I’m reading an online article titled Shopping for Surgery-Finding Prices Not Easy
It seems that people with a high deductible health plan are shocked when they receive health care and actually have to pay the deductible out-of-pocket. It is pretty much a given that if you are going in the hospital for any reason, even for an out-patient procedure you are going to incur charges that exceed your deductible … notice I haven’t even considered what that deductible may be because it doesn’t matter.
Proponents of high deductible health plans say they will cause patients, now designated as consumers, to more prudently shop for health care based on price. I don’t buy that, but that’s another story. As the article notes, there is no realistic way for a patient to get the pricing information in advance. First, because there are a number of variables that will affect cost such as unique situations affecting the patient, complications, etc. However, let’s assume the billed charge for procedure A is $10,000 for the hospital, $5,000 for the surgeon and $1,200 for anesthesia. That means the total cost is $16,200, right? Wrong!
The actual cost is the negotiated fee that each of these providers has agreed to accept from your insurance company, except in the case of the anesthesiologist because this speciality is notorious for not participating in insurance plans but rather billing the full charge. The negotiated fee that providers accept is based in large part on the clout your insurer has in the market; the more customers it has and therefore the more patients it brings to providers, the better its ability to negotiate lower fee payments.
So, even with the call for more transparency in health care costs, your chances of learning the actual cost of your procedure in advance within the existing system is minimal.
NOTE: To say patients don’t know the cost of care is not entirely true. While initially after the fact, patients do learn the billed charge and the allowed fee along with their responsibility via the explanation of benefits (EOB) issued by insurance companies and Medicare. A cursory review of an EOB reveals the tremendous difference between the billed charge and the negotiated fee or in the case of Medicare the set fee allowed. This begs the question we initially asked, what does health care actually cost?
Before we discuss an alternative, let’s throw another factor in the equation; quality. After all, Obamacare is all about making health care affordable and raising the quality of the care we receive and who can argue with that?
Assume for a moment that pricing is fully transparent. You know the cost for the procedure you face is $15,000 for providers A, $18,000 for providers B and $23,000 for providers C. Being a fully informed consumer you visit healthcare.gov to assess the quality ratings available (which are limited and mostly self-reported for hospitals and virtually non-existent for physicians).
Nevertheless, you find a few reported items for hospital A (infection and readmission rates) that concern you. Hospital B is average in its ratings and hospital C receives 5 stars. So, are you a Macy’s shopper or a Nordstrom shopper? And by the way, based on the recommendations of a few close friends who are patients of doctor B, she is the best! And did I mention that hospital C is twenty miles away and doctor B does not have admitting privileges there.
Shop away! But seriously if you are looking to buy a new Sony TV, it really doesn’t matter if you buy it at Costco or BJ’s or Macy’s or Best Buy. The only variable is price, the quality of the product is the same. This is not the case with health care.
About that alternative I mentioned, I hope I demonstrated that the idea patients can be cost conscious, quality seeking consumers within our current system is an illusion. Even if we are successful in promoting full bundling of costs by procedure, we are still left with the negotiated fee issue, so how about this (which I have mentioned before).
We throw out the entire concept of negotiated fees and participating providers and replace it with a fee schedule for each procedure (shades of the 1960s). Patients know that their insurer will pay $2,000 for an appendectomy as an example. Physicians are free to charge what they want (although clearly few will charge less than $2,000). The patient only has to ask what it will cost them above the $2,000. Physicians who want to attract and retain patients will stay at or near the scheduled payment and smart ones will post their fees for all to see. Patients who perceive value in paying a higher fee are free to do so. The fee schedule will be periodically adjusted for general inflation. Hospitals and other providers would be handled in a similar manner.
An even better idea is to have a common fee schedule for all insurers and third-party administrators in an area pushing the onus for pricing on providers and patients. Insurers would compete on such things as customer service, ancillary services and the reflected premiums which would go down by eliminating all the costs associated with developing and maintaining provider networks.
Related articles
- The biggest question no one is asking in health care (outofpocket.com)
- Opening Up Big Data is the Big Solution to Curing Health Care Ills, according to Kauffman Report (kauffman.org)
QUINNSCOMMENTARY 
my note to Aaron Carroll (health economist/researcher who shares your opinion):
Thanks for the article. As a person with 35+ years in corporate employee benefits, it is clear to me that most people miss the point. Done right, an HDHP can be effective if you approach individuals to encourage a change in habits while the individual is a consumer. Unfortunately, few plans focus on this, most people are too busy watching dancing with the stars, and too many plans don’t incorporate reference pricing and associated guidance.
You see this in the many individuals who still fail to use 100% preventive services that are not subject to the deductible.
You see this in the millions of HSA-Qualifying HDHPparticipants who fail to change their savings habit, continue to live payday to payday, and don’t accumulate assets in a HSA.
If you wait until they are a patient, they revert to (maintain) a high degree of inelasticity and urgency in terms of demand and provider selection. Separately, once they are a patient, unless the deductible and out of pocket are size able, expect them to revert to old habits once the deductible and/or out of pocket is satisfied.
I will say that reference pricing coupled with out of network scheduled benefits definitely changed dental coverage utilization when we implemented that in the late 1990’s – over strong resistance from dental TPA’s.
I went to PT yesterday. I asked about price, having selected the practitioner based on a referral after ankle surgery. It did surprise the intake folks (as I have yet to satisfy my 2016 HDHP deductible).
Sent from my iPad
LikeLike
I simply cannot see how people who are sick or aiding others who are will ever place price shopping ahead of health concerns and treatment. They can’t be objective except perhaps regards generic drugs.
Besides, as you can see there are many Americans who buy into the Sanders “free” health care nonsense.
I think the better approach is to go back to the fee schedule. The patient knows in advance their plan will pay $x and the providers know it too. Eventually providers will start to compete especially if we eliminate networks at the same time.
The question should be not why didn’t my insurance pay more, but why can’t the doctor charge less.
Of course, none of this matters unless we get utilization right too.
LikeLike
Ever qualify for a member “discount” – AARP, AAA, etc.?
Similar here, just that the prices are much higher. Not the same as a grocery store. Not the same as a new/used car lot.
As I said, consumerism can work where there is a known pricing difference and where there is no urgency in deciding. Think maintenance drugs, or predictable dental, or wellness.
Consumerism won’t ever work so long as “price is not a consideration” due to 3rd party payor processes, or, with regard to utilization, so long as point of purchase differentials are minimal in comparison to the medical issues presented.
LikeLike
It will only be effective when the situation allows one to be detached and objective and I don’t see that ever happening when serious (and expensive) illness is involved. I agree about the examples you mention, but that is skirting around the edges of real costs.
Look at the flap over OOP costs under Obamacare. People can’t even equate OOP with reduced premiums.
I’m guessing most people would be quite happy with a payroll tax and nothing more to pay for regardless of the actual overall cost or inefficiency.
LikeLike
Dick, thought you would be interested in the following. As I always say, individuals are consumers until such time as they or a loved one becomes a patient. Then, the thought of reasoned consideration and analysis – weighing the cost benefit of various alternative treatment becomes impractical and impossible.
However, where we are not in crisis mode, empirical analysis does suggest that people with consumer-driven health plans are able to achieve cuts in health spending while retaining quality care.
• In 2011, about 17 percent of Americans that were covered by their employers were enrolled in a consumer-directed health plan.
• Families that switched to a consumer-directed health plan spent an average of 21 percent less on health care.
• Two-thirds of savings came from the fact that there were fewer episodes of care; the other one-third came from less spending per episode.
• If enrollment in consumer-directed plans increased to 50 percent, there would be an annual savings of $57 billion.
Enrollees in these health plans used less expensive goods and services, like fewer visits to specialists or using fewer brand-name drugs. Furthermore, these enrollees cut back on high-value preventive care, despite the fact that most preventative testing is fully covered by consumer-directed health plans.
Note the analysis only looks at the first year results, so there is likely a lot of selection (where people are offered choices – and it is possible that the savings are even greater in later years, or that the savings are overcome by greater future costs due to the lack of seeking treatment on a timely/preventive basis.
See: “Skin in the Game: How Consumer-Directed Plans Affect the Cost and Use of Health Care,” RAND Corporation, 2012
. http://www.rand.org/pubs/research_briefs/RB9672/index1.html
LikeLike
I share your view. I am not convinced that patients can be consumers nor should they be. Until we have a large non choice group in a HDHP environment over a long period I remain skeptical. I also do not believe these plans affect the cost per encounter, but for routine care may very well affect the number of visits.
LikeLike