Austin Frakt’s New York Times op-ed on why price transparency in medical services won’t reduce healthcare costs can be summarized in two sentences from the op-ed:
Dennis Scanlon, a Penn State health economist, is not surprised. “Health care choices are different than most product and services,†he said. “Most decisions are driven by physician referrals, and insured patients usually face little variation in costs across options.â€
To decompress that a bit, our system of healthcare would need a radical transformation for market forces to work. Insurance wouldn’t just need to be universal it would need to be abolished. As the article notes:
If patients’ out-of-pocket costs are the same at both a high-cost and low-cost doctor, what’s to prompt them to select the cheaper one?
Courses of treatment would need to be removed from the hands of physicians and transferred to patients. Patients would need a vast amount of education to enable prudent decisions. And their attitudes would need to be changed so that they were more predisposed towards that.
In short it’s not going to happen.
In fact, it would probably reduce costs a bit, just not very much. Remember how medical dollars are spent. 50% of people account for 3% of spending. For those people, who are not going to use up their deductible, going to a low price provider will mean some small savings. However, for where our big spending occurs, chronic illness and large expenditures like chemo or major surgery, you are going through that deductible no matter who provides the care.
There are a number of other issues, but just to name one, geography matters a lot. If you tell someone they can get better and cheaper care, but they have to go 50 miles away, they very often opt to stay local. I see this all of the time.
However, there is a little bit of hope here. While consumers just aren’t that interested in the cost of procedures or other care, there is some interest in the cost of insurance, certainly by the companies that provide insurance. They are now starting (seems odd that they are just starting to do this) to look at the comparative costs between different systems. Insurers then offer lower costs to companies that opt to send employees to the lower cost network. Of note, even fairly small corporations can offer multiple plans if they are through the same insurer. (Actually, depending upon local rules, you can offer plans from different insurers even when small but it costs a lot.) I think you will see more businesses offering a menu of plans that will include plans with varying amounts of employee contribution, depending upon the network the choose to go with. To be sure, many large corporations already do this, but it will now go to smaller corporations also.
Steve
It will only lower costs if a) people actually stop consuming unnecessary healthcare and b) they don’t reduce their consumption of necessary healthcare.
When costs are transferred from insurance companies or employers to employees, it’s not a cost reduction. I’m generally neutral with respect to the PPACA but I think that one of the great disservices of PPACA supporters has been to confuse the difference between cost reduction and cost transfer.
I do not understand why there are not healthcare networks instead of insurance. It would be like an HMO, but the company would own the facilities, equipment, employ the staff, etc.
My sister is had to go into the hospital for breathing problems, and now she needs to see a respiratory therapist amongst other things. I do not have the foggiest idea of what or how to go about getting what she needs. At the VA, the Urgent Care, the opening hospital, or my primary care physician figures out what I need, and I am scheduled for it. This includes classes on various issues. I know almost enough about diabetes to teach the class.
I just do not understand what is so difficult about this. Build a tall building with those new-fangled electric elevator contraptions. Stock it with x-ray machines, operating tables, and shiney metal tool looking things. Include a parking garage. Hire a custodial, maintenance, and security staff in addition to the medical personnel.
If a person’s doctor is out of that network, they can pay extra, but otherwise, it is one stop shopping. The problem is solved. No across state lines bullshit. The network can decide if it is cheaper to fix it now or later, or their could be an overage fee of some type.
Unless you are postulating a Jevon’s paradox, if people move their care to a network that has lower costs, then even if they don’t change consumption habits, then spending will reduce.
As to your latter point, I think I agree for the most part. One method of controlling health care costs advocated for by a number of policy people is to put some entity at financial risk, the old skin in the game argument. Some groups want to put providers at risk, others put the patient at risk. (Cant really think of any that would necessarily put the insurance companies at risk.) This is part of the “markets will lower costs” idea. Again, if all spending was like that of the 50% who use little health care, it would probably work. Not so much for the way most of our spending occurs. I say that with the caveat that at least some of the slow down that occurred since 2008 has been attributed by some people to the increase in deductibles. Will take a while to see if that persists (looks like it might be fading) and what it does to overall spending in the long term.
Steve
TB- A number of networks are working towards that. There are a number of networks that actually do that already. In our area it is Geisinger. (Of note, they are way more expensive than our network.) The problem is that most hospitals, including those that are comprised of networks of many hospitals, do not have the expertise to manage what is essentially their own insurance product. We are starting on that project now. Involves a lot of population studies so you can predict actual needs, how often your population is likely to go out of network, etc. It means that the network will then be at risk for its financial decisions and for catastrophic events. Re-insurance is part of the answer, but it also pretty much means that you need to be big. As Dave has noted elsewhere, big creates its own problems.
As an aside I would note that under fee for service inefficiency often generates more revenue. 10 years ago, when my partner and I proposed a plan to the hospital that would cut unnecessary lab tests and studies, it went nowhere. The hospital actually got paid for those. Now they are a lot more receptive.
Steve
@steve
I would think that now would be the time for something like this, but it would need to be nationwide. It would also not be insurance. It would be a private VA. The lab work, imaging, operations, urgent care, etc. would all be done in-house.
There would need to be changes to Obamacare or whatever to remove the insurance aspect, but it would get around the state limitations.
The VA has recently partnered with Walgreens for flu shots, and there could be some type of local clinics to take care of the geographical problems you have encountered.
Note, I do not care about having government assistance used. It could be re-insurance for a combined industry high risk pool. If an FDIC model could be devised, the industry would mostly self-regulate, but I would also advocate a flood insurance type model.
As to Republicans whining, I put forth Republican President-elect Trump as exhibit A. The old insurance model could be trashed. Democrats could get something more to their liking, and Republicans could get something more free-market oriented.
TB- Wont work unless it functions like insurance. Very few people have the funds on hand to pay as they go. A larger number, but still not enough, could borrow quickly enough to pay for major expenses. It needs to act like insurance, even if you don’t want to call it that.
As to Trump, I actually read every health care plan that comes out that is accessible to the public, though I probably miss a few of the more obscure ones. The “Trump plan” is just an accumulation of old GOP plans. Stuff like selling across state lines. Given how little effort was put into his plan, I would assume he, like most Republicans, doesn’t actually have that much interest in health care and its reform. That usually means policy will be driven by someone at a lower level, which in this case means Price or Congress (Ryan). I have read Price’s proposal (at link). Pretty much just calls for tax credits that won’t really pay enough for insurance, cutting Medicaid (always a GOP favorite), increasing HSAs (IOW shifting more costs on to patients) and selling across state lines. (I hope we all realize by now that in every state that has passed a law allowing/encouraging) selling across state lines it just hasn’t happened. And of course, Price insists that we cannot use cost effectiveness research to deny payment. So no matter how much it costs, it won’t matter if it doesn’t work very well, Price is making sure that the government will stay pay.
Steve
Oops.
https://tomprice.house.gov/HR2300
@steve
What I propose would be a health care policy, but it would have some similarities to an insurance policy. It would not be pay-as-you-go, but that could be an aspect for elective procedures. The government could supply a health care policy chit. This could be means tested, or it could be a guaranteed minimum.
The system is broken, and there is no fix. It was doomed, but Obamacare accelerated the end date. It is time for everybody to grow-up and acknowledge the obvious. You started it. They started it. Enough already.
For anybody advocating a free-market approach, you can ask them for some condition which would be the best choice between a drug treatment, surgery, or something else. As far as I understand, many times it is dependent upon the patient, and there is no correct answer. If the person’s doctor was also the surgeon and he/she owned the operating room, there would be no way to know what the doctor’s true motive really was.
You could use auto manufacturers or software developers as a model. They are able to improve old vehicles/software applications and design new vehicles/software applications because they have a large pool of buyers which offset the costs. A health care company could design some health care product that would be designed to last for a few years, and after that time, it would need to be upgraded or replaced.
There are numerous ways to structure a system, and any number of them would make more sense than what exists today.
Anybody who wants to fix the existing system or argue about it should be sat in the corner, patted on the head, and given a Chinese finger trap. The existing system cannot work. The feedback mechanism that moderates the system is actually amplifying it. Everything that is bad is being given positive feedback, and that causes more bad to be produced.
It seems maddeningly obvious to me.