Yet there are still many among us who refuse to believe that price honesty in an open market can “bend the healthcare cost curve” – let alone that it is essential for affordable healthcare. Not only does it work, but is less expensive for participants and also begets higher quality, being intrinsic to the proposition of a mutually beneficial exchange of value between buyers and sellers.
What does the price of gasoline and the price of a chest x-ray have in common? Not much really, except the price of both have gone up in the Atlanta area recently; but the former did so for expected reasons that are predicated on behavioral economics and the relationship of demand to price. The latter went up, well, because it could.
But the sticker shock that I’ve experience lately trying to find a price on a simple chest X-ray is not due to any shortages (either perceived or real) or any sudden increase in demand. Nor was it from a sudden increase in the cost of performing an X-ray or some phenomenal increase in quality that created a better image or less radiation exposure. Nope, none of the usual factors that go into predicting price behavior were at play.
THE WEDGE PRINCIPLES
- Transparent, Affordable Pricing
- Freedom to Choose
- True Patient Privacy
- No Government Reporting
- No Outside Interference
- Cash-Based Pricing
- Protected Patient-Doctor Relationship
- All Patients Welcome
The billing and payment system in healthcare is an economic joke and is indefensible. Given all that occurs in medical billing, it is impossible to make sense of pricing, thus the value proposition is incomprehensible.
Determining patient responsibility is not the same as knowing the price. Why should any payer (if they are paying the majority or all of the bill) pay more for strep throat in the ER than if treatment was rendered in a doctor’s office? It is precisely the low cost of entry to high cost venues for non-serious problems that allows this to happen, which is a direct result of the way we bill and pay for care.
In the ideal world, the advent of innovative payment models would arise out of the quest to find the “sweet spot”. That spot would seek to align incentives while balancing risk, maximizing efficiency, increase quality of service & outcomes and control costs. Our current system looks NOTHING like what I just described and it can never achieve those goals. So why do we put up with it?
Standard economic theory in healthcare assumes that demand for medical services is inelastic. Simply stated, inelasticity means that demand for certain medical services remains fairly high and constant despite rising prices; whereas with a commodity that is elastic, higher prices will cause demand to fall and vice versa.
While inelastic demand applies to high acuity and critical illness, a large portion of the medical care consumed in this country is habitual and learned based on flawed assumptions about treatments and effectiveness of intervention. Over-utilization is further exacerbated because of our perverse payment and billing model which drives artificially high demand with minimal price considerations beyond a small co-pay.
A peculiarity of our healthcare system that contributes to lumping the vast majority of medical services into the inelastic category is the fact that PPO health plans require virtually all encounters with providers to be billed under the health plan, regardless of how minor or regardless of necessity. This forces analysts and economists to look at aggregate utilization and spend; or average per capita costs and utilization rates based on claims and generally irrespective of medical necessity.
In reality, a significant portion of our medical care consumption in this country is elective, non-emergent and in many cases unnecessary – or at the very least forced into unnecessarily expensive venues such as urgent care or ER. This spans the gamut from colds to constipation and backaches to boo-boos and a whole lot of unnecessary visits in between (like work excuses for mental health days).
Indeed, this same segment of medical care consumption has the potential for much more price elasticity of demand than we have been led to believe. The problem is, our current method of buying and billing for healthcare services has resulted in neutralizing the market forces that would normally allow prices to be affected by demand in these areas.
Nowhere is this more evident than with the millions of annual visits to doctor’s offices, Urgent Care centers and Retail clinics for colds and other upper respiratory illnesses.
Read entire article via Common Sense Economics: Aligning Incentives with Evidence-based Care | Robert Nelson, MD | LinkedIn.