The recent publication of the Medicare survey of hospital prices shows that there really is no semblance of a fair market for medical services. The existence of insurance companies as go-betweens makes it impossible for the consumer to make any provider decision with respect to price. There is no consistency, no fairness, no rationale and no transparency with respect to hospital charges...even within the same market.
Medicare and insurance companies only pay a small portion of the prices charged, because they negotiate prices. They have the clout to negotiate because of their size...the bigger the insurer, the more power they have in negotiations. That is one reason that individual consumers are at such a disadvantage.
Here is also a place that individuals--even with insurance--can get surprised by costs, or even cheated. Let's say the insurance plan pays 80% of costs negotiated, and the consumer pays 20%. The insurer may have made an overall deal with a hospital, based on surgeries that are very popular. But a surgery that is unusual may have a very high price relative to other hospitals. The patient needing the unusual surgery might end up paying 20% of a $200,000 bill--or $40,000 out-of-pocket. But, the way things are now--another hospital outside of the plan might only be charging $50,000 for the surgery. Even at out-of-plan reimbursement rates of 40% co-payment, the patient would end up with "only" $20,000 in out-of-pocket costs--half of what they are stuck with by going with the hospital their insurance provider recommends.
There is no way for the customer/patient to "shop around" because he has been led to believe that the co-payment amount of 20% will produce the lower price for him. When the insurance company is selling the policies, there is no disclosure about individual surgeries, and no disclosure about the real out-of-pocket costs to the patient.
This violates the basic integrity of the marketplace.
Let's apply the situation to a different arena: shopping for an apartment. Let's say that a person could shop for an apartment on her own (= uninsured), or could hire a broker to find an apartment for her (= insured). Various brokers would have relationships with different real estate management companies or consortiums. This reality exists in the rental real estate marketplace now.
But let's say that rental prices were not regulated (as it is,the same rate is quoted to all potential apartment renters; price discrimination is illegal). Let's change the reality for the sake of making an analogy with the health insurance industry: once the renter signs up with at broker, the renter is stuck with that broker in the search to get an apartment.
One broker might be quoted a $1200/month rate; another broker might be quoted a $3500 per month rate for the same apartment. When the wanna-be renter signed up with the broker, the potential price differences would not have been disclosed. Would this be fair? There would be no relationship between price and value, and the renter would be powerless to make a choice at the decision point where the real costs would be revealed.
...just like the patient dealing with hospital costs.
Since medical costs are the a leading factor in over 60% of personal bankruptcies in the U.S., the real costs of medical care are a life-changing issue for consumers.
Some
observers think that this publication of the wide discrepancies in price
is the first step to fixing the problems...but maybe the system is too
broken to be fixed. A "zero-based thinking" approach might be needed.
Sources: "U.S. releases data showing striking differences in hospital prices" by Dan Gorenstein, Marketplace, American Public Media, May 8, 2013.
"Hospital prices diverge wildly, U.S. data show," by Chad Terhune and Ben Poston, Los Angeles Times, May 8, 2013.
Follow up:
-
What is "zero based thinking"?
- Can you think of--or research--three possible solutions to this pricing dilemma? Who would benefit and who would be hurt in each situation?
- How would you remedy the downsides of each of your scenarios?
- What is your personal experience with hospital costs and insurance coverage?