Could price tags save American health care?

What works for toothbrushes, may not work for a service industry. Just ask the airlines. Relentless cost comparing has brought the industry to its knees.

I’m not sure hunting “for deals” is the way to achieve the optimum health care. Nor is driving doctors and hospitals out of business. Far better to attract more doctors and hospitals by making the industry more lucrative, with federal support.

Rodger Malcolm Mitchell

If we could get price lists, estimate sheets ( like car repair) & readable, understandable billing statements, that would go a long way toward reform. At the very least dishonesty & gouging would be exposed.

Thanks, Barbara. Sorry for length here; I hadn’t posted lately, is it obvious? I’m guessing you’re reading the swampland healthcare posts. I’d really prefer HC to be a public safety / service issue like police and fire protection, but if we’re going to rely on a private system then like you’ve said let’s bring market pricing into it …with caveats. The main caveat should be making insurance recission / pre-existing condition denials illegal. Given insurance monopolies and major health player dominance in many states, we’ll still need consumer protection against price gouging and collusion. The one problem I’d see with any pricing system is during a real emergency. When we’re hauled into the ER for a heart attack, etc. the LAST thing on our minds will be the price.
.
…or maybe some tightwads will ponder costs while they’re being defibbed. Remember the 1971 dark comedy movie The Hospital? Doctors were dying in their own hospital by a crazed patient, and among the characters was the admissions person going around asking suffering patients, “Do you carry Blue Cross? Blue Shield?” She in fact first discovered a dead doctor abandoned in the waiting room because he wouldn’t give her his BC number (and couldn’t because he was dead).
.
Thanks for your thoughts and excellent work. re: your ankle procedures, here’s a HC story (that’s familiar at swampland) on high costs / unnecessary procedures in a TX town. Did Kate or Karen forward this to you? I hope you’re fully healed and didn’t need surgery, shoe implants, etc. and that you’re ok.
.
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande

…more generic drugs too. I’m no fan of pharma’s fighting patent expirations in court and tweaking formulas into “new” copycat drugs to get fresh patents (and higher profits).
Short Replies™: I’m working on them, I promise.

So long as consumers have little or no skin in the game, the prevailing attitude will be to obtain the best care money can buy. Even if they someday do have a more vested finiancial interest, human nature and common sense tell you that for self-preservation it’s probably not the best approach to always use the lowest bidder. I do think posting prices is a good idea, but wonder what will happen if patients insist on comparison shopping individual procedures among doctors and hospitals. Will there be gridlock because of multiple visits to find the best deal?

Barbara,
-
I think what you’re talking about is market failure. That’s when services and prices become divorced and non-transparency reigns. Most medical equipment sold to hospitals also falls under this category. MRI’s and other bit ticket items can vary by price wildly between hospitals, even between two in the same city.
-
The lack of pricetags throughout the entire process makes implementing controls, or even accurate costs in any one area extremely difficult. For example, if Hospital A bought their X-Ray machine for $1.2 million, and Hospital B bought theirs for $1.4 million, Hospital A’s X-Rays cost them less to perform, regardless of what other cost control measures they have in place. This is one reason why the people you talked to had no idea how much stuff cost to do. They’re just as divorced from the pricing as a consumer with a co-pay is.
-
Rodger Malcom,
-
The airlines aren’t being driven under by price competition, they’re being killed by poor decision making. For the time period of 1977 to 2007 the single best performing stock was Southwest Airlines. And they’re still making plenty of money. Don’t confuse bad/weak management blaming their problems on external factors with conceptual model problems.

$700 bucks! You are being ripped off and should keep walking. No way an office call should cost 700 bucks unless the doc bought and paid for his own cat scan or some other multimillion dollar gadget. You still don’t want him/her.

Great article. For something that consumes over 17% of our GDP, the cost of healthcare services and products remain shockingly opaque.

American consumers would never put up with this situation in any other aspect of our lives, and it’s largely the result of distortions created by the insurance system. Doctors can’t tell you what your office visit will cost you, hospitals can’t tell you what even the most common procedures will cost, the price you pay for drugs will vary depending on the pharmacy benefits manager or health plan. It’s an unreal and byzantine system that contributes significantly to our high costs.

And to add to the unfairness of it all, if you had been uninsured you would be paying a far higher price than the price the insurance company has negotiated with each provider! This is a perverse system that preys on the most vulnerable amongst us.

Thank you. The unspoken point is that they (insurance, AMA, big Pharma, hospitals, & the govt. beauracrats) want to keep it this way. After all, it’s more than a living, its gravey.

Thank you, Barbara… This is consistent with the Indiana Plan for state employees… It just makes sense.

http://online.wsj.com/article/SB10001424052748704231304575091600470293066.html?mod=WSJ_latestheadlines

I wish your ideas were so simple. Unfortunately you miss the main point that drives the cost of medicine. If your Dr does not do an x-ray of your ankle and then later your ankle is found to have any problem your Dr is very vulnerable to being sued because he did not do everything in his power to find problem. Preventive medicine due to out of control law suits is main cause of price! People seem to want to completely miss this point. Malpractice insurance case study used an ER Dr who had pt come in with head pain. He did all he could to rule out head issues (test and such) then sent pt home. Pt then had a heart attack through the night and ended up suing ER Dr and winning because this was missed on visit although nothing in protocol required Dr to look for this. Insurance company now states that ALL patients that come in with complaint like this MUST be hospitalized over night to prevent further law suits, doesn’t matter what the cost! Without Torte reform you CANNOT control prices!!

Seems like everyone commenting on this post wants price lists. Now let’s see how that would work. You visit your doctor, who tells says you have cancer and need surgery.

(You do or should know in advance, what that doctor visit will cost.) You select a surgeon, who will tell you his fee. You go to the hospital, and now the fun begins.

No one knows exactly how long the surgery will take, how much anesthetic will be needed, exactly what equipment will be needed, what the surgeon will find once he is in you, what additional personnel might need to be brought in during the surgery, how long your hospital recovery will be, exactly what meds and personnel services you will need during recovery and myriad other unknowns.

No two cases are identical and the treatments continually change. That’s why doctors go to school for so many years, study difficult subjects, and must stay abreast of medical developments. That’s why hospitals must invest in expensive equipment that goes obsolete, when better equipment comes on the market. That’s why “big Pharma” invests millions to find better drugs.

But, you all want a price list, in advance, showing every various possibility, so you can select from that list, the cheapest hospital, cheapest doctor and cheapest drugs. Really?

Of course, you already receive a price list after the fact. It’s known as the hospital bill. But you will complain that you can’t decipher it, because you don’t know enough about medicine. But you still think you want an advance price list, that you also won’t be able to decipher. Really?

Instead, you all carp that the doctors, hospitals, pharmaceutical companies, and maybe even nurses (?) are making too much money. Shall we pay them all less, so we can have fewer doctors, fewer hospitals and less drug research?

Get real, people. Barbara’s Walmart approach to medicine is beyond foolish.

Rodger Malcolm Mitchell

I was in the hospital last year, and blogged about how my experiences related to the health care debate. Here are a couple of salient points to your proposal:

1. A patient is in a poor position to make consumer-oriented decisions. I might worry about how I’m going to pay for a particular treatment more than what that treatment might do to help me.
2. Most of the inefficiencies are due to the poor and often inaccurate dissemination of patient information among the providers, not unnecessary tests per se.

http://pvarhol.wordpress.com/2009/12/03/my-up-close-look-at-health-care/.

Price data is essential. But it’s only half of what’s needed. The other half is data on quality. When you buy at item at walmart you usually have some idea of quality that allows you to choose among options. You might be willing to pay a little more or less for items based on your understanding of quality. And quality can be complex having multiple dimensions that are weighted differently by different people, In healthcare quality dimensions might included provider track record for successful outcomes, convenience of access, avoidance of lawsuits, strength of recommendations from friends and family, etc. So in addition to price data we need access to information on multiple aspects of quality. This then gets into who measures these things, how they are measured, who reports the information and to whom, do we need a “consumer reports” for quality data, role of the government versus private reporting groups, how all this is regulated to prevent or discourage misinformation, etc. It’s complex but necessary.

Google “ranking of hospitals” and you’ll see all sorts of rating services — generally useless for exactly the reasons 2104scott mentions.

Rodger Malcolm Mitchell

This is a great article with a real life story – thanks for sharing. I’m a veterinarian. My clients make these decisions all the time. Admittedly, the significance and consequences are not quite the same as when you’re balancing options for cancer therapy or heart surgery, but I think it puts us back in the driver’s seat of our own medical care, and that’s a good thing. Dentists, too, will tell you that people are much more cognizant of the costs of dental care because insurance for dental care is usually less comprehensive than medical care. So to say that we can not apply Walmart consumer economics lessons to our health care conundrum is short-sighted and false.

Barbara: Our family has a low-premium, high-deductible plan ($2,500 deductible per family member.) We have paid attention to how much every procedure and visit costs since we purchased this plan. It makes a big difference as to how we spend our health care dollars.

Also: our type of plan will no longer be allowed after health care reform. So, this family who has been watching how they use the system will no longer be as vigilant. Thank you Obamacare!

This article makes 100% sense. Everyone talks about healthcare costs going up 10-20% each year etc. Why?
Is it the greedy insurance companies? The greedy doctors? Why is it that Walmart is greedy, and Apple is greedy, and Honda is greedy but prices don’t go up like this. In almost all those examples prices actually usually go down. The reason is the consumer! The entire healthcare system has zero transparency for the consumer. You get health insurance from your job (terrible idea), that you have little choice in selecting and have no idea of the true costs of the plan. Then you go to the doctor or the hospital and if you are not paying some kind of deductible you have no idea what those costs are either. If you want to lower healthcare costs then you need to move to more and more consumer choice. The argument that this doesn’t work because you may be in the emergency room one day and not have time to price shop is ridiculous. There will be times when you the situation doesn’t allow detailed price shopping but much of healthcare is not done that way. It is also amusing to me when someone says that people won’t care enough about their own health. As if the doctor, or insurance company, or Congress or the President will care more. With more consumer choice there will be information like this everywhere ie healthcare websites similar to tripadvisor, zagats etc. People will then be able to make their own decisions based on overall value. Don’t be fooled, at the end of the day someone will make this decision, I say let it be the consumer.

Good lord Barbara and some of the rest of you…where have you BEEN for the last several years?

Many folks have already written about this as a viable very low cost solution (see http://denver.yourhub.com/Parker/Stories/Opinion/Write-a-Column/Story~371577.aspx as well as others on the same site about health care “costs”).

But this is an actual solution…so it won’t get implemented.

So is Rodger and others saying that if I have to go in for scheduled heart surgery that information like this is not helpful. http://health.usnews.com/health/best-hospitals/hehttp://img.timeinc.net/time/i/blogs-comments-submit.png?m=1246829640art-and-heart-surgery-hospital-rankings. Imagine how much more data would be added here if there was more cost transparency etc.

Excellent article. The world of healthcare costs is intentionally shady and opaque. Drug companies, medical device makers, insurers, doctors, and others who come from a profit motive uber alles perspective have set it up this way.

I am a healthcare provider and I get at least monthly invitations to dinners held at the most expensive restaurants in town sponsored by pharmaceuticals who hire a doc to present “research” that purport to show how effective their drugs are.

We are served wine, appetizers, a full course meal, and dessert. We even used to be able to bring spouses. I always try to steer the conversation to psychosocial issues that impact health because so often providers have medication tunnel vision when it comes to treatment.

Price tags alone not enough to keep the health care industry honest – right now the prices for various services are whatever the providers say they are – we know this because after every doctor visit, we get a statement, usually from the insurance carrier, that show the billed amount, PPO/HMO discount, sometimes as much as 60%, the deductible and copayments and finally the actual cash value of the benefit – the entire industry thrives in smoke and mirrors.

Health care providers should explain why a hospital semi private room costs $2,450 per day; hospitals should be required to update at least once a year a full breakdown, a pie chart, of how the health care dollars are divided between all the parties – the share of doctor fees, support staff wages, overheads, marketing costs, cost of charity care and profits.

Every health care provider needs to be hit on the head everytime with a baseball bat until a culture of cost effectiveness takes hold – after all that’s how the restof the economy works!

Rodger, there are other fields with pricing even when almost everything is fluid. Auto repairs are one. Construction is another. Say you want to build a new home (or a building for your small biz). Sometimes you can get a guaranteed max. price (this even happens in larger commercial projects incl. hospitals). Most fees are cost plus or similar – especially the contractor’s, but don’t forget the architect, engineers, bldg. permit fees, etc. (many of these are fixed or a % of constr. budget).
.
You WILL get written contractor bids, yes? (You will if you’re smart.) The more changes you make the more costs rise, so stick to your original plans. But you are working with a budget; you’re NOT going in blindly, that’s beyond foolish. I think Barbara and other here can draw good analogies between medicine and construction, car repairs, etc.

Perhaps something like a luxury tax could be imposed. Since hospitals and insurance agencies all negotiate their prices individually, actual price data under this system is unlikely. So, the government could set a price that is average or should be average for each health care service. Any hospital charging more than the standard would have to pay a luxury tax on this item. That way you can still get the absolute best health care in the world, but you will pay more for it.

Ideally, patients would have access to this information and could choose their provider according to their personal needs.

The revenues from the tax could go to government health care programs for people who can’t afford health care.

Of course it’s a tax though, so it would never happen.

Federal programs do not make health care more lucrative. They underpay. That is why many doctors stop taking medicaid and medicare patients. Those who do cost shift the loss to private payers. If the government were doing all the paying you would see increasing doctor shortages as some would leave and many others would not go into medicine. So soon you have increasing waiting lists. That is what has happened in Canada, where they are importing more and more doctors from Asia, and still have shortages and waits. You can not just increase the amount the government pays, the current medicare/medicaid systems are already going broke. You would have to raise taxes astronomically, which drags down the economy and increases unemployment. There is no free lunch.

I have beebn thinking about this for some time. I agree that prices should be posted. I also think that providers should be required to charge all clients the posted price. No special deals for special groups or insurance companies (including medicare and medicaid). That would eliminate the “cost shifting” that is common today.

Really cool to see an actual intelligent discussion on healthcare! Maybe we can slap some sense into the morons in congress (both sides are generally clueless, since many have not lived like real people, had a real job, or run a real business in a long time…..if ever!)

If you can get your car fixed with written estimates – talk about trying price unknowns – you can / should get yourself fixed in a similar manner.

Our dependence on health insurance is part of the problem as well. In no other area of life does insurance work the way it does in healthcare. Insurance is to protect against the unforseeable that is outside the boundaries of standard costs. Maybe we should seperate out insurance vs prepayment for healthcare. Today what we have is insurance + healthcare prepayment muddled together. There may actual be a market for people that want to pre-pay for their healthcare.

My guess though is that once most people actually understood the costs they would choose to go with a higher deductible if it lowered their overall costs ( I personally take a higher auto deductible).

What I really want is a system that allows you to save and spend your own money for healthcare. For most people this will mean being able to save money while they are younger and healthier that will then be used when they become sick and/or older. You can then keep any money thats left for retirement, donate it, or give it to your kids.This is the only sustainable long term solution.

Pre-Existing Conditions: This is a tricky one, but I think we can make major inroads in this area by fixing the tax code to level the playing field for individuals to purchase health insurance. If I own my health policy like my 401k etc then I keep it when I am unemployed and when I move to the next job. Most (not all) of the pre-existing stories I hear are about people that have lost their current job and then had to find insurance. Once people are keeping their own insurance the problem becomes much smaller and more manageable. Lower costs will also help here because more plans will be available for lower costs.

In the mean time of course we obviously would have to help those caught in this messy current system as we make the transition, and we can have a reasonable discussion on how best to do that.

Barbara, you also answered your own question bringing the costs down is the way to have more people insured. It means more people can afford it and the people that we agree the Government should help, it can help less expensively (and more sustainably). Anyone that is given Government help (I would argue for people who are actually poor, but thats another discussion), gets the same principal applied they get money put into an account and they make the same decisions as everyone else. I would bet you could give catastrophic coverage to every American that actually needs it, plus 5-10k in a yearly account that rolls over. For less than half of what this crazy Senate bill costs.

Thank you for exploring new area in healthcare reform. This is very important that consumer can decide in many ways. It will help maintain transparency of bills and plan accordingly.

Very good points.

I agree with a previous comment that price tags alone are not enough. If a doctor or hospital accepts Medicare, they must bill all patients the same amount for the same procedures. The difference is in the amount the collect. Medicare and Medicaid pay the lowest amount, the uninsured pay the most. Those with insurance get their EOB which states the contractual adjustment on the bill, but most have no idea if the price was fair to begin with. INSNET, LLC was formed in 2007 to help ensure consumers pay a fair price for their healthcare. Visit http://www.myinsnet.com to learn more.

OMG, first Howard Fineman of Newsweek and now Time. So basically, trust people to make the same cost related decisions that have brought down the price of almost everything else in our culture to control health care costs. Maybe we could also give people a tax break on the money they use to pay for their medical expenses. And then we could tie it together with a high deductible health plan that would operate like true insurance in protecting the policy holder against catastrophic claims. Millions of consumers sending price signals by making smart decisions, insurance covering what insurance is meant to cover, using the tax code intelligently….

You gotta love Liberals when they discover ideas conservatives (remember them, the party that has no ideas) have been championing for years. Next thing you know, some liberal magazine (like Newsweek) will admit that democracy is taking hold in Iraq or some key democrat (like Joe Biden or somebody like that) will take credit for winning the war.

The problem is that it is not doctors giving a sweet deal to medicare and medicaid, The government decides how much it will pay for each service and that’s it, take it or leave it. More doctors are leaving it, not taking anymore medicare or medicaid patients.

One important question that no one in this healthcare debate is asking is why are we not using the 50 states as the laboratories for what really works. All the Fed should be doing right now is figuring out what areas are they impeding the states from doing this. From my perspective the big things that the Fed can do is change the tax code for individuals to purchase healthcare with the same benefits as employers and maybe some kind of block grants to the states to get their plans going. Every state must come up with a plan by the end of the year. Then we review the results in 4-5 years and see what plans are working at insuring more people, controlling costs etc. The current Health Reform doesn’t even go into place for 6 years anyway. This seems to be a more reasonable approach, regardless of what side you are on politically. Why are we always so desperate for a one size fits all approach?

Here is Indiana’s plan. I like some things about it. I dislike some things about it. But I think they may be moving in the right direction.

http://healthaffairs.org/blog/2008/05/01/indiana-health-care-reform-amidst-colliding-values/

Xclouseaux, you make many good points that I agree with. (Disagree with the war comment, Government doesn’t do that right either). Not sure badgering “liberals” moves the ball forward. Lets ditch the labels and talk policy.

Where are the technology geeks? I would love to see a forum like this where these ideas could be discussed and the best ideas moved to the top etc and then voted on.

We could break down the whole debate into sections vs taking on the whole thing at once.

Here are some categories off the top of my head.

1. Role of insurance
2. How to increase the supply of healthcare
3. How to lower healthcare costs
4. How to lower insurance costs
5. How best to deal with pre-exisiting conditions
6. How best to help those that can’t truly afford insurance
7. How do we define those who truly can’t afford insurance.

I think we would prob get better ideas with millions of Americans proposing ideas and voting on the best ones, than we will get out of congress…

Everyone should know exactly how much their employer pays for health insurance as well as what the medical bills are. It is ridiculous that routine, predictable expenses are paid for by insurance. You don’t think you pay? Insurance should be for the unforeseen and the catastrophic.

If people were made to pay more, the savings wouldn’t just be by shopping around. People might actually make healthier lifestyle choices.

I was at the dentist in the last year and the dental assistant asked me to sing a paper before the dentist came in.

Me – What is this for?

Assistant – It says that you may be billed extra because we use some premium materials.

Me – Well how much extra?

Assistant – I don’t know. Nobody ever asked that. Let me check.

I was fully covered but I realized how many times insurance companies must be overbilled for nonsense because consumers don’t bear the cost in most cases.

Great job setting up a strawman to argue against, Rodger. Nobody’s asking for “a price list, in advance, showing every various possibility”.

However, it’s perfectly reasonable to expect to compare the costs and outcomes at two hospitals that you’re considering for your baby’s delivery, for example (assuming all goes normally).

And it’s perfectly reasonable to expect to know what a diagnostic test is going to cost you out of pocket at two places you can choose from.

There’s NO excuse for the lack of transparency in the system today – with respect to costs as well as outcomes.

The law should be changed to require that medicare and medicaid pay the posted prices. This, of course, would increase government costs and therefore taxes. That would be better that the current situation whereby individuals who buy insurance pay the shifted costs via higher insurance premiums. I also believe that insurance companies should be required to post their prices for offered coverages and charge all customers the same price for a given policy.

(See 24.2 above.) I’m a medicare person. I realize that my ideas would probably increase my medicare premium but let’s be fair – everyone should pay for what they get but not for what someone else gets.

Here’s a letter I sent month’s ago about this exact suggestion to open up all of medicine to cost comparison. I sent it to my two Senator’s in Arizona (Kyle and McCain) and despite numerous phone calls to each, I have one very brief conversation with a Kyle staffer and no action. The bill could be one page: everyone remotely related to medicine needs to publish their prices. People are being ripped off all day long. The difference between “retail” and “wholesale” (what the insurers pay) is dramatic. We need to get the middleman out of the equation for most day to day transactions. Insurance should be for the very complex situations and chronic problems only. Again, here’s the letter:

Dear Senator Kyl:

I am writing this letter out of exasperation over the present healthcare debate going on in Washington. I am sending a copy of this letter to Senators and Congressman that I hope can shape this discussion and help the healthcare system evolve by returning to very basic free market economic principles that have made our country the envy of the world.

I am an obstetrician/gynecologist, practicing in Scottsdale, Arizona for the past 20 years. I have seen the healthcare industry up close through my years in practice and my interactions with the insurance industry have enlightened me to the stark realities of a medical insurance industry that has little or no interest in advocating for their customers, due to perverse economic incentives.

No matter where a physician practices in the State of Arizona, there are patients each and every day that face the insurance system and are unfairly treated because of insurance gimmicks or because they simply cannot afford insurance anymore. There isn’t a day that goes by where I personally don’t find myself advocating for a patient on the potential or realized costs of healthcare.

I would like to finish my career working on behalf of my patients in medical system that works from a very basic premise: each and every person should be offered the same cost for care and it is our moral responsibility as healthcare providers to work to keep the cost of our care reasonable. The fact that a family of four now must pay over $800 a month and still come out of pocket for the 1st two or three thousand dollars of care is for most families untenable.

About 9 months ago, two broadcasts caught my attention, and brought me to thinking how far down the wrong road healthcare has gone in relating to the general public and it’s perception of costs.

My wife asked me to watch an Oprah Winfrey episode discussing nationalizing healthcare. Michael Moore, the film producer, a representative from the health insurance industry, and a former medical director from an insurance plan who rightly regrets now using her medical degree to deny care, were on the show. A family member from a patient who had died from leukemia had explained that could not raise the $150,000 needed fast enough for him to receive chemotherapy, because he did not have insurance. This is certainly a tragedy and Mr. Moore stated probably quite correctly that in Canada this would not have happened. He is probably right, but their quality of care would have been much less cutting edge and there would have been a large line in and impersonal care facing this patient. I found myself screaming at the TV. Why wasn’ t anyone asking why it costs $150,000 for the chemotherapy?

I am struck by the fact that no one ever asks the hard but very obvious question, why do certain procedures or treatments in healthcare cost so much?

Chemotherapy for leukemia shouldn’t cost one-fifth, maybe even one-tenth of $150,000 in a perfect world where costs were transparent. I am sure there would be entrepreneurs that could drive the costs down, based on volume and hard negotiations with the drug manufacturers Costs of highly technical services could be much lower if the incentives were aligned, still with an emphasis on quality. The key is to let the consumer choose where to go, based both on cost and quality.

John McCain, our senator here in Arizona, was similarly on a morning news show during the election and was asked the question of what could be done about high health care costs. He stated very correctly that it never seemed to amaze him about the innovation and brilliance of medicine in our country. He then posed the question why, after the innovation, doesn’t the cost come down? He was on to the answer, but never completed the thought. I again screamed at the TV.

The answer to this dilemma lies in commoditizing much of what we do in medicine.

The very simple answer to John McCain’s question is to pass a law tomorrow that requires every healthcare provider in America to publish their prices for their services.

This includes doctors, dentists, veterinarians, hospitals, nursing homes, pharmacies, drug manufacturers, high tech medical equipment makers and everyone else remotely connected to healthcare. At this point, American’s can begin choosing their care and comparing care based on both quality and price.

This will upset many entrenched groups, particularly the insurers and those in niches in medicine that are relatively well protected. However, with transparency, access could open up to healthcare for new millions of patients, without the high risks of rationing. Medicine can be a growth industry without driving the costs of individual care up. By beginning to commoditize what we do, the costs should come down as resources are reassigned to the point of care.

In Silicon Valley and in the high tech industries, a new idea or product has an upfront expense to development and an associated high cost to purchase initially, but eventually the costs come down as the dreaded word “commoditize” comes to bear and others enter the field. Commoditizing in high tech frequently involves continued improvement, despite lower prices. Good examples are flat panel TVs, computers or cell phones. This doesn’t seem to happen in medicine, all because the costs are so mysterious.

Wal-Mart similarly began a generic prescription program about 5 years ago that has revolutionized the pharmacy community. They created a $4 prescription program for 30 day supplies of hundreds of commonly used medications that was eventually matched by Target and later most of the large pharmacy chains. A very good birth control pill, the generic form of Ortho-cyclen and Tricyclen was offered at $8 per pack, a dramatic savings over the standard $20 generic or $50 brand name.

Suddenly, the brand name manufacturers had to compete against the Walmart/Target generic. The cost of most birth control pills is still dropping. Granted, there seems to be fewer new pills and certainly fewer free lunches to detail pills, but patients are benefiting greatly. Certainly, senior citizens have benefited with the generic programs and most primary care doctors now look to these lists first, in order to save their patients money.

Those in the retail pharmaceutical industry will tell you that this has fundamentally and not so quietly changed their industry. The health of patients has not suffered and in fact has significantly benefited with improved compliance. Costs to patients have dramatically dropped. This free market example of the generic competition is an important example of what is possible in medicine.

Doctors and hospitals are in great degree responsible for the perception of the extreme costs of medicine that perpetuates a vicious cycle of extraordinary bills (the term “magical” is very appropriate) that are eventually negotiated down by the insurers to 30 or 40 cents on the dollar. In the interim, each of us continue to buy unnecessarily expensive insurance to avoid a bill that no one can understand but threatens to bankrupt us. The insurance companies hold all the cards and get to control of even the first dollar of everyone’s healthcare.

I am so proud to be associated with hospitals that treat each and every patient the same, when the come in the front door, but I am similarly embarrassed to find out those without insurance or poor insurance are treated so poorly by the billing departments after they leave.

Our hospitals now spend enormous time and money fighting between the fantasy bills generated by the hospital and the eventual contract price negotiated by the insurer. This serves no one well. In the middle, the consumer buys unnecessarily costly insurance for fear of getting cancer or some other catastrophic illness that will bankrupt them.

Hospitals, in particular, need to open up all their costs and charges for inspection by the consumer, allowing more consumer choice based both on quality and price. There is admitted necessary cost shifting taking place for unreimbursed care that needs be factored in to the bill that each of us receives. But there is also enormous waste and out of line overhead in hospitals that needs to identified and eliminated in order to deliver more care to more people for less.

I would envision a day where centers of excellence develop for more complex care, based on price and quality to do procedures better and more efficiently. Patients may have to travel for their procedure, but will receive the highest quality care at the most efficient price. There would finally be incentives to do a procedure on time, on budget and with the lowest likelihood of complications. The incentives would all be aligned and at end of the day, we would be serving everyone equally.

Simpler procedures done in doctor’s, dentist’s offices, and hospitals similarly should have transparency in cost. Certainly, many patients would not opt for the lowest priced surgeon or dentist, but ranges in pricing would motivate doctors to be aware of other doctors pricing, which would result in a search for efficiencies in their procedures by negotiating their costs from suppliers, ancillary medical personnel and hospitals.

I would also envision $85 dollar mammograms and eventually $50 or $60 mammograms that are set up in convenient locations that everyone could afford. If left to smart businessmen. $100 annual physicals with complete blood work and an annual report to the patient with goals for the coming year would be the norm. Complete packages for commonly done procedures including all doctor and hospital fees should be open for everyone to see. Prices for chemotherapy and other high cost treatments should be outlined in detail, enabling patients and their families to shop for the most efficient treatments, based on their doctors advise.

We all know up front what it costs to buy our groceries or consumer staples. We pay up front and receive a competitive price. All of us tomorrow would like to know the up front costs for a dental procedure or a teeth cleaning. Why not at least ask what it costs to take out your gall bladder or tonsils?

Certainly most patients even now don’t know that ibuprofen is equivalent to Motrin at half the cost. How might you ask are they going to pick a quality doctor for highly technical cancer surgery, or to remove their bunion? In the age of the Internet, I am quite certain websites can be developed to assess price and quality, comparing doctors throughout the country or even the world. This is where government could serve an honorable purpose, by providing guidance in helping patients shop for care and avoiding unethical doctors and clinics with unproven treatments.

Additionally, prospective payment for most office visits and procedures would dramatically drop the administrative costs of healthcare, now estimated at 18% of our healthcare dollars. A recent study showed that each and every doctor in America is spending $70,000/year on administrative expenses to process insurance claims. Most doctors I know have one biller for every 1 to 1.5 providers.

90% or more of healthcare today is cost predictable. If payments for these predictable services were paid up front, dramatic cost savings could be achieved.

Insurers should get back to stratifying risks and get paid on managing risk in chronic or catastrophic care. Most of the routine care should be diverted to prospective payment with health savings accounts or some form of credit card deducted directly from health care funds. High deductible insurance should be left to serious medical incidents or chronic ongoing care. The time and energy spent today on the billing and collection aspects of routine healthcare is exactly what is wrong about the business of medicine today.

Before concluding, I must state that I am highly skeptical that Congress and the core American business principle of allowing the free market to reassign costs to the point of service are being unduly influenced by the medical insurance industry that is fundamentally flawed, but has extreme lobbying influence. This is the time to step up and offer a market-based idea that everyone can understand.

The status quo is not acceptable and significant and very fundamental changes are needed in how Americans pay for healthcare. The present debate has everything to do with serious flaws in the health insurance industry that are jeopardizing personal health and financial security and economic growth in the United States.

House Speaker Nancy Pelosi is correct when she talks about the low moral aptitude of the insurance industry and she speaks for many Americans who have experienced the outright lies of the promise of private health insurance and the true economic realties of their business. It is the solution to this health insurance crisis, not the delivery of healthcare that we should be debating.

At this very moment of crisis in my industry it is critical to lay out a very simple and fundamental premise going forward for Medicine: transparency in pricing in everything that we do. In combination with prospective payment for most straightforward healthcare transactions, the principle of commoditization can move our country forward by providing more care to more people at fair and reasonable pricing and again restore our medical system as the envy of the world, based on price and quality.

I would hope that I could speak to you personally at some point in the near future on my ideas.

Barbara is exactly right, and she speaks from experience. Yes, price visibility is only part of the solution, but it’s an extremely important part.

Would we also benefit from tort reform that protects doctors from the sometimes adverse effects of honest judgment calls (and leaves the penalties for negligence in place), quality data, and co-payment of healthcare bills to introduce a healthy dose of consumerism into healthcare? Absolutely. But knowing the price and seeking the best service for the least money is in itself a great idea and essential for true cost control.

Hospital and doctor pricing now is completely phony, with “list” prices jacked high in order to set a meanigless benchmark while seeming to offer insurers and the government a substantial discount. One result is a cat-and-mouse game of mysterious increases and pressure for higher reimbursements in the absence of any true cost data or competition among providers. Another result is that the uninsured — who can’t by law be charged a “different” price from insured patients — end up being charged the phony list prices. If they don’t know to call providers and ask for a write-off for hardship cases, they’ll be chased for amounts that doctors and hospitals never intended to receive from anyone in the first place.

To address Mr. Mitchell’s point that healthcare pricing is somehow unpredictable and therefore unknowable, I say, nonsense. No one is suggesting the car crash victim be challenged to approve every line item during emergency care, and no one is suggesting a doctor and hospital be forced to give a cancer surgery patient a fixed-price blue light special for $99.95. But what’s wrong with allowing that cancer patient to pursue cost estimates and review quality ratings for care at 2 or 3 different hospitals?

Hospitals would quickly learn to control their own costs better, the best would be rewarded with business and could perhaps charge a premium, and the underperformers would be driven to improve. Some hospitals and other providers would not survive, and if your view of healthcare is that it should be an inefficient but universally available public utility — or that providers should be protected in their status quo — you may oppose that. But Obamacare takes us in precisely the wrong direction, doing nothing to improve incentives in healthcare and exacerbating the price controls, special-interest protections and distortions that are the worst features of America’s healthcare system today.

It looks like you hit a home run here, Barbara. Is this post reaching the most page hits at this blog?

I think a lot of posters don’t understand how the Health Savings Accounts combined with a high deductible plan works.

When you have a heart attack, stroke, cancer or get hit by a truck these are catastrophic events. HSA/high deductible plans usually have a deductible of 2,500 or 5,000 and will be easily met and your full benefits will kick in. You will be happy your only out of pocket is 5 grand because the catastrophic event is covered from there out.

The price shopping is more important at the lower level of costs like in the $700 ankle exam example. Another thing price conscious consumers can do is go to the “minute clinics” that are popping up in drugstores around the country.

If you have a cold/flu and you know it but your doctor charges 150 for a basic visit (because HSA/high deductible plans like mine have no co pay), the minute clinic may save you money. Also another option with the cold flu is these “Call MD” programs where you can speak to a doctor by phone about your symptoms.

These are not for your “I think I have chest pain” symptoms but your cold and flu that you’ve had a hundred times.

Also, my HSA/high deductible plan covers the kids annual well visits and me my spouses once a year checkups at no charge to me.

HSA/high deductible plans will not be for the people who go to the doctor for every bug bite.

I will say that the out of pocket cost for my HSA/high deductible plans in the last 3 years has been the same as my old PPO.

My family of 4 was covered under the company group PPO for around 400 a month. The high deductible plan premium was 110 a month and I put 200 a month into the HSA. After three years I had 7200 in my HSA account and had paid out in doctor visit costs around 2400 dollars (which I did not reimburse from the HSA)

So your choice-a total cost of PPO around 400 a month with no cash in HSA or around 400 a month for HSA/high deductible plan with 7200 in an HSA.

Finally. F.I.N.A.L.L.Y someone comes up with the solution that makes this country rock. Go into any Walgreens, CVC or Walmart and you will find the cheapest drugs anywhere in the world. Now go looking for a prescription drug and you go to the other end of the sprectrum. Unleash the consumer. I had exactly the same experience as Barbara when I was on a high deductible plan. I asked prices. It will take a long time to filter the changes here into the system but it is the only solution that will work long term and this country has a track record of success here. People do end up making remarkably good choices. We buy cars with expensive anti-lock breaks because it is safer for us and our families. We will, if let, make the right choices on healthcare.

I’ll assume that you’re being honest though most people who propose tort reform as a way to lower health care costs are intellectually dishonest because anybody who actually does some research on the topic will find that there simply aren’t significant savings to be made.

I’m not saying that defensive medicine doesn’t exist or that there aren’t frivolous lawsuits… there are. However, the number of frivolous lawsuits and their cost is much lower than you’d imagine. That’s why when the CBO has scored legislative proposal enacting verious kinds of tort reform there’s never much money to be saved. And the money that is saved goes directly into the medical malpratice insurance companies’ pockets… not to the doctors paying premiums or to the patients. Look into the data from states that have passed tort reform… medical malpractice rates continue to go up just had they had before.

At just to be clear, when somebody argues that they want tort reform, what they want is to cap damages, either total damages or non-economic (punitive) damages. They want to do this so that lawyers won’t take legitimate cases. They aren’t worried about the so-called “frivolous lawsuits”. And do you know why? Because frivolous lawsuits don’t cost them much money. Frivolous lawsuits get thrown out of court by Judges… it’s called summary judgement. In fact attorney’s can be sanctioned for bringing frivolous lawsuits including having to pay the other side’s attorney’s fees in some cases.

No tort reform proponents want to lessen the amount of damages paid by corporations for negligent behavior (in the medical field, the damages paid by med mal insurance companies for a doctor’s negligence). Because if they can do that lawyers won’t be willing to take on those cases. If you cap the damages then the expenses of bringing a lawsuit will be higher than the attorney’s potential fee and he won’t take the case. Which means injurred parties won’t be able to find a lawyer let alone be compensated for their injuries. There would simply be no consumer protection against a doctor’s or lawyer’s wrongdoing unless the wrongdoing was so severe as to be considered criminal.

And don’t tell me that these “runaway juries” are awarding too much damages. The fact of the matter is that juries are compromised of everyday ordinary citizens. Lawyers kick other lawyers out of jury pools immediately, and doctors get booted out of juries in medical malpractice cases most often. What’s left is a bunch of uninterested parties listening the facts of the cases and agreeing on an award of damages they think is fair. Sounds pretty democratic and fair to me.

What’s more is that most of the largest awards contain punitive damages… designed to punish a party who’s actions are considered to rise to a level above ordinary negligence. For instance, if Toyota knew about the issue with their breaks, but failed to address the problem because it would be more expensive to fix it than to keep quiet and let people die, a jury might very well award punitive damages in order to punish toyota for not taking the remedial measures sooner and so that other companies will take notice when they perform their cost-benefit analysis in the future. Limiting punitive damages to 3X the actual damages would severly hamper the effect of the punitive damages. Perhaps Toyota’s faulty breaks caused 30 injuries and property damage which costed a total of $3.0 milllion dollars. And let’s say they could have fixed the problem for $20.0 million. A cap at 3X would allow for only $9.0 million in punitive damages. You think $12 million dollars is a strong enough deterrent when Toyota is making billions of dollars selling the cars with faulty breaks? Of course not… they’ll happily pay out the $12.0 million; keep the billions in profits, and say to their shareholders that by injurring people instead of fixing the problem they saved $8.0 million. and next time they face a similar problem they’ll put more people at risk.

However, with no caps on damages the jury could slap them with $50.0 million in punitive damages… or more. Toyota would fix it rather than run the risk.

Not to mention the fact that economic damages can never accurately account for a person’s death, disfigurment, psychological harm, etc.

If we could get estimate sheets understandable billing statements, that would go a long way toward reform … is very least dishonesty and gouging would be exposed

takagi

Great post dflynn5!

Warren Buffett made a great point yesterday that everyone that is currently making $1 right now is going to go kicking and screaming before they take .80 or .90 cents.

On the CVS and Walgreen clinics I know for a fact that the AMA fought like crazy to limit those clinics. There would probably be even more if it wasn’t for some of the regulations that AMA was able to get passed in the name of “safety”

I am not picking on Doctors, nurses etc (My wife is a PA and mother is a nurse) but everyone has their hand in the cookie jar.

No one even wants to discuss the supply issue. Lets say we gave this free healthcare to everyone where would the doctors be to supply it? I have not been to a single doctors office where I don’t have a wait and where they are booked solid with patients.

Some ideas worth considering:

- Using PAs and Nurses for more general care

- Look at immigration laws regarding qualified docs and
nurses to see if we can’t get more to come here.

- Look at the monopoly that many states have on licensing.

- Do all Doctors need to spend 9 years in school? Maybe or maybe not but the question should be looked at.

Most of these suggestions the AMA and some doctors would fight like crazy…….

Awaiting comments on if a PA or Nurse makes a mistake people will die……..

I ask the price of everything. If I have a non-emergency, I call hospitals, health care facilities and doctor’s offices to check prices. Some will tell, others will not. I go to the most reasonable place and save money.

We can ask the price, there’s nothing stopping people. Those who don’t pay out of pocket and price check are the ones driving up costs.

I think there should be a health care law passed, which shows itemized costs, and break-out taxes to boot.

You can only do that (suggested in your article) when there is sufficient supply.
The supply of primary care doctors and nurses.
The current medical education system deters many students from entering it. And whoever entering it will have to paid a high price to exit (with or without a medical degree.)
The ultimate solution is to have tired medical care providers, starting with diversified medical education.
Create some 3-year, 4-year or 5-year medical colleges at undergrad level. The graduates will provide the most basic, but vastly demanded, medical care products. Their tuition will be much lower and the schools can roll out physicians much faster.
Reduce the number of graduate level med schools for students who want to enter advanced medical care product market. For them, the competition for entry will ease since many peers are diverge to undergrad level schools.

bevo1114-Your post is astonishingly naive, if not disengenuous. You are very adept at parrotting the tort lawyer’s talking points, but the fact is, tort reform WILL save money…not from large jury awards, not from frivolous lawsuits thrown out by the courts, but from the thousands of nuisance lawsuits that are filed every day that insurance companies “settle” to make go away rather than incur legal fees to fight. This is a common practice in all kinds of areas, but most prevalent in medicine because lawyers know it’s easy money.

The best and only way to ensure an adequate supply of nurses is to make sure they are paid what they are worth and fund enough schools to train them. The problem is that they are already paid well, just not commensurate with their level of training and responsibility. There is a dearth of qualified nursing instructors because nursing schools cannot (or do not) pay their instructors anywhere near what they can earn in practice. Importing nurses and doctors from other countries is already being done…we are outsourcing our medical care, in many cases to people for whom the language barriers are so steep patient care can be put in jeopardy.

Price tags should be a part of the solution.
Glad to see, I’m in the majority.

Here is an example from my own experience – a brief visit to a doctor who does not know how to help, tries to offer unnecessary repetitive tests I politely decline. 3 months later I learn that the price for a few minutes of my doctor’s time was over $400 – code 99215 representing the highest level of care for examining my “comprehensive history” (believe me, it’s as short and plain as it gets, the doctor did not make anything out of it anyway). If I knew the price tag, it would save insurance money. It would also save my time.

Looks like only one commenter is against price tags.
C’mon, Rodger – Airlines struggle because of lower demand, higher fuel prices, weather-related cancellations and their own inefficiencies.
If an airline has little to offer that we can’t find elsewhere, why do we need it? Think about the consumers.

One of the best healthcare discussions I have seen in a long time. Let me pose another issue; chronic disease care. My wife has MS and the only real treatment are drugs to treat symptoms. Her retail drug cost is around 40,000/yr. Fortunately, we have comprehensive insurance that pays the bulk of this. We do have co-pays; 100.00 for 90 days of premium, on down to 15 for generic.
The insurance being discussed here would not help those like my wife, she would need something different. Maybe there could be something specific for chronic disease that deals primarily with the drug costs? I could see a high-deductible for major medical but another policy that works like our current one for the drugs.

What do some of you think?

This is the most cogent, intelligent article about a complex subject that I have read in a long, long time. As a primary care physician for the past 25 years, I have been bothered by lack of transparency in our medical system. The “soup to nuts” insurance plans that have been used by companies to lure top talent and the government plans have led to gross over utilization because the consumer has no “skin in the game.” Costs have risen, because the primary consumer of the service (the patient) has been insulated from the costs of care and has never bothered to ask the question—how much does this cost?

We don’t shop for any other product or service this way. What would be the cost of groceries if we could all get a basketful of food any time we desired for a $25 “co-pay”? We would end up paying $30/lb for hamburger!

Providers have also had little incentive to control costs other than to play the shell game of maximizing reimbursement from 3rd party payers. Having to deal with the regulations and billing of all these payers greatly increases the administrative costs of medical offices.

Getting the tax advantages of health insurance to individuals rather than just to corporations would be helpful. Expanding pre-tax HSA’s and making them either roll-over to accumulate or able to be converted to income (after paying taxes) would provide incentive to spend wisely. If all policies could be portable and without expensive “mandates”, they might actually become affordable again.

Price transparency on the provider side along with quality measures would help greatly. Because of the complexity of medical knowledge, consumers would still have to have some reliance on their personal professional. Incentivizing patient responsibility to take a greater role in medical decision making would be a complimentary change on the consumer side.

Honestly I think injecting capitalism and competition into the healthcare system is the only way to drive down the ridiculous costs of care.

While I am sympathetic to the noble desire to cover Healthcare for all Americans I am also a pragmatist therefore, as long as costs continue to escalate this is an indulgence that we truly cannot afford.

We’ve already substantially mortgaged our future to Chinese bondholders. Taxes for most Americans are already overly burdensome And yet our President talks of embarking on a 2 trillion + dollar entitlement program that will supposedly reduce the deficit. Now that would be a neat trick. I mean how stupid do politicians in DC really think we are. Raising taxes and slashing Medicare to help pay for it doesn’t make it deficit neutral, it’s just a shell game that after it’s all said in done leaves us with another deficit busting entitlement program heading for insolvency to go along with the others.

Sorry but I am not going to trust the politicians on the Hill with reforming healthcare they are by-in-large inept and corrupt. I mean sweet heart deals for big unions, special interest groups, is bad enough. Then to top it off the Dems give a sweetheart deal to Big Pharma in exchange for 150 million dollars in “donations’ to the Dems healthcare reform campaign. Do you really want to entrust these people with anything. The bottom line the healthcare reform bill is a trainwreck waiting to happen. I hope the Congress will have as much compassion for the hundreds of millions of hardworking Americans who are already saddled with tax after tax and not heap another grandiose entitlement plan onto our already tired shoulders.

Dude, did you read the column? Yes, price tags alone are sufficient to hold costs down. After all, that price tag keeps the cost of the Rite Aid toothbrush down, doesn’t it?

True competition relentlessly drives down prices and then costs follow. This would absolutely work for routine services; x-rays, check ups, the occasional cast. HSAs and Flex accounts are ideal for handling these items. Catastrophic care or more complex needs would be covered by high deductible, major medical policies.

Congratulations, Ms. Kiviat, you’ve learned something I learned some years ago.

My wife occasionally suffers from bursitis in one shoulder and she had a flare-up once when we were both unemployed and thus uninsured. She was in a great deal of pain and so I began to call around to find someone to give her a shot of cortisone. She knew from previous episodes what was going on and what would fix it. Every doctor’s office I called asked for a $200 deposit and wanted to do x-rays, ultrasound and whatever else they could think of. First, they all had a hard time giving me an actual price to perform the service, but most of them came in between $800 and $1000. A ridiculous amount for what was needed.

Finally, I got an actual doctor on the phone and explained the situation and what we needed. The doctor thought for a minute and replied that he would take care of the whole thing for $125. She got the shot and has had no further trouble since then, now over 10 years ago.

That tremendous savings would not have happened had I not shopped around. Had we been insured and thus insulated from the price information, we would have simply gone to the doctor and gotten the full workup and somebody, somewhere would be billed $1000 for the work. Or maybe not, maybe they would have charged $1000 to the insurance company, then discounted it by half, then taken out the deductible and the co-pay and settled for $125 in payment, or less.

So, which way was more efficient?

Oh, look! Another excellent example based on a real-world case: http://online.wsj.com/article/SB10001424052748704231304575091600470293066.html?mod=WSJ_Opinion_LEFTTopOpinion

And government did it!

Many locations are lucky to have a Doctor and have to drive for hundreds of miles for decent hospital.
.
Shopping for a cheaper deal, are we going to kick the tiers?. Do we know what we are looking for? Are we going to be treating ourselves? It is a perfectly good car madem and, for half the price

Kicking the “tiers” is perfectly acceptable for routine medical care. Why should you not know the price of what you are buying when you want to get a check up or be seen for that virus that’s been going around? Passing this mess of a health care bill will not magically place doctors in remote areas; sometimes, life is a bit tougher for some people. You can’t force a doctor to live somewhere that they don’t want to live.

In our current system of healthcare, the doctor doesn’t actually work for the consumer.

Follow the Money!

The consumer pays the provider a “co-pay”. If the doctor had to depend on this flow of money to exist, they would all be out of business in a week.

The consumer also pays the medical insurance company a “premium”. This is what all the hubbub has been about with healthcare reform.

The medical insurance company (aka, the payer) pays the doctor a “reimbursement”. This is where the doctors get their real money. AND this is where we should be focusing to create any real reform.

Now, just try to find out what any medical insurance is going to pay a doctor for any given procedure.

Here’s a scary truth for you — the doctor can’t even find out. The doctor is told to sign the contract and accept whatever the payer pays or else not have access to that payer’s population.

And, if you want to really get your eyes opened to the problem, compare reimbursement rates across multiple payers for the same set of procedures. (That is, if you can get around Stark and Sherman laws and actually get your hands on this data.) As a consultant within this industry, I’ve seen it. It’s mind-numbing.