Pricing Transparency And Impure Thoughts: Health Reform Follow Up

I recently had a message in the comments section that prompted me to respond. The response took so much space that I decided that I would post it here as an article. I do appreciate everyone reading and leaving their comments and questions on the blog.

Tyson Wrote - 

"I enjoy reading your blog and your perspective, and as a fellow Texas I understand some of the issues with getting reasonable health insurance for a family that meets basic needs. I'm interested in what you think would bring about "transparency...cost reductions...and plans available to all at reasonable costs"? Do you think Congress had impure motives with this legislation, or are you just skeptical that it will actually improve health care in America? If the latter, can you point to a legitimate proposal you like that might be more effective? "

Tyson -
Thanks for the kind words. You asked a couple of questions and the responses are longer than I expected!

1) Transparency -
I believe there should be a requirement (via legislation if necessary) that all physicians charge only their cash-price or in network price. In other words we do need a mandate that states that you cannot set up systems to to discriminate between clients. This is critical because the system you have now prohibits real price discovery and invites fraud.
In my opinion, the retail price on many doctor's invoices are simply made up numbers that don't mean anything in reality. Why?

If a patient has insurance, then the cost they will pay is the negotiated rate with the carrier. If a patient doesn't have insurance then his rate will be the "cash rate" if he is poor enough or smart enough to ask for a cheaper cost than the invoice price. The only person that pays for the invoice price is the one that is a very wealthy patient or the fellow that doesn't ask for a better deal or the uneducated masses that don't know the game being played.

Hospitals go further knowing that these prices are meaningless and therefore may have posted rates of 3 times or 4 times the actual negotiated rates for reimbursement. A recent news story in Houston about the cost of delivering babies noted that the all in hospital costs billed were close to $18,000 for a delivery. The actual payment (whether cash or insurance) was more like $7,000. Quite a difference and more revealing it shows that pricing is really a scam.

I guess the motivation here is that once in a while hospitals will get the wealthy cash paying individual that will pay the fully loaded cost and not bat an eye-lash. I would also assume that for-profit-hospitals could also use this as noncollectable losses they write off at the much more expensive grossed up rate. Last, I would guess that the hospitals would argue that they need that one "sucker" to help cover the unreimbursed costs of the other 6 or 7 that didn't have insurance and didn't pay.

The one price system would also create the desire for some physicians to actually post the cost of procedures. Right now they can't post those prices like they do for elective procedures because there are so many different prices that they are managing (1 price for each network they contract with along with the cash price and the wealthy guy price). Once price transparency is established there will be price competition. How many flyers do you see or get in the mail for Lasik surgery?

The answer is probably lots! I got one the other day with an offer for $450 per eye! Does that mean that I will choose that physician or clinic? Not a chance, but at least I have a frame of reference for price. My wife had Lasik surgery done about 1 year ago and we choose a medical setting and payed much more than the Lasik special, but that was our choice! We knew there were other options and could price the differences. We also paid cash and didn't have insurance involved. Efficient markets work!

Some might counter that a one price system causes all buyers to pay more, and I know that this is probably true in the very short run, but as real market forces play out, competition will win out over time. New entrants or bigger competitors will demand that competition prevail.

2) Do you think Congress had impure motives? Yes and no. Believe it or not, I'm not 100% against a universal health care system. I simply believe that you must have the debate about whether this is what the people want. I guess this is where I feel like Congress' intent was hidden. I think that Democrats just wanted to "do something" that would nudge the system toward a state sponsored health care system – and that is fine, they just need to come out and say, this is what we are doing and we don't care about the loss of personal service, control, or the actual cost.

Your question is interesting too because you ask if I think it will improve the system. The answer is heck no! I don't even think that the intent is to "improve" care, their intent was to make more care available by restructuring the way America paid for the costs. In other words, they wanted to remove the impediment for poor people to go to the doctor versus going to an emergency room. It had more to do with payments rather than improvement of care. It had more to do with the hope and the idea that more people would get access.

The other issue is that this bill had little to do that controlled costs. Yes, there were concessions from Big Pharma, but they knew that they would get a huge payoff in the form of a government sponsored kickback down the line. The same deal got the insurers on board. The one thing that was touted to focus on cost was the medical records initiative that would save us billions! While I think this endeavor will provide insurance companies and physicians more access to records I'm not sure it will save us that enough to put a dent into the massive costs coming our way. In addition, I can think of all sorts of ways that health insurers could discriminate using a complete medical history if the health care reform act is overturned.

Finally, I found it laughable that our President said that we'd find $500 billion in waste and fraud in Medicare! My thoughts were very simple, if it was so laden with waste and fraud why does it take a spending measure that costs trillions to make us get off our rears to save $500 billion?

Last, this legislation wasn't written by the people or even lawmakers. It was written by lobbyists and other special interests that have a desire to obtain taxpayer dollars and are more than happy to lock the US into a national health care system. The bill was simply huge and had so many other attachments we cannot possibly know the true impact on our health care system or economy in terms of cost or improvement in health care delivery.

You asked if I have seen any proposals that I'd point to that would be better, the answer is a flat no. Congress and the Senate need to scrap this initiative and attack this problem in a piece by piece fashion. I think my idea about price transparency is a good start.


Posted on February 3, 2011 by Jason

We saw a great example of bi-partisanship as Democrats and Republican Senators came together today and voted to repeal a portion of the Patient Protection and Affordability Act.

The Senators voted to remove the stipulation that was set to go into place in 2012 that required all businesses to 1099 anyone they paid for goods or services amounts greater than $600. I mentioned this little tidbit that our great leadership put into place a while back. The idea of this innovation was that the US Treasury loses about $17 Billion a year in taxes because companies don't report all of their income. Think about it like this. A contractor comes to your home and installs a door. You pay the guy $500 to do the job and you pay him in cash. In this case, this guy may not report the income because Uncle Sam doesn't know that the transaction occurred.

So, just like every "precision" guided bomb, I mean action taken by the government they slipped into the Health Reform Bill the requirement for EVERY BUSINESS IN THE UNITED STATES to issue a 1099 to each business or contractor for EVERY PURCHASE OF GREATER THAN $600!!!! Imagine the complete stupidity of this. This government spends $17 Billion in mere seconds, but it was willing to make every business in the United States add significant costs to their accounting reporting to capture $17 Billion!

Let's look at a few simple examples. Each year my health agency buys a computer or two. If I purchase those computers from Best Buy (wouldn't do it, but run with me here) I will need to 1099 Best Buy! Wait, it is even funnier. I just saw a gold commercial, so let's just say you inherited an ounce of gold in December of 2011. If you decided to sell that ounce of gold to a coin shop for $1400 in January of 2012, you'd also receive a 1099 at the end of the year! As I mentioned back in 2010, the only ones that benefit from this piece of legislation are the government and the accountants.

To wrap up, it is a great thing that the Senate took steps to repeal it (now this must somehow be paid for to really get done), but as usual this doesn't really impact healthcare accessibility, pricing transparency, and it doesn't impact the cost of healthcare. I'm commented so many times before that all of this reform has little to do with healthcare or costs, it really is about control. If this law was about healthcare, you'd see some meaningful changes that would make access available to more people at an affordable cost AND it would not be implemented in a fashion to hurt people like it will over the 3 year transition period.

Where is the pricing transparency, where are the cost reductions, where are the plans that are available to all at a reasonable cost? Great move by the Senate, but once again falls short of all the promises.

Jason W Bohmann
Texas Health Design