What if purchasing medical products and services were like buying peanut butter? Grocery stores have several brands and varieties: smooth, chunky, old-fashioned, natural, organic, no added sugar, reduced fat, no-stir, and pre-mixed with jelly with clearly marked prices ranging from $1.75 for the store’s generic brand to $7 for the over-priced Yuppie brand. After carefully examining the labels, our shopper chose a 16-ounce, $5 jar of no-added-sugar peanut butter. She paid the cashier $5 for the peanut butter and went home.
If our shoppers were transported to the universe of medical billing with the $5 jar of peanut butter, the shopper with Medicare would pay $1.00 but her grandchild will be presented with a bill for $4. When the shopper with private health insurance attempts to pay, the cashier becomes unglued. The shopper cannot say whether she met her deductible or has a co-payment, and whether the brand of peanut butter is approved by the network. She really wants the peanut butter so she grabs the generic from the shelf and pays the $1.75. Our privately insured shopper was pleasantly surprised at the generic’s good taste and healthful ingredients, her wallet was happy for the cost savings, and she was glad not to have the middleman hassle.
Comparison shopping is one pillar of bringing sanity to the high cost of medical care, but the opacity of the pricing system for medical costs limits the value of posting list prices to encourage lower costs through shaming, competition, and choice. In addition to research and development, manufacturing, and distribution costs, drug costs are affected by additional layers of middlemen: pharmacy benefit managers (PBMs) and insurers. Using a “trade secret” process, PBMs negotiate discounts and rebates for private and government insurers. The money saved is supposed to go back to the government (taxpayers) or to insurers to lower premiums or otherwise benefit patients. PBMs typically are paid by a percentage of the rebate or discount off the list price. The higher the price, the bigger the rebate. Thus, the rebate system gives an incentive to raise list prices rather than placing the lowest-priced drug on the insurer’s formulary. (This same system is used by Group Purchasing Organizations (GPOs) for hospital product purchases.)
An analysis of the effect of California’s 2-year old drug price transparency law illustrates the complexity of pricing. Despite being compelled to post list prices, pharmaceutical companies raised the list price for wholesalers by a median of 25.8 percent but the data did not indicate the “price” that consumers actually paid. Moreover, with medical services and products the simple What the Market Will Bear (WTMWB) pricing method works because either the medication is essential (e.g., Epi-Pen®), has no alternative, is in short supply, or the medical consumer is not paying directly for the services.
Similarly, publishing hospital the charge description master (“chargemaster”). i.e., the standard industry price does not give consumers enough information to make a rational choice regarding elective medical services. The data necessary to make price comparisons depends on an individual’s circumstances. More relevant than the chargemaster price, a self-pay patient needs to know the lowest possible cash price. A patient with health insurance must know (1) whether the hospital is in the insurance network, (2) the price negotiated between the health care provider and insurer (including Medicare), (3) the amount and method of calculating cost-sharing, (4) the amount Medicare or other insurer will pay for services performed in a physician’s office in contrast to the hospital which tags on a “facility fee.”
Transparency is one tool for lowering costs through choice. As one of many studies on hospital consolidation noted, “The Sky’s the Limit” on prices where there is lack of competition. But the difficulties of achieving useful price transparency must not be a cue for the government to initiate bureaucratic band-aids. As we have seen with Obamacare, forcing insurers to pay more of the costs leads to higher premiums, deductibles, and/or co-pays.
Nor should the government impose price caps. President Nixon’s 1971 wage and price freeze brought product shortages—which we are already facing with certain drugs, including anesthetics and chemotherapy agents. If the government sticks to enforcing anti-trust laws, a competitive market will thrive. The court house door anti-trust settlement by Northern California’s Sutter Health sends a message to big hospital chains to stop using their market share to inflate prices or require insurers to join their networks on an all-or-nothing basis to prevent insurers from negotiating lower prices at individual hospitals.
If we can get to the point of direct exchange of money for goods and services and reserve health insurance for major expenses, we can see costs decrease just as we have seen with the Surgery Center of Oklahoma over the last 10 years.
Dr. Singleton is a board-certified anesthesiologist. She is Immediate Past President of the Association of American Physicians and Surgeons (AAPS). Her opinions, medical or otherwise, are her own. She is a guest columnist and this is an edited version of her article originally written for pennypress.com, reprinted with permission.
The high cost of medical care is on the lips of every politician and draining the pocketbooks of most Americans. After creating the Medicare/Medicaid monster, the government’s expanded intervention into the medical care marketplace with the inaptly named Affordable Care Act doubled the premiums and deductibles for both employer-sponsored and individual insurance. Piling on more laws, regulations, and agencies is not the answer.
Anonymity, complexity, and opacity invite shady behavior. Individuals, companies, and patients who defraud the massive federal “health system” would never dream of lifting money from their patients’ wallets or stealing from their doctors’ cash drawer.
The government’s track record does not bode well for imposing more bureaucracy to remedy a problem created by the layers of third-party payer bureaucracy. Waste, fraud, and abuse are so rampant that the government has a Medicare Strike Force to root out and recover lost federal funds. Medicare fraud—about $60 billion in 2016 alone—is about 10 percent of Medicare’s total payments. By contrast the typical private business loses 5 percent of its revenues to fraud. Unfortunately, since its inception in March 2007, the Medicare Strike Force has recouped less than $2 billion per year in misappropriated funds.
Medicare’s $16.7 billion per year hospice program is fertile ground for the unscrupulous. Hospices are paid a fixed daily sum for each patient enrolled “regardless of the services provided.” One amoral scheme recruits patients who unknowingly forgo curative treatment options by joining hospice. A recent Office of Inspector General (OIG) report revealed that in 2012 hospices billed Medicare more than $250 million for services to patients in long-term care or assisted-living residences who did not require hospice care, costing four times more than the appropriate level of care. Even worse, the OIG found that the quality of care suffered in 31 percent of programs. The bureaucratic morass allows the perpetrators to pocket the fixed fee and skimp on the services.
Further, the government cannot keep track of its program dollars. According to another OIG audit, in 2009, Medicare Prescription Drug program paid $33.6 million and hospice patients paid $3.8 million for medications that should have been included in the hospice daily fee. Even after discovering the snafu, the problem got exponentially worse. In 2016 the government paid $160.8 million for drugs that hospice organizations should have paid for from its fixed daily fee. Our tax dollars paid for the drugs twice.
Physicians know what patients want and are acting on it. Free from the restraints of government “healthcare” programs, the physician-led, price-transparent, direct-pay Surgery Center of Oklahoma performs some surgeries for less than the copays of some insurance policies. Direct Primary Care physicians provide 24/7 access and basic labs for as little as $50 per month with at-cost medications and low-priced x-rays.
The corporate private sector has learned a thing or two from innovative physicians. Care Accelerator is Sam’s Club’s version of “affordable [medical care] options with transparent pricing.” To offer relief from high out-of-pocket costs, $50 (individual) to $240 per year (families) buys access to lab screening for diabetes and heart disease, free generic drugs, telehealth, and up to a 30 percent discount on vision, dental, and other ancillary services. Additionally, Walmart is training its own employees for jobs in the health sector and ideally to staff Walmart’s own medical services. For their employees, Apple has “health care built around you” with its AC Wellness that offers office and home visits; Amazon launched its Amazon Care telemedicine services.
Given the outrageous price of drugs—largely due to the pharmacy benefit manager middlemen—Good Rx discount coupons are just what the doctor ordered. Good Rx is free to the consumer and makes money from advertisements on the website and referral fees. One typical victory is a Medicare patient whose neurologist prescribed a drug for his Parkinson’s disease symptoms. The government demanded testing that could not be done because of the patients debilitated condition. Despite a sympathetic ear and supporting research, the government arbiter could only parrot the party line: because the drug was not on the “list,” it was not covered by Medicare. In a fortunate twist of fate, with a Good Rx coupon the patient paid $34 per month cash instead of the drug’s $1,100 per month price with 20 percent patient co-pay that would have been charged through the Medicare Prescription Drug program.
Congress claims it plans a full-frontal attack on the high cost of medical care (with the same results as the war on poverty and drugs?). Frankly, we are better off with Congress engrossed in its impeachment clown show and keeping its nose out of our medical business.
Dr. Singleton is a guest columnist. Her opinions are her own. Dr. Singleton is a board-certified anesthesiologist. She is Immediate Past President of the Association of American Physicians and Surgeons (AAPS). She graduated from Stanford and earned her MD at UCSF Medical School. This is an edited version of her column that originally appeared on pennypress.com. Reprinted with permission.
Bernie Sanders is strongly promoting “Medicare for All,” and claims to be its father (“I wrote the damn bill,” he proclaimed to the nation during the second round of Democratic Presidential debates).
His plan does not look like Medicare at all. It appears that he hardly knows anything about Medicare. He probably has no experience with it. Despite his advanced age, he does not need to depend on it. Members of Congress are allowed to receive Medicare benefits, but unlike most other Americans, they can receive other benefits in addition.
Sitting members of Congress can get routine examinations and consultations from the attending physician in the U.S. Capitol for an annual fee. And military treatment facilities in the Washington area offer free emergency medical and dental care for outpatient services.
Members are also eligible for the Federal Employees Health Insurance Program, and they won’t be kicked off as soon as they reach Medicare age. They do have to go through an Obamacare exchange, but it is a small one, the DC Health Link, which reportedly functions well. There are 57 gold-tier plans to choose from, not one or two as in many states. Their portion of the premiums could be as little as 25 percent of the total premiums. Apparently, subsidies for senators don’t run out just because their salary exceeds 400 percent of the federal poverty level.
Funding for Medicare for All will apparently be vacuumed up from all other sources of payment for “healthcare,” and will go into the big collective pot. Then people can get everything without premiums, copays, or deductibles—so they say. This is not at all like Medicare.
Medicare Part A, for hospital care, is funded through the Medicare payroll tax: a 2.9% first-dollar tax—no deductions--on all employment income, half of which is paid by the employer. Seniors believe that they have been funding this through their working years, as they are constantly told. They have indeed paid, but their taxes were immediately used to pay for the care of older retirees. So, their hospital bill today will be paid from the wages of about 2.5 workers (say the persons pumping their gas, collecting their trash, and repairing their plumbing). Already that is not enough, so the IOUs in the “trust fund” are being redeemed from general tax revenues. That fund will soon be gone, according to the Medicare trustees, as Baby Boomers are flooding into the system. It would vanish in a nanosecond if we loaded in everybody, with or without illegal immigrants.
Medicare has long been implementing ways to curb runaway expenditures. From the mid 1980s comes the Prospective Payment System, or Diagnosis Related Groups (DRGs), under which payment has nothing to do with services rendered to a particular patient. According to my 1985 “Ode to DRG Creep”:
“Now the pay’s by the head, if alive or if dead,
Diagnosis determines the money,…
We need costs less than average, and discharges quicker
We will get no advantage -- For care of the sicker.”
Since “quicker and sicker” discharges might cause a need for readmission, the government penalizes hospitals for readmission. One way to prevent readmission is to discharge to hospice or directly to the morgue. If Bernie were an anonymous Medicare patient, he’d get a consultation on POLST. That’s Physicians Orders for Life-Sustaining Treatment, which translates in the Newspeak Dictionary to “Legally Enforceable Orders to Terminate Life-Sustaining Treatment Including Food and Water.”
Bernie might think he had been admitted—say he had an IV in a hospital room. But if he gets discharged before his second midnight, he might be classified as an outpatient, which is covered under Medicare Part B, and get a “surprise” bill for thousands of dollars, because of the “Two-Midnight Rule.”
Or Bernie might expect to have a little rehab after an orthopedic procedure, but if he is in hospital for fewer than three midnights, rehab isn’t covered. He might have the choice of paying out of pocket, or going home where he will be alone, unable to get out of bed.
Yes, Bernie on Medicare will have free choice of doctors—except for the ones who aren’t accepting Medicare patients.
If Bernie himself were stuck on Medicare with no way out, he might think it not so wonderful. Has anyone heard him tell people about these Medicare problems?
Maybe he means the Canadian Medicare system. It does have a way out for non-senators—called the United States.
The Trump Administration has vowed to put an end to “surprise medical bills.” But this may be easier said than done.
Reports of “sticker shock” have exponentially grown over the years and consumers want transparency of what their health care visit is going to cost. However, the average physician, nurse practitioner, physician assistant, hospital, medical center, etc. don’t know themselves until the insurance company sends an EOB “Explanation of Benefits” delineating what is discounted, what is covered, and what is the patient responsibility.
So to start, President Trump is asking Congress to address those charges incurred by “out of network” facilities to which patients go to in an emergency setting. Wanting to hold “insurance companies and hospitals accountable,” President Trump wants to put an end to patients getting charged for “services they did not know anything about, and sometimes services they did not have any information on.”
Can he do it? Politicians on both sides of the aisle want to help curb health care costs, but both sides want to get the credit. There’s race to see who could do more for healthcare before the 2020 election.
There’s a few reasons why cost transparency in an emergency medical setting is challenging.
Firstly, insurance companies aren’t transparent to hospitals. They only inform the medical facility of the out of pocket costs once they take weeks to review the claim. This can be streamlined and cut down in time with software, but same day pricing by an insurance company is impeded by the need to see if the patient paid (or will pay) their premiums that month, or if they are still employed and have the same active insurance.
Secondly, patients don’t always know what their diagnosis is when they walk up to the front counter. Some may think they have a “cold,” but actually end up having a bout of pneumonia. Some may think they have a “stomach bug,” but after CT confirmation, learn they have appendicitis. Hence until the medical provider performs the evaluation and testing, a diagnosis and then “cost to treat”, cannot be given.
Finally, patients may not prefer the “cost factor” added into their facilities’ decision making. If they pay a certain amount for a visit and end up needing more pain control, a repeat breathing treatment, or some extra bandages, they may not want to have to take out their wallet, sort of speak, each time they need more services.
As a physician who, for years, pleaded with insurance companies to give us an idea of what they would want a patient to pay, I’m for any campaign to increase price transparency and offer patient’s more choice. However, since medicine and health can be unpredictable, coming up with predictable “costs” may prove difficult.
Intensified by the early fight for money and backers among Democratic presidential hopefuls, Medicare for All and similar single-payer insurance programs have been promoted with increased volume. While there are differences among the “I’ll give you more for less” sales pitches, they share the common central premise that such plans have far lower administrative costs than private insurance, so their version of reform will produce a massive infusion of available resources.
However, the “proof” offered for those administrative cost savings claims mainly consists of constant repetition, with candidates then quickly moving on to the free lunches they would supposedly enable. But given that claim’s central place in their proposals, we must question that premise and with it, the glib answers claimed for it.
How Should We Measure Administrative Efficiency?
For health care plans, the standard measure of efficiency is administrative costs as a percentage of total costs. And in those comparisons, Medicare appears substantially more efficient. But that does not mean there would be savings if people were moved from private insurance to Medicare for All.
The primary reason is that Medicare beneficiaries are far older and less healthy than the population. That makes health care costs far higher per Medicare beneficiary. In fact, before Obamacare, medical expenditures per Medicare beneficiary were routinely more than double those for the privately insured. However, nonmedical administrative costs are only slightly related to total medical expenditures. They are primarily related to the number of persons covered. This causes the standard measure to grossly exaggerate Medicare’s relative administrative efficiency.
Consider an example. Say both Medicare and private insurance beneficiaries had identical administrative costs of $500 each, but the Medicare patient received $5,000 in benefits, while the private patient received $2,500 in benefits. Medicare would show a 10 percent share of administrative costs, and private insurance would show a 20 percent share. In other words, despite the same administrative cost per beneficiary—that is, the same actual efficiency—the standard measure makes private insurance administrative costs look twice as expensive as Medicare.
Simply ask what would happen to administrative expenses if one private insurance beneficiary was moved into Medicare in the example above. Despite Medicare supposedly being half as costly in that regard, administrative costs would not change. No resources would be freed up. And given that the administrative cost per Medicare beneficiary is actually higher than for private insurance, the shift of someone into Medicare would increase administrative costs—leaving fewer resources, rather than more—available for medical care.
What Should Be Included in Medicare’s Administrative Costs?
The public-private comparison also typically compares the administrative costs of private insurance to those that show up in Medicare’s budget. But many of the administrative costs do not show up there. They appear in other agencies’ budgets. The costs of collecting taxes appear in the IRS budget. The costs of collecting premiums appear in Social Security’s budget. Many of the accounting, building, and marketing expenses appear in the Health and Human Services budget. Including those costs would roughly double Medicare’s reported administrative costs.
How Should We Count Taxes on Private Insurance?
Private insurance administrative costs are generally defined as premiums paid in minus claims paid out. However, that means everything except claims payments are counted as administrative costs whether or not they have anything to do with administration. For example, many states impose a premium tax (averaging about 2 percent) on health insurers, and those tax payments are incorrectly categorized as administrative costs. This also makes Medicare, which is exempt from such taxes, look relatively more efficient than it really is.
How Should We Count Disease Management and On-Call Consultation Services?
As with taxes, counting private insurance administrative costs as total premiums minus claims paid introduces other measurement distortions, as well. Insurance companies offer disease-management and on-call nurse consultation services. However, those services do not generate insurance claims. Consequently, those costs are also counted as administrative rather than medical.
How Should We Count Fraud and Fraud Prevention Efforts?
Waste, fraud, and efforts at their prevention also complicate administrative efficiency comparisons. Consider what happens if Medicare (estimates of whose excess spending exceed $50 billion yearly) spent less on prevention efforts. It would look more efficient because its administrative costs would be lower and because undetected excess spending would be counted as medical expenses, not waste. In contrast, insurance companies, whose bottom lines are at stake, are much more diligent about eliminating such excess spending. But those efforts, even though they can generate very large overall savings ($1 of fraud prevention has been estimated to reduce those costs by as much as $15), raise their measured administrative cost percentage, making them look less efficient.
How Should We Treat the “Excess Burden” Caused by Switching to Single Payer Systems?
In addition to all these biases exaggerating private insurance administrative costs and understating Medicare’s administrative costs, another large difference should be noted. When people pay more to get better private insurance coverage, they don’t treat it as a tax, but as part of their employee compensation. Under Medicare for All, however, higher payments into the system will not provide greater benefits. That means that Americans will rationally start treating those payments as taxes in exchange for nothing.
It will, therefore, act as a large income tax increase with correspondingly large economic distortions. Those distortions, created by the wedges taxes impose between what buyers pay and what sellers keep, reflect the wealth destroyed by the reduction in mutually beneficial market arrangements that result, which economists call excess burdens. While not incorporated in official comparisons, they are very large added costs of single-payer systems compared to private medical insurance.
One study found that even the “lowest plausible assumption about the excess burden engendered by the tax system raises the true costs of delivering Medicare benefits to about 20-25 percent of Medicare outlays,” imposing costs far higher than any supposed private insurance administrative cost deficiency.
It is striking how much single-payer promoters rush past their repetitions of administrative cost savings claims before quickly turning to their vote-buying promises in large part funded by them. It almost seems that they don’t want voters to think carefully about those claims. And that might reflect an accurate judgment. If people questioned the basis of those promised solutions, it would reveal supposed administrative cost savings to be the opposite once the compounded mismeasurements are deciphered, and it would not be anyone’s ticket into the White House.
Gary M. Galles is a professor of economics at Pepperdine University and a guest columnist to the Penny Press. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013). This piece was originally published on fee.orgm then pennypresslv, reprinted here in full, with permission.
People used to know who their doctor was. His name and phone number were on the wall or the refrigerator next to the telephone. He was there for you and could manage most of your problems.
When I was about 13, my mom took me to our pediatrician for belly pain. He was on his way out the door, but he stopped to take care of me. He diagnosed appendicitis based on history and physical examination. He called his favorite surgeon (“Billy,” a Tucson legend), who came from the golf course to meet me in the emergency room. Within hours, my red-hot appendix was in a jar. My parents paid the hospital bill ($150—10 days’ pay for a construction laborer) as I was discharged a few days later.
Today, the patient with abdominal pain could wait for hours to see the ER provider—possibly a nurse practitioner or physician assistant who had never seen a case of acute appendicitis. She’ll probably get a CT scan, after another wait. Eventually, Dr. On-call may take her to the operating room, hopefully before the appendix ruptures. And the bill will be beyond the means of ordinary people.
I used to be able to direct-admit patients from my office and send them with a set of orders to the hospital admitting office. For years, this has been impossible. The hospital is decidedly unfriendly to independent doctors. There’s now a gatekeeper in the emergency room, and most patients are under the control of a hospitalist.
This hospital, still Catholic at least in name, is now owned by a huge national conglomerate. Recently, it thwarted all efforts to keep it from dehydrating a patient to death despite lack of an advance directive or permission from next of kin. The patient’s mother disputed the diagnosis of brain death. The gastroenterologist of her choice was willing and able to place a feeding tube, needed in order to transfer the patient to a skilled nursing facility, but the hospital would not permit it. An outside physician whom the mother had called on was removed from the patient’s room by security, when she was merely praying with the mother. The mother could not get a phone call returned from an attending physician. Who was the doctor? Apparently, the hospital system.
Recently, a physician called me about her mother, who was seemingly a captive in a world-renowned hospital. She was concerned about her mother’s nutritional status and falling oxygen level. She could not speak to the attending physician. “They play musical doctors.”
Largely driven by government policy, the System is increasingly in control. A new level of intrusion is being proposed in California in a bill (SB 276) that would outlaw all medical exemptions for vaccines, unless a public health officer approves each one, based on the very narrow list of contraindications accepted by the Centers for Disease Control and Prevention (CDC).
Doctors traditionally swore an oath not to harm patients, and are liable if they do. But government officials are immune from liability, even if they overrule a physician’s judgment that a particular patient faces an unacceptable risk of harm from a vaccine.
If you disagree with your private doctor, you can fire him or simply decline to follow his advice. But what if the government is your doctor?
In Arizona, law enforcement officers in tactical gear broke down the door to a home where children were sleeping, entered with guns drawn, and took three little children away from their parents. The stated reason: the mother had decided not to follow a doctor’s advice to take her two-year-old to the emergency room for a fever, because the fever broke and the child got much better soon after leaving the office. The main concern seemed to be that the child was not vaccinated.
Americans need to defend their right to have an independent physician, to choose their physician and type of care, and to give or withhold informed consent to medical treatments. Otherwise, their “doctor” will be a protocol in a system staffed by interchangeable automatons. Treatments will be inaccessible or required, tailored to meet the needs and beliefs of the system.
If the government is the ultimate authority on your “health care,” remember that its tools for checking whether a child has a life-threatening disease such as meningitis include battering rams and assault rifles.
Jane M. Orient, M.D. obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. Her views and opinions, if expressed, are her own and do not necessarily reflect the opinions of GCN. Her column can often be found here at www.pennypressnv.com. Her column has been reprinted in full, with permission.