Notes From Babel

The Shroud of Mystery over Health Care Costs

with 4 comments

Kevin Drum shared this article from Miller-McCune on the differences—often drastic—in rates that hospitals will charge private payers, on the one hand, and Medicare, on the other:

In some cases, patients received charges 34 times what Medicare pays for the same procedure in the same location, the AHIP survey found.

For example, one doctor billed $4,500 for an office visit when Medicare would have paid just $134. Another doctor billed $14,400 for removal of a gallbladder when Medicare would have paid $656. And a hip replacement cost $40,000 when Medicare would have paid $1,558.

. . . .

Rice said people should know they have a choice even when their insurance company is paying the bill. “Everyone knows you don’t buy a car without knowing what the Blue Book value is. Well the same should be true in health care,” he said.

. . . .

Previous research published in 2007 in the journal Health Affairs showed the “uninsured and other ‘self-pay’ patients for hospital services were often charged 2.5 times what most health insurers actually paid and more than three times the hospital’s Medicare-allowable costs.” The study by Gerard Anderson also found the “gaps between rates charged to self-pay patients and those charged to other payers are much wider than they were in the mid-1980s.”

Rice agreed there’s been virtually no discussion of largely arbitrary pricing in health care.

I don’t know what to make of this, as I have no personal experience of it.  I can report that I have seen no menu of offerings at any hospital I’ve visited, but then, I’ve never asked, either.  I can’t imagine how it’s done elsewhere, though I suppose anyone could do more than imagine: since all everyone talks about is how the rest of the civilized world is a health care utopia taken care of by government, it seems there would be no opportunity to either know or care what a procedure costs.

At any rate, I’ve been hearing about such overblown costs enough lately, and I am not so devoid of childlike wonder that I can’t whip up some suspicion that it might in fact be true.  And in that event, I quite agree that it is high time that the lid on medical procedure prices be blown off.

The report also discusses the possibility of negotiating with hospitals:

“For historical reasons, providers make their billed charges really high because they expect to get paid a reduced amount,” Rice said. “You could even get a lower rate than in-network if you negotiate. But you have to do it on the front end and before you get treatment, because otherwise when you get a bill you’re legally obligated to pay, and they don’t have an obligation to reduce it.”

For emergency care, negotiating rates is out of the question. But typically only 10 to 20 percent of hospitalizations and doctor visits are emergencies, which many health plans protect against exorbitant prices.

Apparently, even insured patients can negotiate prices with hospitals.  Of course, where’s the motivation to do that?  Some people like to haggle for the sheer sport of it.  But most don’t.  And it certainly doesn’t seem a very brainy proposition to cool things off the relationship with the chap standing at the ready to cut you open.

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Written by Tim Kowal

August 21, 2009 at 10:53 pm

Posted in Health Care

4 Responses

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  1. When I had cancer in 2000 I negotiated with my doctors and oncology team upfront to pay them what the insurance company would (I didn’t want to involve my insurance company in my treatment for other reasons). Rather than the $75,000 plus “list price” I would have paid as an uninsured patient, I eventually paid $18,500. When I was in law school and my wife was diagnosed with cancer in 2005, the hospital mis-billed her radiology treatments and sent us a bill for $68,000. I forced them to resubmit (rather than acceding to their request that I pay the bill and seek reimbursement from Blue Cross – right) and Blue Cross paid the hospital less than $12,000.

    The dirty secret of the medical industrial complex is that it charges those who can afford it least the absolute highest prices. Why? Because hospitals and doctors can’t/won’t negotiate with all-powerful insurance companies (who pay doctors a rate that approximates minimum wage, circa 1970), so they take it out on their patients. The result is often bankruptcy (56-64% depending on your study of bankruptcy filings are primarily or partly caused by medical bills) or ruined credit.

    Doctors deserve a fair price for their expertise and good outcomes. Hospitals deserve a return on their often enormous capital investments. Insurance companies play both sides against the middle and the result is the current health care mess.

    I believe all Americans (not illegal aliens or even legal residents) should receive their healthcaare through a Medicare for all program. This plan would provide basic coverage at a low cost (possibly less than 4-5% of payroll for an employer/employee, or less than $1,500 per person for the unemployed) and those that want coverage for upgrades could buy supplemental coverage through private carriers.

    Basic health care should be provided by a government program or one that is 100% non-profit. If you want coverage for plastic surgery, Viagra, restless leg syndrome, dermabrasion or whatever other ridiculous condition and/or treatment you decide you want after watching Big Pharma’s ads, buy a separate plan.

    Certain services should be stripped of the “profit motive,” i.e., the desire to enrich the already rich by screwing all others. Basic health care is one area, like national security, that should not be in the private sector for the good of our nation.

    Tom Vogele

    August 22, 2009 at 8:51 am

  2. Those are great insights, and add some context to what I have come to suspect is the reality–that, as you put it, “Insurance companies play both sides against the middle and the result is the current health care mess.”

    I just balk at the leap from that reality to a “Medicare for all” program. Aside from the economic feasibility problems (which seem insurmountable, but I would need a Ph.D. and several hundred hours to form an opinion worth its weight), my real trouble, as you might guess, is based in political and constitutional theory. Ours is a Lockean tradition, a rights tradition: we cede some of those rights to the extent, and only to the extent, necessary to protect the rest. The idea that health care is a “right” doesn’t square with a Lockean conception. It is perhaps Rawlsian, in which constitutional “rights” are derived from a social compact created under a “veil of ignorance,” where we do not know whether we will be strong or weak, hearty or sickly. Whatever advantages of that notion of rights, it does not enjoy the status of being the American notion.

    As for removing the “profit motive” from health care, I noted recently that I thought the idea was intriguing. National defense, certainly. The prison system is also closely linked to one of the core Lockean functions that the state is “hired” to do. And we would certainly be right to object if corporations were ever hired to police our streets. But I can’t see how health care is related to these things. The state should protect us as consumers of health care services, help create transparency in furtherance of our ability to enter into free and enforceable agreements with providers of those services. Beyond that, I fear we lose the intellectual integrity in the way we talk about rights and the function of government if we start removing entire industries from the control of free people without more consistent constitutional underpinnings.

    Tim Kowal

    August 22, 2009 at 1:53 pm

    • Related, I really like these ideas suggested by D.A. Ridgley at Positive Liberty:

      1. The single most simple and effective reform of the U.S. health care insurance and delivery system, if you can call it that, that the federal government could quickly and easily accomplish would be to decouple health care spending from employment via tax reform. Cease making the provision of health insurance to employees a tax deductible business cost and / or make all personal health care spending tax deductible and see what happens. My guess is that a far more robust market for health insurance would emerge fairly rapidly.

      2. I hate to say it, but federally preempt state health insurance regulation to make such insurance portable and competitive throughout the U.S. If you can make a case that growing wheat for local consumption is a sufficient threat to interstate commerce to prohibit it, you can sure as hell make a case for nationwide health insurance regulatory standards.

      3. Of course, if the federal government were really interested in educating the American people about health care costs, it would ‘fess up to the fact that routine health care is a different sort of good than “catastrophic” medical care in roughly the same way that home maintenance and repair is a different sort of good than replacing the roof after a hurricane strikes. The former should, for the most part, be a regular, uninsured out-of-pocket private expense; only the latter should be financed by the average person through the purchase of insurance.

      4. The AMA and related medical professional unions and their captive regulators should be stripped of their monopoly on the delivery of various quotidian medical services, especially including routine physical examinations and procedures and the writing of prescriptions for medicine. (Of course, as we already know, if I had my way such pharmaceuticals would be freely available for purchase without a prescription by any adult. And, of course, we also already know that there are those who strongly disagree. *shrug*) Those willing and able to pay to see a licensed physician should be able to do so, too. The point is merely to drive down the cost of the delivery of standard medical services by significantly increasing supply, even if that supply in some sense constitutes a secondary good. Inferior medical care is superior to no medical care.

      Tim Kowal

      August 22, 2009 at 1:57 pm

  3. […] a comment » In this post, I joined the refrain of those who accuse the health care machine of manipulation and abuse by […]


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