Thursday, July 16, 2015

Quickies: Competition Conspicuous By Its Absence

     The esteemed Charles Hill makes an important observation this morning:

     What’s the single worst aspect of our current — and probably future — health-care system? If you ask me, it’s the fact that situations like this are possible:
     [A] few months ago a doctor told me I should have a test, an angiogram, just to be safe. How much would it cost? The doctor had no idea. Nobody had any idea. If I wanted I could call up my insurance and be put on call waiting for half an hour to finally be told they had no idea. But, hey! Everybody wants to be safe, right?

     Today I got the bill. Turns out it cost $7300. Who knew?...

     How do they not know this stuff? Do they just make the numbers up afterwards?

     When the price of a service is kept from the purchaser before he commits to buying it, competition on the basis of price becomes impossible. Thus, medical services can compete with one another solely on the grounds of reputation...and reputation can be misleading, for as the brokers’ ads are always telling us, past performance is no guarantee of future results. (Besides, in any malpractice lawsuit the corpse will be at a significant disadvantage against the doctor.) Charles concludes most somberly:

     [A]voiding competitive activity is at the very heart of American health care, a situation which the ACA does absolutely nothing to alleviate — but then, it was never intended to.

     Indeed, if we infer intentions from results, the opposite was intended...and achieved.

     In point of fact, whenever government intrudes into a market, that market becomes less competitive. Whether by licensure, by regulation, by taxation, by subsidization, or by outright nationalization, the intervention of a third party capable of coercing the other two dominates all considerations, including those of price and quality. The history of such interventions is quite clear.

     So why do so many people continue to look to the State as the proper responder to “market failure?” Especially as “market failure” invariably amounts to nothing more than some blowhard’s opinion about what the price of some good or service “ought to be” -- ?

     Food for thought.


Jason said...

This is a price discovery service that my company provides as a benefit. Since my health plan is a savings account, this is every bit a critical tool as reading reviews of doctors. Not sure if it's available to private parties, but competition says that if there isn't one today, there will be.

Reg T said...

Just had back surgery recently. The doctor charged $30k, the hospital, $70k. The doctor's fees were reduced to $6k, while the hospitals were only reduced to $65k. Hospitals obviously carry more clout with the insurance companies.

Of interest, four tiny devices (two each) were placed between the three vertebrae (this was a two-level fusion). They are called interbody "cages", and measured approximately 1" long by 1/2" wide by 1/4" high, and the two spaces where the discs had been located were infused with a very small (by virtue of their size) amount of bone growth stimulant, in order to promote fusion between the vertebrae.

They were $11k _each_, for a total of $44k. Approved in full by the insurance company. I was unable to discover what they cost the hospital from the company that makes these "cages", but even if they were made from the most expensive of medical alloys, I believe the cost was far in excess of their value, even including amortizing the cost of the technology of their manufacture.

As you said, the medical institutions can charge anything they want.

Unknownsailor said...

Yes, they can, but this is because Government lets them. Do some research, and you will find that hospitals (as well as pharmaceutical companies, and insurance companies) are largely exempt from anti-trust regulations, as well as pricing regulations.
No other business operates the way hospitals do. You get a quote for car repairs before they are performed, and a phone call if they need to deviate from that quote, which they cannot do without your permission. This is almost impossible to obtain from any other hospital, save one: The Surgery Center of Oklahoma
These government authorized anti-competitive pricing practices are why medical costs have gone up faster than inflation ever year for near on 40 years.

Reg T said...

The Unknown Poster: I _did_ get an accurate quote from my doctor for his fees, but I didn't think to get one from the hospital. I never imagined that the hospital would charge more than _double what the doctor - providing the greatest amount of skill and training - charged for all of the work involved in a two-level posterior lumbar inter-body fusion. Nor that the hospital would provide - and charge so much for - the cages placed between the three vertebrae.

Yes, having worked in four different hospitals over the years (in the ER, OR, and pharmacy) I knew there would be significant charges. I had no idea how _much_ they would charge, let alone that the insurance company (Blue Cross/Blue Shield) would allow almost all of the charges at the hospital's listed prices.

The neurosurgeon's fees were drastically cut, as were the fees of the company which monitored the response of my nerves being retracted and moved out of the way and which provided the equipment (very simple, actually, like that used in doing myelograms) and man monitoring it.

David L said...

Deninger over at Market-Ticker has numerous excellent posts on this subject. Much collusion between the Gov't, insurance companies and pharmaceutical companies. There's are reason why the only cash-on-the-barrel-head institution - The Surgery Center of Oklahoma - mentioned above have charges that run about what a patient's deductible would be with insurance.

As a physician, I realized years ago that (a) my charges which were in proportion to my my efforts had nothing to do with what the insurance company actually compensated me (3 −6 months after submitting a bill) and (b) medical insurance works against affordable medical care - it is close to illegal for me as a physician to waive a fee for the little old lady on a paltry fixed income....

The system is dreadful! And ObamaCare only magnifies the worst aspects and may be the final nail in the coffin.