As I have often explained, the market for medical care does not work like other markets. Prices are hard to come by and mostly meaningless when they are available. There is not one price but many prices depending on who you are. There is the list price, often called the chargemaster. It is often the same price for uninsured patients paying cash. Then there is a lower cash price if you negotiate prior to receiving care. Each health insurer has a different price, even at the same hospital. Prices can vary across regions, and from one hospital to the next.
This huge variation in prices with multiple prices for different customers is due to the overreliance on third party payment. Third parties pay about 89% of health care expenditure. Long before a patient enters the office, a third party has already decided who it will pay and how much it will pay.
The Kaiser Family Foundation (KFF) Health News reports that patients often are aghast at the prices of services and wonder why their insurers agreed to pay that much. Me too! I have told the story a million times about my wife almost scheduling a CT scan at a hospital near our home. The hospital had to seek prior authorization for the ($3,000+) diagnostic procedure. A day later the hospital called to say it was approved and her share of the cost would be $2,700. When would she like to schedule? My wife told me the story and within 10 minutes I found a facility with a BlueCross rate of $403. Oddly enough, the facility was a few hundred yards away from the doctor’s office who ordered the scan. Why didn’t BlueCross tell my wife where to go for the best price? Why didn’t they give her a list of diagnostic imaging centers with prices? I asked that question at a conference and a man from Humana said insurers allow patients to seek care at much higher prices due to “patient preference.” Bad answer! The following is from KFF Health News:
These cases highlight the questions that haunt the American health system and the patients caught in its grip: What is a reasonable price for any health care visit or procedure, and how is it determined? How hard do insurers, the purported stewards of the patient’s hard-earned health dollars, fight to lower charges, and how closely do they scrutinize bills for accuracy?
When researchers at the Johns Hopkins Bloomberg School of Public Health looked at the data, they discovered that the price different insurers pay for the same billed charges “can be three or more times different at the same hospital,” said Ge Bai, a professor of health care accounting who was among the researchers.
Insurers seemingly do not aggressively try to negotiate prices down. About half of people with private health insurance are enrolled in self-insured plans. In those situations, employers are paying for the cost of care and insurers are being reimbursed to merely manage the plan. Management fees are a function of total dollars spent. Thus, rising medical spending raises third party administrator (TPA) revenue over time.
Insurers aren’t incentivized to lower prices, because high prices mean they “get a slice of a bigger pie,” Bai said.
KFF Health News highlights other reasons.
Also, because health insurers can offset high outlays one year by raising premiums and deductibles the next, they have little incentive to bargain hard for good deals for the patients they cover. So patients all pay unknowingly, indirectly.
After the Trump Administration began to require hospitals to post prices, the only people looking at the data are consultants for health plans to see what their competitors pay. Lost in the debate on health care reform, health savings accounts, affordable health insurance, and middle-class enhanced Obamacare subsidies is the fact that the incentive structure is perverse. What should policymakers focus on? The key lies in concepts like reference pricing, patient education, and tools to find the cheapest facility for a procedure. There will also need to be severe penalties for hospitals and clinics that obstruct patients’ right to comparison shop.
Read more at KFF Health News: Even Patients Are Shocked by the Prices Their Insurers Will Pay — And It Costs All of Us
Great article, thanks!