This whole issue of “surprise bills” is a symptom of a more pernicious economic disease which has been driving prices in healthcare for decades; that being, a lack on discoverable, actionable meaningful prices for bundled medical services.
Moreover, the lack of transparent/actionable pricing in healthcare is a derivative of the manner in which we have chosen to code, bill and get paid for medical services.
And most of the legislative and regulatory fixes proposed do NOT correct the core problem.
The corollary being, there are no surprise bills when we use real honest pricing strategies!
Case in point…you will never have a surprise bill from Surgery Center Of Oklahoma. They publish easily discoverable all-inclusive prices for their surgical procedures. And, they offer same price to any willing buyer, because they aren’t controlled by network contracts.
Price setting or caps is not the correct response to the problem of this form of price gouging. This knee jerk visceral reaction is shortsighted. Price setting ALWAYS distorts markets in negative ways which are not always apparent; shortages or supply chain inefficiencies/interruptions/gaps are inevitable.
It is NOT the cost of medical care & and pharma that is the problem…It is the simultaneous lack of both transparent & actionable prices, combined with using proprietary contractual formulary agreements as a substitute for honest pricing, which has brought us to this dangerous fiscal precipice. Hiding costs by shifting them or redistributing them is same economically illiterate strategy which brought us Obamacare.
You pull into a Gas Station and discover that there are no prices listed on the pump, just a slot to insert your auto insurance card…only to find out your State Farm policy is not part of the gas station’s network! You just want to fill up and you are willing to pay cash, so you ask the attendant how much it is per gallon.
The response: “We can’t be sure until we know what your out-of-network benefits are… so you’ll need to pay a $200 deposit until the claim cycles through. If the gasoline is less than $200 you’ll get a refund; if more, then you’ll get an additional bill.”
Or you sit down at a Restaurant, open the menu to discover there are NO prices listed…Not only that, but you have to agree to eat the food and pay whatever price your insurance company says you owe!!!
This, my friends, is the sorry state of healthcare economics and a big reason why Healthcare is so expensive…because it isn’t the cost of care that is the problem; it’s the price we are being charged for the privilege of using our insurance!!!
It all began with a concept known as “Roemer’s Law.” If you ask anyone who has studied health economics or health policy in the last 50 years, “What is Roemer’s Law?” each will be able to tell you in an instant: “That means a built bed is a filled bed.”
Milton Roemer, MD, was a researcher and professor, mostly at the University of California-Los Angeles, who spent a lifetime (he died in 2001) advocating for national health systems around the world. He was involved in creating the World Health Organization in 1951 and Saskatchewan’s provincial single-payer system in 1953. His “law” was based on a single study he did in 1959 that found a correlation between the number of hospital beds per person and the rate of hospital days used per person. That’s it. That is the whole basis for “Roemer’s Law.”
“A built bed is a filled bed.” This little bumper sticker slogan has been the foundation of American health policy for 60 years. Hundreds of laws, massive programs, thousands of regulations at the federal, state, and local levels of government, all have been based on this slogan. It is the source of such concepts as “provider-induced demand,” and has resulted in centralized health planning, Certificate of Need regulations, managed care, and everything else currently on the table. Yet this “law” is both verifiably untrue and illogical.
There is a kernel of truth to it. When third-party payers pick up the tab, the usual tension between buyer and seller doesn’t exist. The buyer has no reason to resist excessive prices if someone else pays the bill.
But the believers in Roemer’s Law take that core idea to Alice-In-Wonderland proportions. They argue that, therefore, whenever a health-care provider wants to make more money, it simply has to sell more — more capacity equals more sales without end. So, the only way to reduce this endless consumption is to limit the capacity — place strict controls on the availability of services. But the notion fails for several reasons:
Healthcare Transparency initiatives like the Alexander-Murray bill are getting a tremendous amount of press lately; deservedly so. But are these measures a fix or a baidaid?
Keep in mind, out-of-network “surprise” bills would not exist if not for the market surrogate (poor surrogate that it is) that we call PPO networks, which serve to suppress competition by obscuring prices & quality.
So, it is not a stretch to say that surprise bills occur by design. The way we’ve chosen to finance medical care allows prices to hide among the placeholders in the billing cycle because doctors have become defacto billing agents for the carrier networks and their anti-competitive, contractually-mandated CPT billing protocols. And the rights to those codes are owned by the AMA and the RVU dollar conversion factor is determined by CMS which guarantees upward trajectory of billed charges which make the process impervious to price competition.
This whole problem evaporates when providers remove themselves from the contract and replace these unholy inflationary-prone agreements with real prices and/or transparent service agreements.
Fix the problem: Keep the contract between the subscriber and the insurer.
BS,what Princeton philosopher Harry Frankfurt once calleda “lack of connection to a concern with truth — this indifference to how things really are,” has probably been around since the beginning of language.
Health care has an acute BS problem, in part because BS can sometimes fill the bill.
“Suppose you are asked to address an ageless problem in health care: reduce costs while simultaneously raising quality. If you were knowledgeable to begin with or did some research, you would know there is no easy solution. You could respond with a message of failure or a discussion of inevitable trade-offs.
But you could also pick an idea with some internal plausibility and political appeal, surround it with careful but conditional language, and launch a program. It will, you note, take several years before it is successful, but you and your colleagues will argue for the idea in concept, with the details to be worked out later.
At a minimum, unqualified acceptance of such ideas, even (and especially) by apparently qualified people, will waste resources that could have been used to make the best of what we currently have, and will lead to enormous frustration for the audience of politicians and outraged critics of the current system who want answers and want them now.
The incentives to generate BS are not likely to diminish — if anything, rising spending and stagnant health outcomes strengthen them…
…educator, media theorist, and cultural critic Neil Postman said that “helping kids to activate their crap-detectors should take precedence over any other legitimate educational aim …
We have carried Postman’s banner into academia with two reports, one in 2018and another this year, that identify 21 different forms of BS in health care. Here are our top 10:”
Hats off to John C. Goodman again! His work in leading the effort for market-based healthcare reform over the past 4 decades, and highlighting the government’s role in the dysfunctional mess we labor in, is second to none.
This Forbes article lays out a most concise and accurate rendering of what healthcare has become and why…and what to do about it.
If you’re tired of the hearing healthcare pundits wax feverishly about their favorite villains and how more regulations are the answer; or if you’re just a novice starting to explore the Healthcare conundrum, Dr. Goodman’s work is required reading. I recommend starting here and then circling back to some of his earlier work. The book “PRICELESS” is a recommended next step!
As Dan Mitchell mentions in his post, much of the dysfunction we witness in healthcare are simply symptoms of the distortions that arise when we rely on a third-party payer system, with heavy government involvement, and all its perverse incentives which distort decision making for all participants. And so often the proposed “fixes” are aimed at mitigating symptoms caused by the third-party effect, rather than peeling back the layers to get to the root cause. Is it any wonder things aren’t improving despite billions and billions of subsidies, massive intervention, regulations and various forms of scrutiny!
This “third-party payer” system basically means market forces are absent. Consumers have very little reason to focus on cost, after all, if taxpayers or insurance companies are picking up the tab for nearly 90 percent of expenses.
As a result, we get ever-higher prices.
But we also get a lot of featherbedding and inefficiency because providers want to take advantage of this system.
The number of physicians in the United States grew 150 percent between 1975 and 2010, roughly in keeping with population growth, while the number of healthcare administrators increased 3,200 percent for the same time period.
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