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Since it won this month’s Sidney, I was reminded that I have neglected to link to Steven Brill’s brilliant article about the amount of gouging involved in health care markets. Not only individuals but private insurers simply can’t effectively bargain with suppliers and practitioners, which explains why state insurance systems are so much more efficient.
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I’m running out the door, but the great economist ken arrow made the definitive argument on this 50 years ago, not that any right-winger has read or thought about it. I’ll link to it when i’m in my office.
ken arrow’s 1963 paper.
in short, free markets require: a.) low barriers to entry; b.) relatively non-differentiated product; c.) informed buyers.
which of those sounds like the health care market?
And that’s before we get into things like market power and inelasticities of demand.
Brill gets into the whole “captive audience” thing in his article.
Nonsense, it’s easy to compare prices online when you’re having a stroke.
After you go on WebMD to make sure it’s a stroke.
Just remember – F, A, something, something.
Aren’t those the base chords for a piano?
I remember when I went to WebMD to learn more about the salivary gland tumor I had; you can come away thinking that you’re going to die.
And bombarded by advertisements for drugs that might help!
Arrow? Arrow? Isn’t he one of those Nobel Prize guys who isn’t at Chicago? Ignore him!
I bet he has a beard, too.
I bet he is really low on Leiter’s rankings. That’s how we know he has nothing important to say.
I posted this below, but, I think it makes a good response to your comment:
A little hard for supply and demand to work properly when you are faced with a choice of pay or die (or suffer). There is also a lot of monopoly power and collusion between providers.
If you don’t like the hospital’s cost for setting your fractured femur, you can always just walk away.
Harumph.
+1.
I’ve been in conversations with “healthcare free marketeers” who seem to think that you can obtain any genuinely necessary care just by showing up to an ER.
I like to pull out as a counterexample my ex who fractured an ankle while without coverage: the ER was happy to give her the requisite acute treatment, but when it came time for her to get the surgery to install a metal plate so that the ankle would heal properly, she had to pay up front.
For serious? There are a number of ways insurers don’t just bargain, they set the policy. One is the contract negotiation stage, when the doctor says “I want $500 for this service.” The insurer replies “$50? Certainly.” (The same could apply for the use of a new piece of diagnostic equipment – “It is $1,000 a go!” “$500? Okey doke.”)
Then there is the pre-authorization process where the provider says “I want my patient to have this service,” and after the provider submits the required documentation the insurer says “No.”
Or there is the passive aggressive denial of payment.
Another is when the insurer looks at utilization and notices everyone in their dog is performing a certain high-dollar service … after a lot of investigation and talk about patient harm and medical necessity, the AMA will come back with a procedure code that makes that service not attractive.
Oh, and it is becoming more and more common for private insurers to adopt Medicare’s policies. Interesting no? But not suggestive of insurers having their arms twisted, even a little bit buy suppliers or providers.
Wait, insurer denying payment is an example of good bargaining? Now I’m paying sticker!
Yeah, Shakezula is missing the part that comes AFTER the insurance company denies payment.
Also – the dynamic has changed quite a bit since the 90s, since there has been a lot of consolidation in the private sector hospital area. Now if a company like Wellpoint says “that procedure is $500″ and Aetna says “nope, we’ll only pay $50″, Wellpoint will quite often say “very well, we will no longer accept Aetna insurance”. You might think that would mean a loss of business for them, and it does, but apparently the impact is so minimal that this negotiating tactic works.
In the 90s insurance companies bullied small practice doctors into taking whatever they would give. Now the big “managed care companies” do the negotiation, and the insurance companies find themselves raising prices to keep their own executives flush.
(Add to that the entire funding model for “health insurance” is dependent on the health of the market, and when the market is down and investments are bad that’s when rates get jacked up to keep executive compensation at “levels appropriate to retain good talent”. That part may change with Obamacare now that there are floors to the percentage of premiums that have to be spent on patient care rather than “overhead”.)
Which would show you are a better man than I if I weren’t specifically addressing the issue of what private payers do and why saying they are hamstrung by providers is baloney.
Where was I? Oh, the 90′s vs. Today. Well, I am talking about what is going on today the doctors I deal with every day are consistently hosed by payers (and yes, the patients also share the impact of that hosing). However, I think you got close here:
OK, if payers want to make that their goal, that’s their choice. But to turn around and say this is proof the poor payers are at the mercy of providers and suppliers is a sick joke. “I had to do what he said or I wouldn’t have gotten my $1 million bonus!” Weep. Weep.
I’m assuming then that you’re dealing with private practitioners and NOT the big managed care companies who are the ones that are being discussed here.
Private practitioners are still getting hosed – which is why more and more of them are closing up shop daily and starting to work for managed care companies on salary instead of running their own businesses.
They’re getting even more hosed because they can’t really afford to NOT take a particular insurance and so they’re at the mercy of whatever pittance those companies want to give them, while the Wellpoints and the Cignas can push the prices for themselves down further.
You have to look at the whole market, not just the small business owners. Especially today when the small practices have rapidly become the minority.
I keep hearing that private practices are going the way of the dinosaur and it is true, there are certain specialties that hospitals are currently buying. (History suggests they will be selling them again in about 10 years.)
But from what I see, every day, the private practices aren’t going anywhere. They may be Transformering into larger practices, but again, the private practice is not an endangered species.
For one thing, the first thing that happens after the sale is complete is the doctors start bitching about the contract they signed with their new overlords.
Decepticons, specifically.
Uppity-votes.
A large multi-physician practice, even if independent, is in the ways relevant to this discussion more like a managed-care company than a small practice. Also, your observations on the state of play may hold true where you live, but in other areas, such as NE Ohio where I live, practitioners not employed by one of the area’s large health system are already an endangered species.
I am not sure that there are any of those here in my part of western Montana.
That depends on how the practice is set up. Sometimes you get better bargaining power. Sometimes you just get a bigger clusterfu – bunch of doctors.
I’m not talking about a specific region but the model you’re talking about is really unpopular with a variety of enforcement agencies. They do crop up from time to time and then break up again because someone gets greedy.
Look, in the Cleveland / Akron area there are three dominant hospital / clinic systems (Cleveland Clinic, University Hospitals, and Summa) and a few smaller ones. There are already very, very few physicians- including primary care physicians- who are not actual salaried employees of one of those systems- it’s been years since I saw a doctor who wasn’t. If your neck of the woods isn’t like that yet, it will be soon.
In Fort Wayne, I haven’t found any doctors that aren’t part of Lutheran or Parkview.
I often thought I did. Only turns out inside they tell you’re they are part of that network.
Private insurers pay much more than Medicare for everything. That proves they can’t bargain as effectively. They have some leverage, but nothing compared to the bargaining power of Medicare, and even less compared to what Medicare would have if its bargaining power weren’t hamstrung by legislators beholden to health industry lobbyists.
Everything is too broad a term, and again, I say it proves the benefit of rolling over in some instances is greater than the harm of standing pat.
Medicare is very conservative when it comes to what it will cover because not only is it hamstrung by lobbyist, but it is only serving a certain population (with some rare exceptions) and every cent it spends is subject to public scrutiny.
But say a company creates a new piece of diagnostic equipment. It will really, really, really want Medicare to cover it because if Medicare goes for it, chances are a lot higher that the private payers will quickly allow coverage as well.
It is also easier for a private payer to follow Medicare coverage. It saves the payer the trouble of thinking up a policy, may allow it to control costs by putting stricter requirements on the service and where the private payer also has a Medicare contract, it is easier for them to have one set of rules wherever possible.
You really need to go to the library and get this issue of Time Magazine. You have typed multiple misconceptions about the healthcare market in your thread.
That’s funny. Given I work in this shit every damn day and I’m willing to bet the Time reporter does not.
Maybe you ought to go read the article. It appears you’ve been kept in the dark.
Because the article is behind a paywall, let me quote from it here for you:
Emphasis added
OK folks. If anyone really honest and truly believes the insurer is the unwilling victim here I have a lovely bridge I am willing to sell at a completely reasonable price.
Let’s look a bit further down:
Dr. Lewin is too nice to say some greedy sod is making out like a bandit every time this test is ordered (without regard to whether it is a good idea to stick glow juice in patients unless it is strictly necessary). But once more and again, I say an insurer has a shit-ton of ways of controlling cost at the service level. One of them is to just say we won’t cover it. If you insist that the insurer has to do what the mean old hospital says, they could easily require pre-auth for the more expensive services or only allow it for certain patients … or gosh any of the things they already do and continue to do.
You mean like, say, demanding the starter test?
Cuz in this instance, they nodded their heads and wrote the check.
As I said, maybe you should read the article?
Have you ever heard of agency problems? There are few things more annoying in this debate than hearing someone complain from the provider side of things about the pressure from insurance companies. Guess what? US based insurance companies pay far more for medical treatment than insurance programs anywhere else in the world. And more than medicare. I don’t care if this is your day job, people have done studies, which I will trust over your biased anecdotes. The facts are indisputable. Even with all their tricks, private insurers still pay more. A lot more. And if you want to talk about individuals, yeah, they get charged far far more in the market than even the big private insurers. I’m not sure how this last fact does anything to address all the others we’re talking about.
So you’re saying that insurers would just do . . . what they actually do?
Seriously, what are you talking about? Insurers routinely refuse coverage for expensive services or new drugs, or require pre-authorization, or only allow for certain patients. Every year I have to get Topamax specifically re-authorize by my insurer, and I’ve been using it for a decade.
There’s hundreds of lawsuits filed every year over coverage denials.
Maybe the answer here is that there’s an antagonistic relationship between insurers and providers where both are trying to extract as much profit as possible. This explains why insurers are constantly trying to short providers and put obstacles in the way of treatment, and why payments to providers are so much higher than they are under UHC systems.
The insurers and the big hospital systems fight each other like dogs over a scrap of meat, and the patients and small providers are the scrap of meat.
“Oh, and it is becoming more and more common for private insurers to adopt Medicare’s policies. Interesting no? But not suggestive of insurers having their arms twisted, even a little bit buy suppliers or providers.”
Anything that the government does in terms of data requirements, collection, reporting, analysis, etc., can be copied by private insurers.
And then there’s idea that it’s possible to “shop” for healthcare. Even with non-emergent conditions, the average person just doesn’t know enough about medicine to be a very effective shopper.
I’m fortunate enough to be in a position that (a) I have dental insurance through my job (b) the idea that my insurance won’t cover a procedure doesn’t automatically mean I can’t do it.
Two years ago my dentist identified that I had two separate areas of gum recession that in his opinion were sufficiently advanced that if left untreated would eventually (as in years down the road, not next month) put me at risk for tooth loss. He suggested tackling one area ASAP, waiting four to six months to make sure I responded positively to the gum grafting procedure, and then going after the other. Sure! Got the procedure, insurance paid for about 2/3 of it, responded well, had the other procedure, insurance denied payment, I had to cover it all myself. Why? Because the first area had one millimeter more of recession than the second area, and that’s where MetLife drew the line for covering the procedure absent a multi-year documentation of progressive deterioration.
Afterwards, I wondered if, had I been a person for whom the procedure was prohibitive if my insurer didn’t cover it, I would have sussed all this out beforehand. And I’m not certain, but I’m pretty sure I wouldn’t have … the first time around I asked that they confirm my insurance would pay for it, they said it did, I wouldn’t have thought to ask again.
Last week I had a consultation with an oral surgeon regarding my wisdom teeth. I’m 32 and I’ve never had them looked at, but every once in a while for about a week or so they cause so much pain that I can hardly eat. I have medical insurance and dental insurance, so it didn’t even occur to me that it’d cost me more than a typcial co-pay. Luckily for me (I guess?) one of them is impacted, meaning my medical insurance covered the consultation; had it not been impacted I would’ve had to pay the cost of the x-ray, which of course wasn’t ascertainable without actually taking the x-ray.
How is a person who, though insured, may be without the ability to pay $110 for an x-ray supposed to make a “market” decision in this situation that isn’t just “stock up on ibuprofen and hope it doesn’t get worse”?
My dentist wants to remove my wisdom teeth “because they’re not perfect”.
…
…
I hate dentist. My insurance covers 60% up to a very low amount. I pretty much stare into his eyes when he suggests I spend a couple grand to remove my wisdom teeth instead of having to get fillings for like $50 a few times in my life.
I had emergency intestinal surgery four-and-a-half years ago. In the world according to the Heritage Foundation and Forbes Magazine, I should have told my surgeon that despite his medical degree, internship, residency, and twenty-plus years of practice, I didn’t agree with the alternative he gave me and that I would shop for something better and cheaper. The customer’s always right, after all.
Is it wrong to wish you could force these morons to live like that? Only they’d have to shop around and consider at least three providers before they could receive care.
Also, since rates for different parts of your healthcare experience seem to be “whatever you’ll pay” and have little-to-no real-world basis, shopping by price is impossible.
I’ve never been able to figure out what that means. It sounds like one of those bullshit “Everyone will get a pony after mumble, mumble Profit!” things lunatics say. The assumption is the provider isn’t going to kill you through malice or neglect. What does the ability to shop for a provider do for anyone?
I can find the worst of the problem providers because I know where to dig, I have the time and frankly, I work in this shit every day. If someone wants to create more transparency about provider performance, more power to them.
Also, in my neck of the woods “Doctor shopping” is a bad thing. Heh.
Here’s the thing: shopping for healthcare is fine, but that’s not where the doctors make the profit. You’ll save a buck here, $5 there, but the big money comes when you’re in an urgent situation and simply have to have a procedure done.
The only practical way to shop for medical care is to get a recommendation from a trusted source.
When Romney visited Israel last Fall, he had the gall to compliment them on their healthcare system (which gets results similar to ours but only spends 8% rather than over 17% of GDP) and then return home and continue advocating for market based solutions for bringing down healthcare costs! There are simply too many factors in healthcare markets that keep them from ever functioning efficiently and empirically, single payer systems have been performing better than “free market” approaches.
This was a particular amusing episode because Israel’s healthcare system is not exactly run by the government but does interefere a lot.
The way it works is this. The Israeli government gives four HMOs a monopoly over all health care in Israel. Every Israeli citizen has to enroll in one of these HMOs. This costs them for money. For free, each HMO has to offer a range of services to each member. This is determined by the government. The funding for these services comes from the government. To earn additioanl services, the HMO may sell additional services not on the government’s list to their members.
I just finished rehab from a $41,000 routine spinal surgery (ACDF at C5-7) from December 2012 and, frankly, the healthcare system is so redundant and backwards, I don’t know if a stripped down corporate model or a state-sanctioned model would be better.
But I think either would be simpler and more streamlined.
To me, it was the lack of strength private insurances companies have in negotiation, along with the fact that non-profit hospitals gouge as badly as for-profit hospitals, that was a real eye-opener in the article.
On the other hand, I already knew Medicare was the best insurance plan an individual who wanted to keep his medical costs low could possibly have.
I believe the ACA was a stalking horse, so the next President would be able to introduce single-payer.
I’ve thought this, though I’m not sure the timing is realistic. But down the road I could see it happening.
From your mouth to God’s ear!
It’s not just that health care markets work differently than other markets… it’s that they are so different that a paper explaining why they were different became the modern foundation for entire disciplines of economic analysis (information asymmetry, adverse selection, etc) for which multiple people have won Nobel Prizes. A few of whom were actually students of the guy who published that paper fifty years ago.
And the circle is complete.
Serves me right for not reading the comments first, but I still think its worth noting (A) the massive and sustained influence Ken Arrow’s work in medical care markets had on economics as an academic field and (B) that, despite this, his work has been ignored by many policy analysts and economists on the subject in question.
I’m not really sure why (B) is the case, but I’d bet money that it has something to do with America’s Free Market Fundamentalism creating a set of preconceived notions that must hold true in all situations, and emphatically true in situations where they’re very clearly false.
Well said! I particularly like the “Free Market Fundamentalism” characterization. Although, I wouldn’t attribute it to America as a whole. There are many, perhaps a majority, who reject the notion that the free market is the magic elixer that will cure what ails you.
No pun intended.
First medicine is not healthcare, it is “disease care” based on the allopathic/pathology paradigm. Nor is healthcare (basically diet and exercise), covered by disease care insurance.
Second, the reason that markets in “medicine” don’t work is because: (1) medicine is NOT healthcare, it is “disease care,” and (2) when you are sick you have no bargaining power. When you or a loved one is sick, you pay. You can’t say no, you can’t shop around because it’s a waste of time, and you can’t wait for next years model. You just pay.
I could say, and have said, much more on this subject, but, I don’t have the energy right now. Maybe later.
Oy.
Alt-silliness in force! Lovely!
Could you translate that in to English?
Oh, I think you know what I meant.
“Allopathic” is a code word that alt (i.e., fake) medicine advocates use
That sort of quackery is something I have absolutely no patience for. Zero, zip. You should be ashamed for using such a term or buying into that nonsense.
BTW, I recognise that this isn’t particularly constructive or attempting to engage. Sorry, as I said, this is an area where I have no patience whatsoever.
You are clearly a running dog for the oppressive forces of allopathic-iatrogenic* man-icine**.
* actually seen in the wild
** seriously, this too, I am not even kidding
I am indeed and proudly so.
I don’t know, or care, about pejorative code words used by alternative medicine.
Allopathy is “drug based medicine.” The allopathic/pathology paradigm is the practice of treating disease with drugs which often causes more harm than good, sometimes much more harm than good, and is the subject of the most vile abuses and corruption by medical capitalists including the brainwashing of medical students into this flawed and largely failed paradigm as a belief system.
You don’t know what a quack is, and you should be ashamed for being such a brainwashed ignoramus.
I just completed my (s)CAM buzzword bingo card.
Oh! I like “(s)CAM” a lot!
Shamelessly stolen from Science-Based Medicine
Medical science suffers from that well known pathology – capitalist based fraud and corruption.