Saturday, March 28, 2009

Price Transparency in Medicine

From the AP story this morning:

More than 70 percent of workers who get health care through their employers are enrolled in plans that allow them to go out of network, according to the Kaiser Family Foundation. Typically, those plans will pay a set percentage, say 70 percent, for an out-of-network visit.

But unknown to many consumers, when patients go out of network, their plan doesn't actually pay 70 percent of the doctor's visit cost. It pays 70 percent of what it determines is the "usual, customary and reasonable" cost for the procedure or doctor's visit in question.

Insurance companies determine that cost themselves, and there's scant regulation or oversight of how they do it.

In the case of UnitedHealth and Ingenix, they were allegedly manipulating claims data so that the "usual, customary and reasonable" costs they used were lower than they should have been, leaving patients to pay more. [State Attorney General Andrew] Cuomo's office said Ingenix was understating the market rate for doctor's visits across New York state by 10 percent to 28 percent.

It occurs to me, on reading this story, that one of the big problems with "health care" is that the pricing is almost never made available to the consumer until after the services are delivered. Sometimes well after. This is a problem almost unique to medical services. If I go to a store, the cost of the items on the shelves are right there. If I call a plumber, he'll almost certainly provide an estimate of what it will cost to fix whatever problem he's facing. But if I visit a doctor, the prices are never advertised. Dentistry is a partial exception to this generalization, but doctors tend to do what they do, and the patient doesn't find out what the price is until he gets the bill. This makes price competition in the medical business difficult, which probably increases prices.

And while I'm at it, why is it that doctor's warrant their work. If I purchase something that doesn't perform it's advertised function, I can almost always take it back for an exchange or a refund. But try asking a doctor the terms of his warranty and see what reaction you get.

1 comment:

PeterW said...

I agree, and Half Sigma has made a similar point (

Doctors have their fees set by insurance companies and Medicare, so they can’t advertise low prices. Nor can they advertise higher prices but better service. Liberals love this situation because it’s the only area of society that’s completely egalitarian. Rich people have to wait in the same waiting room from as poor people, and receive the same lousy healthcare from the same doctor.

Because abortions are the only procedure not covered by insurance, it’s the only part of healthcare that responds to free market forces. Consequently, we observe that abortions [and let me add, other services, like LASIK or non-necessary plastic surgery or dermatology] cost a fraction of the price of other types of medical procedures.