There’s something I’m curious about in the Wall Street Journal op-ed by the current AMA president and two past presidents. The authors write:
Today, Medicare already reimburses doctors less than what many of their treatments cost to provide. Now the government is saying that additional Medicare cuts are coming—thus forcing doctors to try and make up the difference in volume, by seeing more patients.
Perhaps Greg Mankiw who links favorably to the op-ed might chime in, too.
Here’s my question: how is price discovery done in healthcare? For the statement “Medicare already reimburses doctors, etc.” to be true, they must have some way of determining that. Or, alternatively, they must believe in the “true value” theory of price determination.
My underlying question is is Medicare a price support? If not, what is its relation to the non-Medicare healthcare system in terms of prices?
I don’t buy it. What is this, Hollywood accounting? Is there economies of scale for seeing elderly medicare patients? Unless there are, seeing more patients–making it up on volume–just isn’t going to work. So either the initial premise is not true, or they are making up the losses somewhere else.
From what I can tell looking at bills paid by my wife’s insurance company, her insurer pays 80% of the billed rate. I assume that is because the insurance company, one of the few competitive in this healthcare market, had the leverage to negotiate such discounts under threat of entering into such a relationship with a competing healthcare provider. So what is the price? Is it the discounted price? Or the premium price?
I’m not entirely sure it matters. I think the lesson about coupons in Econ 101 is that different consumers have different price points; the seller’s job is to figure out how to maximize all of the price points. But what is odd to me is that these sort of billing arrangements would appear to shift costs to those who are less in position to afford it.
Medicare generally pays about 80% of what private insurance pays, at least for physicians. This varies a bit with some specialties getting as little as 30%. At the 80% level that would mean a specialist ( I have the MGMA numbers in front of me) dropping from about $300k to to $240k. Primary care from about $170k to $136k assuming cuts are across the board.
I often see those who claim we need to cut costs also talk about cost shifting. If we are to cut costs, people will make less money. TBH, I am not sure why private insurance companies pay so much more than Medicare.
Steve
steve, you need to raise your rate another 20% and you’ll be fine.
(I believe my wife’s insurance is self-insurance; I didn’t see 20% across the board discounts when I was on my own business’s insurance plan)
No, it just means that doctors are making money on Medicare patients – just not as much as they’d like to be making. It also assumes that they can see more patients, which is probably true (the average Japanese doctor, for example, sees a lot more patients than the average American doctor in a day, particularly in primary care).
So either the initial premise is not true, or they are making up the losses somewhere else.
They make it up through cost-shifting, and through creative code bundling, and directly through lost revenue. Note that the initial premise is not that Medicare always pays less than provider cost for any given treatment or service, but for some. So to make up shortfalls, providers charge private-pay patients more, and find ways to up-code treatments for MCR/MCD patients into added procedures where MCR/MCD does pay a profit, or at least cost.
And it’s more complicated than just what doctors want. The primary cost-shifting originates from hospitals, and if the doctors want to practice in those hospitals and have access to their patient bases, they have to take Medicare and/or Medicaid referrals from the hospital. That doesn’t mean they have to accept new walk-in MCR/MCD patients in their private practices, and many don’t, as there’s no money/incentive in it for them until those patients get into the hospital/clinic procedure loop.
Many doctors treat money-losing MCR/MCD/uninsured patients in their private practices anyway. Many/most physicians are more interested in practicing medicine than in maximizing personal revenue. As long as they make enough money, doing some “free” or under-margin work is OK by them.
The actual level of cost-shifting varies regionally, but national estimates are that between $85 and $90 billion gets shifted onto private payers by MCR/MCD underpayments. Congress’ Medicare Payment Advisory Commission (MEDPAC) has calculated that US hospitals have lost money treating MCR/MCD patients since 2002. The “negative margin” for 2007 was estimated at -5.9% for 2007, and at -6.9% for 2008. This translates out to a total cost-shifting burden from MCR/MCD of $51B for hospitals, and $37.8B for physicians. $88B. IOW, private pay revenues carry about a 14% margin above average payment cost to make up for MCR paying about 11% less than average and MCD paying about 40% less than average.
That’s a good deal more than the total cost of the completely uninsured on the system. The unstated goal of “universal coverage” is to capture and corral into the system premium payments from the 16-17% who are currently uninsured, and who currently only cost the system 2-3% of overall revenues. (once again, there is high regional variance.) The “found money” there would be the payments from the healthy uninsured.
There is that too. Reminds me of when a doctor wanted my grandmother to stay in a hospital for a condition she already knew about. He wanted to monitor it further. I was like, WTF? Sounded to me like he was padding his paycheck.
I called MD Anderson in Houston for pricing on a routine colonoscopy. They said they charged around $4500 and more if a biopsy, etc, were needed. I asked them the Medicare allowance for that procedure and they responded, correctly, with the figure of around $195, of which my co-pay under Medicare Part B would be some $53.
When I commented, “So you charge the private patient over 20 times what you charge Medicare,” they replied, “No, we charge the same.”
Of course the scam is that they “charge the same” but accept the Medicare allowance for the procedure in payment.
All this from the same types who bring you, “Our patients always come first.” Medicine and insurance in Amerika are disgusting.
Price Discovery – essential for a marketplace, absolutely non existent in medicine. A market is a fancy name for a mechanism that sets prices. For a market to set a price, price must be discoverable. When was the last time you got a price quote, from a doctor, BEFORE he / she performed a service.
Let me tell you about a recent experience of mine. I had surgery on my achilies tendon. When I arrived in the operating room, everything was in place. There were 4 nurses, my surgeon, an assistant surgeon, and anesthesiologist, all necessary surgical instruments, etc. The whole event was carefully planned, and laid out.
Before I stepped into the OR, I asked the secretary that signed me in how much this surgery would cost. She gave me a blank stare. She had no earthly idea.
Several days after the successful surgery, I received a bill. Everything imaginable was included, right down to individual ibuprophen pills. How can there be so much organization on the planning and billing side of the transaction, but no ability to quote a price before hand? Can you think of another industry in the world with less price discovery?
Medical proceedures are not easy to quote, but no more difficult than contracting the building of a house. A surgery takes several hours. A house takes several months. A surgery can be a large ticket item. A house is much more expensive than an average surgery. How many of you received a price quote before a surgery? Would you even dream of building a house without a price quote first? Unexpected things might happen during a surgery. Most houses have several change orders during construction that increase the cost – still would you start building the house without price discovery before hand by way of a quote? Why don’t we insist on price discovery for a medical treatment? Without a quote before hand, would you trust your contractor’s after the fact price? Why would we expect doctors / hospitals to be any different?
One more interesting twist to my story. This was an outpatient procedure. About an hour before leaving for home, a nurse told me that the hospital could not release me until they verified that I could get around on crutches. I thought this sounded reasonable at the time. About 15 minutes before I was discharged, a guy popped into my room with cheap Chinese made crutches. He handed them to me and watched me do one lap around the room. He said I looked OK and left. When the bill arrived, the first thing I noticed was a bill for $125 for crutches and $70 for a “gait instructor.” Had I known that I would be paying $70 for someone to watch me walk on crutches, I would have passed, but I wasn’t given the option to pass. I wasn’t given any options that could have reduced the price tag, BECAUSE THERE WAS NO PRICE DISCOVERY BEFOREHAND.
I don’t have all the answers on what is wrong with our medical system, but I do know one thing – you can’t have a market without price discovery. A market can’t efficiently set prices if NO ONE KNOWS WHAT THEY ARE. How about in the new health care bill we start with price discovery. How about posted prices somewhere. Give us a chance to shop by price. Where there is no price, there is an implicit license to steal.