 18, 2011• 21

By MONTE JAFFE

A couple of years ago my primary care physician suggested that I have a colonoscopy at the age of 47. My father died from Hodgkin’s disease at 34 and my mom survived breast cancer in her 40’s. I suffer from irritable bowel syndrome so she suggested that I have my colon checked out just in case. She recommended a very experienced gastroenterologist at a major Boston hospital.

My insurance would not cover the procedure because I am younger than 50, so I called the hospital to investigate how much it would cost me to have the procedure. Their first answer was that they did not know because no one had ever called in with that question before. This is a hospital which probably does more than one thousand of these every year.

I was transferred to someone else who was more helpful. She said it would depend quite a bit on what they discovered while I was undergoing the colonoscopy, but gave me a range of $2,000 to $4,500. I asked if there would be other charges and she said that the physician screening could cost $770 or more.Continue reading…

Not Colon Cancer

Jan 19, 2011• 22

By DAVIS LIU, MD

My mother’s oncologist ordered the blood test, carcinoembryonic antigen (CEA), to check for the recurrence of colon cancer. The good news was that there was no evidence of recurrence. The bad news was that she didn’t have colon cancer.

She had breast cancer.

Though she was feeling better, the chemotherapy and radiation had taken its toll. For the past couple of months, she had experienced constant nausea and vomiting. During and after treatment, her hands and feet felt like they were on fire. Many times she wanted to give up and quit. Yet she persevered and felt emotionally stronger after the ordeal. She started to feel like herself again. Life began to have some normalcy. Until an insurance bill appeared asking for hundreds of dollars.

Apparently over the past year, her oncologist had routinely ordered the CEA test multiple times as part of her cancer follow-up. When she called to contest the charge, the insurer told her to talk to her doctor. She didn’t know this test was unnecessary until the bill. And until she called me, her son, a primary care doctor.

She asked her oncologist about the repeated blood tests. He simply shrugged. No apologies. No explanation. No acknowledgment of the error. Didn’t he get the lab results of the CEA? Shouldn’t he have been aware that the test was not relevant for her care?

Hospitalist Co-Management Of Neurosurgery Patients

Dec 24, 2010• 3

By ROBERT WACHTER, MD

In this month’s Archives of Internal Medicine, my colleagues and I report the results of our early experience with hospitalist co-management of neurosurgery patients. We found stratospheric satisfaction among neurosurgeons and nurses, as well as impressive cost reductions ($1400/admission). At the same time, there was no impact on quality or safety, at least as judged by hard end-points such as mortality and readmission rates.

While these results might seem like a mixed bag, I believe that the overall impact of this service has been fantastic, for patients, surgeons, and our own hospitalists. Let me explain, beginning with a brief history of hospitalist co-management, folding in the history of our neurosurgery co-management effort (which we call the “Co-Management with Neurosurgery Service”, or CNS), and ending with some of the more subtle outcomes that lead me to feel that this is one of the most important things our hospitalist program has done since its inception in 1995.

A Brief History of Co-Management

When the hospitalist field took off in the mid-1990s, we projected that its growth would largely reflect the degree to which hospitalists assumed the care of inpatient internal medicine (and later, pediatrics) patients: those with pneumonia, heart failure, sepsis, GI bleed, and the like. Sure, I recognized that there would be increased opportunities for traditional medical consultation – we come when you call us – but I completely underestimated the siren call of co-management.

It turns out that once there are hospitalists in the house, the notion of having them actively co-manage surgical patients is hard to resist, for several reasons. First, many of the problems such patients experience before and after surgery are really medical, not surgical. Secondly, just as a hospitalist can provide on-site availability that the primary care physician can’t match for medical patients, he or she can do the same for surgical patients. (In this case, it’s not that the primary care doc is stuck in the office, but rather the surgeon is stuck in the OR.) Third, in an era of more widespread quality measurement and reporting, it seems likely that a hospitalist will improve quality measures such as DVT prophylaxis and evidence-based management of CHF more than a surgeon, flying solo, would be able to.

Sticker Shock

Dec 13, 2010• 18

By GRAYSON WHEATLEY, MD

It was supposed to be a routine office visit for my patient. Unexpectedly, it turned into a real-world health economics lesson for me, the treating physician. The old adage “listen to your patients; they will always give you the answer” became exceedingly true in this case, even when it dealt with an issue beyond a medical diagnosis, such as lack of transparency regarding insurance coverage for medical procedures.

My patient had recently undergone an interventional procedure to treat severe peripheral vascular disease in order to improve his leg circulation. Usually, patients like him don’t seek treatment for vascular insufficiency until the discomfort associated with activity, or claudication, is severe enough to interfere with their regular rounds of golf. That is the real motivator for these patients. The procedure was a success and a few days following the procedure he was back to his normal activities and was pleased that his leg no longer bothered him as he motored around the golf course.

My patient calmly waited until after I checked his pulses, reviewed his medications and gave him a plan for follow-up before he expressed his real concern, and it certainly wasn’t about whether he could now get an extra 20 yards on his tee shot as a result of the new strength in his leg. Despite my office obtaining all the necessary private insurance pre-authorizations for the interventional procedure, he still had received a bill for approximately $10,000 related to out-of-network charges. I was baffled and my patient was disgruntled about this mix-up. After reviewing with him in the examination room the numerous sheets of paper he had received from his insurance company, it became clear what had happened.

Bending the Curve, Beginning with Birth

Dec 9, 2010• 4

By AMY M. ROMANO

As I prepare for next week’s webinar on payment reform to align incentives with quality, I have been thinking a lot about how we pay for maternity care in this country, and the opportunities to rein in costs while improving the quality of care. I have concluded that we face both an unprecedented opportunity and an unprecedented responsibility to get serious about maternity care payment reform.

Pregnancy, childbirth, and newborn care are collectively the most common and expensive hospital conditions billed to both Medicaid and private insurers. The national hospital bill for maternity care totaled $98 billion in 2008 – and no other condition came close to this figure. (See more facts about costs on Childbirth Connection’s updated Facts and Figures page), With states across the country facing budget crises, strategies that responsibly reduce the Medicaid bill for births ought to be on the table, especially if we can do so while simultaneously improving quality. (More on that in a minute.)

What are the arguments for payment reform? They fall into a few categories:

We’re paying too much
Incentives and idiosyncrasies built into the current system virtually guarantee that we’ll continue to pay too much
The payment system offers no accountability whatsoever for providing high quality care. In fact, it incents poor quality care.

Although maternity care seems to have been off the radar of those debating strategies to bend the cost curve, that seems to be changing. A flurry of recent articles and reports have demonstrated the points above:

The Libertarian Mind

Dec 3, 2010• 9

By RONALD PIES, MD

“It is an eternal obligation toward the human being not to let him suffer from hunger when one has a chance of coming to his assistance.” –Simone Weil

Libertarianism is much in the news these days, as the political divide in the U.S. seems to widen almost before our eyes. Before providing a rough, notional definition of “libertarianism”, I should offer readers some caveats. First, I am not a political scientist, professional philosopher, or economist, though scholars in these fields have offered many pointed critiques of what is loosely called libertarianism (see references). Furthermore, as a psychiatrist, I am trained to diagnose individuals whom I have professionally examined. I am not in the habit of “diagnosing” movements, ideologies, or political groups; indeed, the idea of doing so is clearly outside the purview of medical or psychiatric practice.

Nonetheless, as a lecturer on bioethics and humanities, it is impossible for me to read the platform and proclamations of the Libertarian Party without drawing some tentative conclusions as regards the nature of this movement; its psychological underpinnings; and its ethical implications for the poorest and sickest among us—those sometimes referred to as “the destitute sick.”

I do not propose to “psychoanalyze” particular individuals, or to speculate on the motives of political figures who figure prominently in American politics. And, because the term “libertarian” has such a wide range of meanings, I will focus my attention on the official platform of the Libertarian party, which is very lucidly spelled out in a publicly-available venue (http://www.lp.org/platform). For the most part, I will deal with the Libertarian party’s position on health care and social support systems, while offering some tentative impressions on the “psychology” of libertarian theory.Continue reading…

The Ryan/Rivlin Plan

Nov 29, 2010

By JOHN GOODMAN, PhD

Congressman Paul Ryan (R-WI) and Alice Rivlin, former director of the Congressional Budget Office (CBO), have proposed an entitlement spending reform plan that is striking both for its boldness and its left-right-coming-together origins. There are a number of interesting parts, but I want to focus on the three most important:

Medicare would, for the first time, be transformed into rational insurance. Beginning in 2013, all enrollees would be protected by a $6,000 cap on out-of-pocket expenses; in return they would pay for more small expenses on their own.
After a decade, people newly eligible for Medicare would receive a voucher to purchase private insurance instead. The value of the voucher would grow at the rate of growth of GDP plus 1% (note: for the past four decades, health care spending per capita nationwide has been growing at about GDP growth plus 2%).
Medicaid would be turned into annual block grants to the states. The value of the block grants would also grow at GDP growth plus 1%.

Bottom line verdict: This is a good proposal that deserves serious attention. To guarantee its success, however, more needs to be done to (1) allow the private sector to control costs through economic incentives, competition and entrepreneurship and (2) allow young people to save for the growing share of expenses they will be expected to bear.

How Does This Plan Compare with the Affordable Care Act (ACA)? Given that Ryan has been previously attacked by Paul Krugman and others on the left because of his ideas about voucherizing Medicare, a natural question arises. How does the Ryan/Rivlin slowdown in Medicare spending compare to the health reform bill Congress passed last spring — a bill supported by some of the very people attacking Ryan?

“Don’t Litigate, Innovate.”

Nov 29, 2010

By ROBERT LASZEWSKI

What if a Republican governor and a Republican legislature had the ability to implement their version of health insurance reform and the federal government would have to pay for it? It’s a great idea. And I’m thrilled to say that a bi-partisan bill has already been introduced in the Senate by Ron Wyden, D-Ore., and Scott Brown, R-Mass., that would help facilitate exactly this end.

First, let’s review section 1332 of The Patient Protection and Affordable Care Act to realize how states are already — at least eventually — given the ability to innovate in this manner. Here is a simplified summary:

A state may apply to the Health and Human Services secretary for a waiver of all or any requirements with respect to the insurance exchanges, mandates, and subsidies with respect to health insurance coverage within that state for plan years beginning on or after January 1, 2017.
The secretary has to provide for an alternative means by which the aggregate amount of the tax credits and subsidies, which would have been paid on behalf of participants in the exchanges, would instead be paid to the state for purposes of implementing their own version of the law.
The secretary may grant a request for a waiver only if the secretary determines that the state plan will provide coverage that is at least as comprehensive as the coverage defined under the new law and offered through similar exchanges established by the states.

The $6-an-Hour Health Minimum Wage

Nov 8, 2010• 7

By JOHN GOODMAN, PhD

The stunning election results will put even more pressure on Congress to deal with the economy and jobs when it reconvenes in mid-November. But as it turns out, one way to boost the economy is to reconsider the health reform bill.

Most people intuitively know that the worst thing government can do in the middle of the deepest recession in 70 years is enact policies that increase the expected cost of labor. Yet that is exactly what happened last spring, with the passage of the Affordable Care Act (ACA).

How bad is it? As I explained at my own blog the other day, right now we’re estimating the cost of the minimum benefit package that everyone will be required to have at $4,750 for individuals and $12,250 for families. That translates into a minimum health benefit of $2.28 an hour for full time workers (individual coverage) and $5.89 an hour (family coverage) for fulltime employees.

Granted, the law does not specify how much of the premium must be paid by the employer versus the employee — other than a government requirement that the employee’s share cannot exceed 9.5% of family income for low- and moderate-income workers and an industry rule of thumb that employers must pick up at least 50% of the tab. But the economic effects are the same, regardless of who writes the checks.

In four years’ time, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour or about $27,331 a year. (I think you can see already that no one is going to want to hire low-wage workers with families.)Continue reading…