Ya, it's kind of incredible. And it's equally incredible how few people seem to know about this. It'd be such an easy thing to fix, and it would substantially improve competition for hospital services. It's completely beyond me why this isn't getting changed.
I completely agree. If we had to pick one thing to change to lower healthcare costs in the US, this wouldn't be a bad choice. Hospital costs are by far the largest contributor to US healthcare expenditure at 30%, and when you add in physician costs (since they are increasingly owned by hospitals) that's almost 50% of cost
My sort of crazy theory is that there is a behind the scenes lobbying / media battle between pharma, the hospital lobby, and the insurance lobby and that this dictates a lot of the national conversation around healthcare. Because healthcare is so opaque and complex, and because there is so much political energy around healthcare, it is hard for the public to be informed about the facts so they just respond to emotionally driven narratives in the media. Right now pharma is public enemy number one so everyone complains about drug prices even though hospitals are probably just as bad if not worse. Both trade groups spend roughly the same on lobbying although hospitals probably have more "soft" political power bc they are major employers in pretty much every county
> My sort of crazy theory is that there is a behind the scenes lobbying / media battle between pharma, the hospital lobby, and the insurance lobby and that this dictates a lot of the national conversation around healthcare.
It's important to point out that the insurance companies have no cost-lowering incentives though. They have an incentive to deny claims, but their incentive is actually to increase industry-wide healthcare costs because as long as the cost increase also applies to their competitors, it allows them to raise prices and higher premiums means more vig.
They're also the ones strongly against some of the proposals that would actually reduce costs significantly, like catastrophic-only insurance that would have people paying out of pocket for routine non-emergent care and provide the incentive to compare prices.
Totally this too. I feel like someone should compile a list of non-partisan (i.e. no more and no less socialization), simple ways to incrementally improve healthcare:
- No more Certificates of Need.
- Don't force insurance companies to take a fixed percentage of revenue as profit so that they are actually incentivized to care about the cost of medicine.
- Expand the scope of procedures that nurse practitioners are allowed to do.
- Make residency / med school less restrictive and awful. There is no reason doctors need to be working insanely long shifts during residency. The only reason that they are is as a filter, to keep the supply low.
- Remove tax incentives for employer-provided healthcare. Replace with dollar-equivalent direct subsidies to personal health insurance purchases.
- Allow people to sell their own organs [1].
I'm sure there's lots more. But these are the ones that spring to my mind.
Price transparency. Require medical providers to publish a price list for every service they provide, then let there be Expedia for scheduled medical procedures.
> Don't force insurance companies to take a fixed percentage of revenue as profit so that they are actually incentivized to care about the cost of medicine.
This wouldn't really work. The nature of the insurance market is they predict how much it would cost at what probability and then add a percentage as a risk premium. If you lowered the risk premium in absolute dollars against the same level of risk and cost, nobody would provide insurance. If you lowered the cost of claims for the same absolute dollar amount of risk premium, more companies would provide insurance and the competition would reduce the absolute amount of the risk premium per customer back to the original percentage (which is based on risk-adjusted reward) of the now-smaller cost/risk -- which is what they're trying to prevent.
What you need is for people to be buying less insurance, i.e. insurance covers what it's supposed to -- losses greater than what you can afford -- rather than covering routine low and medium cost procedures and removing anyone's incentive to care about prices when choosing a provider.
> Price transparency. Require medical providers to publish a price list for every service they provide, then let there be Expedia for scheduled medical procedures.
For providers that service insurance companies, its impossible. The insurance decides what to charge.
Price transparency is important for functioning markets, but im unconvinced its a key piece of health service costs. First, it doesnt matter if the doctor charges 100 or 1000, if the insurance covers it. Second, most health-services that matter are insurance-based: its a cost after you got the disease, which changes the decisions you get: if you are on Anthem and get cancer and see cancer treatment is cheaper on Cigna, are you going to change the entire doctor panel that diagnosed you? (Which btw ,is a degrade of medical care).
The only person that could benefit from high provider price transparency is insurance companies, since then they can choose to keep or not keep providers in their network: but they already have full price transparency, they get all the claims.
> For providers that service insurance companies, its impossible. The insurance decides what to charge. First, it doesnt matter if the doctor charges 100 or 1000, if the insurance covers it.
That's a fair point -- so fix that. The insurance company wants to decide how much they'll pay, so let them, and let it be on the low side and then let there be lower cost plans that only pay 80% or 65% of even that cost. Then publish the price list and let the customer choose their provider and pay out of pocket any amount above what the insurance company pays. This deal where the customer pays the same amount no matter which provider they use is poison.
> Second, most health-services that matter are insurance-based: its a cost after you got the disease, which changes the decisions you get: if you are on Anthem and get cancer and see cancer treatment is cheaper on Cigna, are you going to change the entire doctor panel that diagnosed you? (Which btw ,is a degrade of medical care).
Which is another reason why they should stop doing that, and just have a list of services they cover and the amount they pay under your plan. Then you go wherever and get the service and pay the difference between the insurance coverage you bought and the price the provider charges. There should be no such thing as out-of-network. If someone else charges more and you're willing to pay the difference, there you go.
> Price transparency. Require medical providers to publish a price list for every service they provide, then let there be Expedia for scheduled medical procedures.
Good one.
> This wouldn't really work. The nature of the insurance market is they predict how much it would cost at what probability and then add a percentage as a risk premium. If you lowered the risk premium in absolute dollars against the same level of risk and cost, nobody would provide insurance. If you lowered the cost of claims for the same absolute dollar amount of risk premium, more companies would provide insurance and the competition would reduce the absolute amount of the risk premium per customer back to the original percentage (which is based on risk-adjusted reward) of the now-smaller cost/risk -- which is what they're trying to prevent.
Hmmm...that's an interesting point. You might be right. However, it would incentivize them to control costs that are in some way unique to them. In other words, it'd incentivize them to negotiate deals with providers, or incentivize their customers to reduce their spending. Because while it is true that the equilibrium is the same level of profit for them, in the shorter run, each incremental unit of downward price movement they get within their own customer base is valuable to them. But I definitely agree my point here isn't as strong as I thought it was, thanks.
> What you need is for people to be buying less insurance, i.e. insurance covers what it's supposed to -- losses greater than what you can afford -- rather than covering routine low and medium cost procedures and removing anyone's incentive to care about prices when choosing a provider.
Ya, totally agree here too. I was just contemplating the fact that I pursue this exact strategy for my own insurance...when I pay for it out of pocket. My employer provides health insurance, so I choose the platinum-plated super deluxe package, and pay only a bit of the cost myself. For my car insurance, which I pay for on my own...I pay for the financially correct amount of insurance: insurance against ruin. I want to be insured against an unexpected cost that would financially ruin me...and aside from that, i'm happy to eat the costs of random fender benders myself, and rely on my own driving habits to minimize those costs.
>My sort of crazy theory is that there is a behind the scenes lobbying / media battle between pharma, the hospital lobby, and the insurance lobby and that this dictates a lot of the national conversation around healthcare.
Of course pharma, hospitals, and insurance are a major force on the right. But there's another culprit exerting force on the left that I rarely see discussed.
The nurses' union (National Nurses United) is TREMENDOUSLY powerful. I've been personally involved in several political races where their political machine was a decisive factor in delivering turnout, possibly more than any other union. Another advantage is that it tends to fly way under the radar of most union critics -- no one wants to criticize nurses, of all people. This, without a doubt, causes a chilling effect on Democratic politicians' willingness to write legislation that will threaten hospitals.
I suspect that FAR more people are paying for prescription pharma than are visiting hospitals. So, it's not totally irrational that pharma is perceived as a greater "enemy" than hospitals even given possibly equivalent price inflation.
Pharmaceuticals represent about 10% of healthcare spending for Americans. Inpatient and outpatient comes out to around 52% of annual healthcare costs.[0-1] While there are many issues in the pharmaceutical industry, as a whole I think they get an unnecessarily bad rap. Most of America's healthcare problems are self inflicted. There are a lot of things that need to be adjusted in order to let markets run effectively.
The US is actually middle-of-the-pack compared to other OECD countries in terms of rx drug spend as a percent of total healthcare costs. So while drugs are more expensive in the US, that's mostly just due to overall higher US healthcare costs, not because there's anything special about pharma in the US.
I know other countries spend more than the US on primary / preventative care (though dont have a source offhand); would be interested to know whether hospital spend as % of national HC spend is higher in the US (ive seen data suggesting that cost of a hospital bed for one night in the US is significantly higher than other OECD countries, but don't recall by how much)
That makes sense that more people spending money on drugs means it is a bigger focus for the public. However i'd strongly question the assumption that hospitals have less price inflation than drugs -- i think that the fact that we give hospitals the benefit of the doubt while blaming drug companies and insurers is a big part of the problem. The fact that far more people pay for rx drugs than hospital visits, yet hospital visits account for 3x as much spend, seems to me to be another data point suggesting we should focus more on hospital costs and less on drug costs
