Sunday, July 15, 2018

Cross subsidies again -- hip replacement edition

From the Wall Street Journal, a familiar story of medical pricing mischief:
Michael Frank...had his left hip replaced in 2015. The Manhattan hospital charged roughly $140,000. The insurance company paid a discounted rate of about $76,000, and his share—a 10% copay, plus a couple of uncovered expenses—was a bit more than $8,000. 
The author, Steve Cohen
I’d recently had two hips replaced, six months apart, at the same hospital that had treated him....the hospital had charged $175,000 for my right hip and $180,000 for the left. The insurance company had paid discounted rates of $75,000 and $77,000. 
The usual picture is a huge sticker price, an "insurance discount" and Medicare and Medicaid paying even less than that. I googled around a bit looking for the latter numbers, which I didn't find but I did find here a nice study of cost variation
The average typical cost for a total knee replacement procedure was $31,124 in 64 markets that were studied. However, it could cost as little as $11,317 in Montgomery, Alabama, and as high as $69,654 in New York, New York. Within a market, extreme cost variation also exists. In Dallas, Texas, a knee replacement could cost between $16,772 and $61,585 (267 percent cost variation) depending on the hospital. 
Similar trends also were seen for the average typical cost for a total hip replacement procedure, which averaged $30,124. However, it could cost as little as $11,327 in Birmingham, Alabama, and as much as $73,987 in Boston,5 Massachusetts, which had the greatest variance within a given market, with costs as low as $17,910 (313 percent cost variation). 
These are, I think, insurance costs not the above sticker prices. Also from the LA times,
New Medicare data show that Inglewood's Centinela Hospital Medical Center billed the federal program $237,063, on average, for joint replacement surgery in 2013. That was the highest charge nationwide. And it's six times what Kaiser Permanente billed Medicare eight miles away at its West L.A. hospital. Kaiser billed $39,059, on average, and Medicare paid $12,457. The federal program also paid a fraction of Centinela's bill -- an average of $17,609 for these procedures.
That does give some sense that Medicare is paying even less than private insurers.

Economics

What's going on here? Observations:

1) This market is grotesquely uncompetitive. In any competitive market, suppliers bombard you with price information to get you to shop, and prices are driven to something like cost. Airlines don't need a government run nonprofit to disclose how much they charge. There is not just massive price-based competition for flights, there is massive competition for price-shopping services -- google flights vs. orbitz vs. kayay vs. priceline vs. expedia and so on.

2) The insane list price, the insurance discount of about half, and medicare paying about half that is telling. You would expect a cash discount. There are people with $30k to spend, insurance that doesn't cover hip surgery, and hospitals should be jumping to serve them, cash and carry, no paperwork. There are plenty of people with that kind of money to spend on cosmetic surgery.

The clearest sign of pathology in US health care is that the cash market is dead. Even if you have the money, you must have an insurer to negotiate the "insurance discount."

I suspect that in fact if you go to the hospital and say you're paying cash and negotiate, you can get a much better deal. So long as you don't let anyone else know what you're paying. But even that is no defense. You don't have to go visit airline offices and negotiate one on one for a ticket to New York. Competitive businesses chase after their cash customers. And people with $30k to spend on hip replacements don't want to spend weeks negotiating.

Why don't they advertise? Hospitals cannot publicly say what the cash price is. If they did, insurance would demand that price too and the cross subsidies would vanish.

The quoted price is a fiction. It allows hospitals to declare lots of charity care when they treat uninsured people with no money at all. But more importantly, it gives them a great starting point for a one-on-one ex-post negotiation for the unwary.

As in "cross subsidies," we have an immense scheme of cross-subsidies going on, in which private insurance at $70k overpays compared to Medicare, and the hospital is left free to fleece the unwary with outrageous $140k bills. Cross subsidies cannot withstand competition.

3) The huge price variation gives some sense how wasteful the system is. In addition to the obvious variation across hospitals in a given town, variation across cities is telling.

Google flights shows $591 for a first class ticket from New York to Birmingham Alabama, and the most expensive hotel I can find there is $177 per night. Why not fly to Alabama? Well, of course, insured patients are insured. And insurance is, per law, state based, so Alabama is out of network!

Regulations 

The government needs to do something about this, right? Steve mentions one apparently failed effort,
In 2009, New York’s then-attorney general, Andrew Cuomo, announced the creation of a nonprofit organization called FAIR Health. Its mandate is to provide consumers accurate pricing information for all kinds of medical services. 
I found the FAIR Health website and queried its database. It reported that the out-of-network price for a hip replacement in Manhattan was $72,656, close to what Mr. Frank’s and my insurance companies had paid. The problem: We were both in-network, and FAIR Health estimated that cost as only $29,162. 
I never did figure out the reason for the difference in pricing—but somebody ought to.
The second natural response, which we hear over and over, is that the government needs to pass rules mandating price disclosure. But what happens when the government forces price disclosure and companies (evidently) don't want to tell customers what the price is? Well, there are rules mandating price disclosure for hotel rooms, which must be posted on the door of the hotel room.



Yet on the hotel's website,

Well, that regulation is working great isn't it.

It's easy to jump to the conclusion that people need more skin in the game, greater copays, greater incentive to shop. But the real problem is lack of supply competition. Incentive to shop is no good if you can't find out what things actually cost.

The problem is that hospitals don't want to tell you the price to attract your business. They don't want to because they don't have to, because they are protected from competition.

Hotels do want to tell you the real price. Until hospitals do too, they will find their way around disclosure regulations too. It's easy to post phony prices and wink that nobody actually pays that price.  Hospitals already do that when forced to disclose by stating huge prices and then offering insurers bundle discounts separated from the individual bill. 

36 comments:

  1. Another half-assed story by someone who doesn't understand how the whole crooked system works.

    There are pockets of transparency - as usual with doctors in the forefront - the same group whose input is consistently ignored unless it comes from establishment AMA whores or academic fools like Zeke Emmanuel.

    As an example of the ignorance in this article, please see www.houstonphysicianshospital.com/pricing/ where the hospital - 85% physician-owned - advertises cash prices, or my own site directpaypain.com where I advertise my cash prices. Both HPH and my office will check your benefits and give you their best estimate up front as to what your cost will be - insurance or no insurance. While you're at it, try to figure out why Medicare pays a hospital more than an ASC, which is paid more than I get in the office for the same procedure. There's an example on my web site.

    I'm so sick and tired of this media garbage. There is some jerk from a think tank who occasionally writes for Forbes on health care. He didn't believe insurance companies had gag clauses in physician contracts until I sent him a copy of of of mine.



    Stupid, ignorant and doing absolutely nothing good to solve the problem. Try talking to the people who actually have to deal with this bullshit day after day.

    ReplyDelete
    Replies
    1. Please start a hospital in Va. because there is nothing like that here

      Delete
    2. Surprised this made it through the comments filter.

      Delete
    3. We can't do that in Va because Congress outlawed building any new ohysicphy owned hospitals. We can't be trusted like HCA, which was nailed for $2 billion in Medicare fraud. The CEO of HCA went on to become governor of Florida.

      What a wonderful world!

      Frankly I'm surprised my post was allowed through too. I was angry when I wrote it but I don't regret letting the American public see how outraged physicians are.

      Delete
    4. citing two examples of price transparency in the entire USA does not prove much & doesn't seem to warrant either the insults or tone

      Delete
  2. Discriminatory pricing is legal in the US provided there is are valid economic reasons for discriminating between one customer category from another. In hospital-medical insurance discount pricing, the name of the game is the volume of patients that an insurer provides to the hospital from the insurer's insurance enrollees (the insured pool). The larger the pool of insureds, the greater the discount the insurer can command.

    As a single individual with no insurance carrier, the uninsured patient lacks the necessary heft to command a discount from the hospital, and as a result she pays the hospital's posted fee rates.

    Centers for Medicare and Medicaid Services's enrollees represent a very large pool of insured, and this coupled with legislation, puts Medicare and Medicaid patients in a different category from private insurance patients. If it weren't for the volume of patients, the discounts would be lower; if it wasn't a government agency, the requirements on the hospitals would be less stringent and revenues would be higher per individual patient.

    From a consumer surplus point of view, in the case of the Medicare/Medicaid patient, the consumer surplus is large; for the private insurance patient, the consumer surplus is not as large, but it is larger than it is for the single uninsured patient. Hence the rationale or legal support for price discrimination by patient.

    By discriminating by price, the supplier (hospital or medical practitioner) is maximizing the producer's surplus. Is this "cross-subsidization", or profit maximizing behavior? Is it morally indefensible as rent-seeking, or defensible as an acceptable inducement to private capital to provide an essential service to the population where the government is not prepared to provide commensurable public goods for the same purpose and realized outcomes?

    ReplyDelete
    Replies
    1. "As a single individual with no insurance carrier, the uninsured patient lacks the necessary heft to command a discount from the hospital, and as a result she pays the hospital's posted fee rates."

      And yet, as an uninsured patient paying cash, you can easily obtain a better price than the insurance companies (lower administrative costs, I assume).

      Delete
    2. Except for Part D. The legislation that created Medicare Part D forbids CMMS from negotiating drug prices. Way to go K Street! The biggest insurer in the country can't negotiate drug prices.

      Delete
  3. Given the present system it's impossible to have transparency unless it's Medicare (which publishes one-size-fits-all rates) or cash.

    Everything else depends on contracted rates between the insurer and the hospital/doctor and the contracted coverage between the insurer and the insured. Can anyone see the common link?

    If Aetna pays $20,000 for a procedure and United pays $19,000 but at another hospital Aetna pays $18,000 and while United pays $20,000 do you expect the hospitals to advertise their contracted rates?

    Even if you had that information, do you understand what your deductible is and how much of it is left? Do you have co-payments? Does the hospital have a contract with your insurer?

    If the hospital charges $20,000 for a procedure is that what you'll pay? No. First there will be the contractual write-off. This is huge. I had lab work done a few months ago. The lab bill was almost $500. Was I upset? No because I knew what was coming. After the contractual write-off the bill was $59. I had a $6,000 deductible so that went straight to me. But what if I'd already met the deductible? Would I pay zero? Maybe. Depending on my insurance policy I might still have a 30% co-pay.

    How do you advertise prices with so many moving parts?

    Yesterday I passed a kidney stone. I knew what my bill would be for the ER: zero, because when I recently turned 65 I got the best birthday present ever: Medicare. I bought supplemental coverage and everything was paid for, except my prescriptions. Using my Medicare Part D my out of pocket for 4 prescriptions was less than $17. Under my old Blue Cross HMO (with twice the premium) it would have been that much for one drug.

    Medical billing is incredibly complex and even professional billers get it wrong. You will NEVER have price transparency and price competition under the current system.

    ReplyDelete
  4. "It allows hospitals to declare lots of charity care when they treat uninsured people with no money at all."

    That reminds me of university pricing: declare a high list price and offer "financial aid" to get students to show their financial information. Great strategy for price discrimination. Why aren't businesses outside of education and health care able to do this? I think it may have something to do with (abuse of) goodwill that universities and hospitals have built up. Because they are viewed as serving the public interest, they can more credibly recast price discrimination into financial aid and charity.

    "[Hospitals] don't want to [tell you their true prices] because they don't have to, because they are protected from competition."

    How are they protected? (Not a rhetorical question.) Many of the cities mentioned have multiple hospitals. What are the mechanisms that allow hospitals to collude (in agreeing not to publish prices)? Could one regulatory fix be to require reporting of actual prices paid into some sort of health care transactions database? The market is not just uncompetitive; it's non-transparent.

    ReplyDelete
    Replies
    1. I think some price discrimination on the part of universities is tolerable, because students are not strictly customers but also future alumni who are expected to donate to the school and improve its prestige through their achievements. It makes sense for schools to bid against each other for promising students because they anticipate future income and prestige from high performing students.

      The current level of price discrimination is excessive, but some level of price discrimination on the part of universities is acceptable.

      Delete
  5. What's wrong with the following law?
    1) mandatory price lists for each procedure and drug.
    2) requirement that no once is allowed to pay something other than what's on the price list. This fixes the situation in your hotel example above. (Charity would be allowed, but only for individuals, not insurance companies.)
    3) Also mandate that medicare not pay more for any drug than the minimum that is charged in any first world country. (This one is not strictly needed, but I'm tired of subsidizing the rest of the world.)

    ReplyDelete
    Replies
    1. How about 4) Mandate that insurance cover treatment in Mexico and Costa Rica, Argentina and Brazil, Czech Republic and Hungary.

      Delete
  6. Hotels must post the highest price they will charge. So I assume the hotel decides what they might charge if some event drove demand way up and posts that figure. In some areas (e.g. Colorado where I live) hospitals must post some prices, though they appear to have figured out how to do it while still keeping things obscure from the couple examples I've looked at.

    I'm frustrated by the BCBS report you found. They don't say whether the "cost" numbers (should be "price") and variation are of the top line billed amount (which is fiction) or the actual amounts the hospital gets paid. In my area I've seen close to 10:1 differences in the top line charge for similar procedures (MRIs) but the insurance company pays about the same in each case.

    The problem patients have when trying to price shop is that the published price has nothing to do with the insurance negotiated price. And the hospital likely can't provide the negotiated price when they deal with hundreds or thousands of insurance plans.

    I know somebody who was finally forced to go to the doctor without insurance. He was amazed at the reasonable cash price he was charged (along the lines of insurance reimbursements) after expecting the top line billed amount.

    ReplyDelete
  7. An interesting phenomenon is in the example of South Korea where even with complete price transparency there is cross subsidizing between different types of services. Government has a monopoly on health insurance for essential medical services (providers must accept government health insurance and you cannot provide essential services at a different rate by not billing government insurance). The government has long underpaid for services and physicians and hospitals have traditionally compensated for such losses by providing other services not covered by government insurance (cosmetic procedures, MRI for chronic back pain, frequent ultrasounds during prenatal care, vitamin injections to boost energy etc). Hospitals will often make up for losses by charging higher rates for private rooms, operating food courts and providing funeral services. The government has recently announced plans to broaden covered services under government plan however this is largely opposed by physicians as the cross subsidies would disappear.

    The reasons for this seem either one of two scenarios.

    1. Governments will always "underpay" for services as they often have a monopoly or control a large proportion of demand (as in Medicare).

    2. Health services have more difficulty raising productivity and providing low cost services as there are other sources of income that can be tapped providing nonessential care.

    Often the line between essential and nonessential medical care is not clear outside of cosmetic procedures. Addressing the fears of the worried well by ordering multiple tests, doing hip replacements in obese patients although the outcomes are bad (hip pain will persist even after surgery if patient remains obese). Governments would like to pay for only services that increase health or extend life expectancy however a large part of health care extends beyond that.

    ReplyDelete
  8. The hospital system is deeper in the Federal Governments pocket than any welfare recipient. I would have no problem telling any hospital that accepts Medicare or Medicaid, or is tax exempt that it must make detailed contemporary disclosures of all of its actual billing and actual settlements.

    To cries about trade secrets, I would reply get your feet out of the Federal Trough.

    ReplyDelete
  9. I'm amazed at the 3x cost difference. That's quite typically what in a recent study in the Netherlands for a whole other type of healtcare (in- and outpatient mental care, from simple treatments to quite complex) the cost difference seems to be. I wonder if the 3x price difference is some sort of 'natural' outcome in the underlying markets.

    The thing in our case was that the governement fixs prices on some sort of simple average (but dropping mostly low outliers:: the whole thing was done by accountants). The good thing is that this works as Shleifers' yardstick competition, the not so good thing is that distributions are skewed and this gives way to higher rents, the bad thing is that it's all anonymous and insurers can't select for efficiency.

    ReplyDelete
  10. So basically they have to overcharge insured or wealthy people to make up the losses from Medicaid

    ReplyDelete
    Replies
    1. I don't understand this argument. If they can charge wealthy people a price of $x, won't they do so regardless of what Medicaid pays? The profit-maximizing price for some client is the same regardless of revenues elsewhere in the system.

      Delete
  11. Like you, I assumed that if I was willing to pay cash, I could negotiate for at least the network rate or (better yet) the Medicare rate. In the one case that mattered, I was wrong. The hospital would not negotiate. Apparently they get enough well-heeled foreign patients who will pay these outrageous rates charged to the uninsured.

    ReplyDelete
  12. Appreciate Michael Gorback's and David Roach's comments - because they point to the first elements one needs to check before discussing what is a 'competitive' market: it is not that competitors want to publish heir prices, in competitive markets with a relatively homogenous product (i.e. product quality is not a serious issue), they will be forced to publish their prices. However, the health care market has many elements that make atomistic competition almost impossible: you have 3 different hospital clients in the US, US health insured (employer-based group private, private or Medicare or Medicaid insured), non-insured US and not US-insured foreign patients). For each (and there are more subcategories) you would need to know their 'net price' with any given provider and time constraints given capacity. Michael as the med. Dr explained that nicely, since there is a wedge between price and his costs he can only partially control. But as David Roach nicely points out, it is optimal for a firm to charge the whole consumer surplus or the marginal benefit to each 'customer, and only in fully competitive markets (no asymmetry, no complicated and difficult to enforce insurance contracts, no non-profit status of hospitals obliging them to free care up to a certain not well-defined degree, no foreign superrich who is asking for more than simply a hip replacement - luxury suite with special native language attention, and the many more circumstances leading to higher and lower gross and net prices, ....) will the firm not be able to accomplish at least part of that. However, the tendency is to quote a high sticker price, and when perceived as necessary to negotiate the actual price down to what the patient can pay, either without and sometimes even with insurance. Transparency will help, but is actually in itself complicated. The deals US insurers have with providers makes it necessary for persons living in the US to be insured, or one has to pursue the free and/or negotiated care route (which just may take too long in cases of an emergency). Federal, state and sometimes municipalities determine the regulation or more broadly the legal framework under which competition can happen. The resulting system in the US is certainly the most complex and least transparent for the patient that I have encountered, and by many measures the least efficient to deliver basic health outcomes for its overall population: however, the super rich can get some of the most advanced treatments here. MDs have to employ an army of help to get reimbursed or treatment approval compared to most other countries, even though for the few approved the waiting line may indeed then be shorter. Thus, the patients' net price is not the sticker price. -- Airline prices and hotel prices are better published, but they are also known for trying to extract the consumer surplus - given capacity and time demands, overall demand and demand for their services given the quality of their service). - We all know as consumers that most those advertised prices are gone unless we are extremely flexible about when, how many stops and whatever other attribute can make the seat indeed that cheap - an airline or hotel will sell below cost, if that helps to cover variable cost (i.e. marginal costs are virtually zero, when short-term you have a fixed supply of seats / rooms (or 'hospital beds'). The price schedule to share with potential patients would be very complicated indeed. Getting closer to transparency similar to airlines / hotels would surely be desirable - but these are always price schedules holding for a certain short period, and hardly provide full transparency, sometimes may even be misleading! A hip surgery in India - let's start to compare?

    ReplyDelete
  13. Lack of competition among suppliers makes for cross-subsidies. By contrast. Veterinary competition in our small town of some 16,000 is robust. There are no less than 16 animal clinics in a 20 mile radius. Prices are posted and compared to competing vet clinics in the area. Veterinary school is a four-year degree program. The general licensing exam for veterinarians is the North American Veterinary Licensing Examination. The average pass rates for University of Georgia veterinary students was 96% for the last twelve tests. Some pet owners buy insurance, but most of the transactions are non-insurance. Recently VCA bought a clinic I used for years. They raised all prices by 15% and I found several clinics that did not raise prices and engaged their services. Our current vet asked me if I served in the military. I showed her my DD 214 and received a 10% discount on all services.

    ReplyDelete
    Replies
    1. Meant to post as David Seltzer

      Delete
  14. I agree with the overarching point: (1) increased supply would improve the medical services market, but (2) excessive/foolish regulation prevents this from happening, and (3) one consequence is comical price discrimination in hip replacement. However I have a very different understanding of precisely WHERE the supply choke point referenced in item (2) is actually occurring.

    The article is implying a meaningful supply choke point at the hospital level, as demonstrated by highly variable/opaque pricing. But I think in reality hospitals operate in a fairly robust competitive environment (at least in more populated areas), and offer transparent pricing that is arduously negotiated up front. The disconnect seems to be that you think the PATIENT is a hospital's customer whereas, in reality, it is the INSURER. So while I might have zero clue what a procedure will cost and who charges a fair price for it, you can sure bet that UnitedHealth knows and negotiated the price extensively. UnitedHealth then tells me which hospitals I can visit without incurring various surcharges.

    And there's nothing inherently wrong with this set-up... car insurance works in roughly the same manner. To me the government imposed supply break-down occurs at the plan level. That's where the government restrictions weigh heaviest: plans need certain features, cannot cross state lines, you pay a tax penalty if you choose the wrong plan, your employer picks the plans you can choose from for you, starting a new plan is today is virtually impossible, etc. etc. etc. This is where the supply problems arise.

    Now to be fair, the non-competitive silliness that happens at the plan level does sometimes trickle down in weird ways to hospital level policies & pricing. But that doesn't in turn mean the hospital industry is non-competitive.... they are instead just reacting to the (often irrational) demands of their customers.

    ReplyDelete
  15. I’m pretty sure I’ve seen MGH marketing materials for international (rich) cash customers. I think they are doing battle with Mayo, probably Hopkins, etc. I don’t know if insurance deals prevent them from doing this for Americans but they aren’t dumb. When the incentives are right even a non-profit hospital like MGH will chase the $s.

    ReplyDelete
  16. A story from Stanford. I know that with the rise of coinsurance there is some semblance of a consumer incentive to shop around, but apparently it doesn't work very well.

    My fiance's primary care doctor recommended she get allergy tests at the Stanford allergy/asthma clinic. Before she goes, I check her insurance and it turns out she'll have a 20% coinsurance for this procedure, so we call to found out how much it will cost.

    The people at the billing department tell us that there is NO way to get the cost in advance, because they have to get some kind of code which depends on what the doctor orders. My fiance says "Don't people get this all the time?" The lady gets very defensive and says there's nothing she can do, but if we want we can call the doctors office. So we do that, but they tell her...and this is really incredible...that she'll have to go to the appointment, be seen by the doctor, get the code, and then call the billing department to find out how much it will cost---in the MIDDLE OF THE APPOINTMENT.

    At the appointment, my fiance asks the nurse who sees her first for the code. After trying to deflect, the nurse gets extremely upset and flustered and says "No one else ever makes us do this." My fiance keeps insisting on getting the code, calmly explaining the situation with the coinsurance, but the nurse and the secretary treat my fiance like she is freaking insane for trying to figure out how much this procedure will cost. Eventually she does get the code and finds out that it will cost $12,000! So her share is $2400. So she says that she's cancelling the tests---in the middle of the appointment---which seems to be the only recourse in this bizarre situation. This really upsets everyone, and they tell her there will be some kind of fee for cancelling.

    The next part is hilarious from an economic perspective. The doctor comes in and says he has a solution. The standard allergy test battery has like 45 mini-tests or something. However, after talking to her for three minutes about her allergies, he thinks that he can narrow it down to 4-5 mini-tests (I think each test is for one allergen). He says most of the tests are for allergens that don't even exist in California...many not even in America. Her cost will only be like $200 for this.

    When it's all over he says "Listen, this isn't that much money for us but I know you're on a budget [Not wanting to spend $2400 to find out about allergens from arctic moss is "on a budget."]. If I don't encode the results in the system there won't be any charge at all." So he just writes down all the results on yellow notebook paper and sends her on her way. She was allergic to dustmites.

    ReplyDelete
  17. How to increase competition among suppliers?

    ReplyDelete
  18. John,

    So what is your policy solution? Reference pricing?

    ReplyDelete
  19. Then there is the Surgery Center of Oklahoma. See their price list.

    ReplyDelete
  20. "So basically they have to overcharge insured or wealthy people to make up the losses from Medicaid."

    Well, maybe. All businesses have both fixed and variable costs; that is, costs they must pay even if they sell nothing, and incremental costs that are incurred when they do sell something. The ratio between these will vary greatly depending on the type of business. To take the obvious example, a software company typically has very low marginal costs because it costs them little to put your software in a box and even less to let you download it.

    In general, a business should always accept an offer that is greater than its marginal cost if the alternative is to decline that deal. Thus, if it costs a software company $1. per copy to deliver a copy of its software to you and if you've convinced them you'll buy a zillion copies at $1.10 per copy, they'd be better off taking that $1.10 than refusing the deal, even if other customers (presumably those with less negotiating power) are paying far more. BUT, at some point they still must recover their fixed costs or they'll go out of business- they just don't need to get these from every customer.

    Medical providers remain free to decline Medicare and, if they actually lost money on it, you'd expect a significant number to do just that. The bottom line, then, may be that Medicare does pay enough to at least cover marginal costs, and thus the organizations that accept it are financially better off if they take it.

    And, that's true even if these organizations would have to close if everyone were to pay what Medicare pays for substantially similar services.

    Which at the least muddies the "cross-subsidy" argument. If that software company were to license a zillion copies to government at just over its marginal costs, would government be receiving a cross-subsidy from the software publisher's other customers?

    ReplyDelete
  21. I hope that before I die I will understand the mysterious viability of the patently absurd notion that there could be such a thing as a competitive health care market. The information asymmetries are just massive. Most patients have limited or no ability to appraise the actual utility of treatments proposed to them. They take it on faith, and, surprise, surprise, constantly get sold all sorts of useless treatments (much of back surgery, knee surgery, and cataract surgery fall into this category, to name just a few of the biggest abuses). Even when dealing with providers whose business model isn't just parting fools from their money, it's often just very hard to know. Even the physicians are often quite ignorant of the real value their treatments offer: they just try to follow "standard of care" even when that standard rests on shaky, or no, real science. Look, I'm a physician, and outside my own specialty, I have enormous difficulty judging the appropriateness of treatments proposed for myself or my family. Sometimes it's impossible. If I can't do it, what chance does John Doe have?

    ReplyDelete
    Replies
    1. That "patently absurd" idea seems to work in other industries. Veterinary medicine is competitive. Car repair is competitive (and just as mysterious given today's exceedingly complex cars). Most of medicine is standardized practices and procedures, it is just as amenable to a competitive as other industries.

      Certainly there are cases where medical costs will vary depending on what is found, but that's a minority of cases. Even there, almost every other service industry is willing to give binding estimates, there's no reason this can't be done by a medical practice other than government and insurance rules.

      Delete
  22. An interesting medical insurance sub market, that some aspiring economics PHD candidate might want to analyze is the Health Sharing market. Obamacare authorized a limited number of organizations to "share" their health expenses among members by having everyone pay into the organization and have the organization reimburse the members when they have medical expenses.

    The interesting economics part of this is that each member actually acts as a cash buyer and then gets reimbursed by the Health Sharing organization. Any discount the member negotiates from a health care provider is counted against the member's personal cost responsibility (deductible).

    As a member of a health sharing group, I can tell you that medical providers are generally quite happy to give you cash prices. With just a little work, you can compare prices and choose the best price at amazing discounts. I bought a CT scan for $450 that had a list price of $3,000. Even an anesthesiologist was quite happy to discount his bill by one half when an immediate cash payment was involved (after the service had been rendered).

    So there is actually a cash market for medical services that is quite competitive .... if you look hard enough to find it(see Michael Gorback's price list). I personally think the policy prescription would be to make governmental decisions that gradually expand and nurture this cash market.

    As another example of a healthy cash market, I've found online prescription coupon sites that frequently have drug prices that are below the copay many insurance companies charge for the same prescription.

    ReplyDelete
  23. Don't ask hospitals to disclose "prices". Those are hard to define and prices are inherently variable since service is variable depending on the patient's precise condition and the presence of complications.

    Instead, ask them to disclose the historical distribution of bills to patients and insurers. Publish the 25th, 50th and 75th percentiles of total amount billed in the last year per case, by condition and complications.

    Basically, do what the Singaporean Ministry of Health does here:
    https://www.moh.gov.sg/content/moh_web/home/costs_and_financing/hospital-charges/Total-Hospital-Bills-By-condition-procedure.html

    ReplyDelete

Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.