It is time to tackle the beast. The True Cost of Healthcare

November 19, 2012 4:31 PM

How to get less from more. A modest website by an ordinary M.D. who seems to have an extraordinary curiosity. The next time someone complains to you about socialized medicine vs. the efficiencies of the free market don't shoot them just point them here. An Alice in Wonderland view of the "Best healthcare in the world". TLDR: You don't have to read the screed you can watch it.

You might already understand how it all works. Try explaining it.

posted by pdxpogo (40 comments total)

Any doctor who opens his videos with the music from The Godfather has my attention.
posted by Ad hominem at 4:37 PM on November 19, 2012 [2 favorites]

Asking a doctor to describe the health care system is like asking a mechanic to describe the highway system.
posted by docgonzo at 4:56 PM on November 19, 2012 [12 favorites]

Best of the web. It can be intensely frustrating to discuss healthcare because the discussion immediately gets taken hostage by the spectre of rising healthcare costs, while there's hardly ever any substantial challenge to the notion that hospital beds or medication or basic medical care have to cost tens or hundreds of thousands of dollars. Looking forward to watching this.
posted by deo rei at 4:58 PM on November 19, 2012 [3 favorites]

I....haven't been shooting them in the past.
posted by Drinky Die at 5:02 PM on November 19, 2012 [5 favorites]

-Hospital Bills are, for the most part, works of complete fiction.

-Inflating the charge on every service a hospital provides has two major consequences:

a. It gives an unrealistic (inflated) impression of how much health care really costs.

b. It further allows hospitals and insurance companies to abuse people.

This. Compare the first bill from the hospital, and what your insurance company agrees to pay. Then think about how people without health insurance don't have the negotiating leverage (or information) that an insurance company has. So the person in the weakest position is on the hook for many multiples of what Big Insurance has to pay.
posted by ambrosia at 5:08 PM on November 19, 2012 [8 favorites]

This is... unreal. Thank you for posting this.

As I was reading about all the insanity and waste, I was thinking that there has to be some sort of way to profit off of this situation, by coming in and providing better service and/or underselling inflated costs.. I wonder why this happened already.

I also wonder why intentional overbilling is, in any way, legal.
posted by zug at 5:15 PM on November 19, 2012 [4 favorites]

So, if the Federal (or even state) government simply banned price discrimination in healthcare, they would solve 90% of the problems of the uninsured, at least when it comes to hospital care?

I'm not even talking about price fixing, just forcing providers to pick one price to charge per service, with no special prices for insurance companies.
posted by cosmic.osmo at 5:25 PM on November 19, 2012 [6 favorites]

Yes. When people talk about single-payer systems like Canada, their advantage isn't just the reduction in paperwork and negotiations. It's the fact that the government sets the prices of all medical services by fiat. Depending on how much unrequited love you have for free markets, this is either unspeakably horrible or a sensible market regulation. Basically, all medical services for everyone are billed close to the Medicare prices he quotes in the section on diagnostic tests.

Note that this still doesn't stop the system from being really, really expensive. It's just not insane.
posted by GuyZero at 5:25 PM on November 19, 2012 [4 favorites]

Hospitals have to multiply the bill by three to make up for the two thirds that don't pay because the bill is three times what they can afford.
posted by StickyCarpet at 5:31 PM on November 19, 2012 [21 favorites]

Hospitals have to multiply the bill by three to make up for the two thirds that don't pay because they can't afford it.

This doesn't makes sense. By this logic, only one third can afford it. But of that one third, how much is covered by insurance? The majority, I assume--and those prices are discounted vastly for the insurance company.

The inflated price is therefore falling mostly on people who aren't going to or able to pay. How does this help the hospital or anyone else?
posted by dobbs at 5:35 PM on November 19, 2012

This doesn't makes sense.

I'm pretty sure that's because it was a joke.
posted by zsazsa at 5:40 PM on November 19, 2012 [10 favorites]

As I was reading about all the insanity and waste, I was thinking that there has to be some sort of way to profit off of this situation, by coming in and providing better service and/or underselling inflated costs.. I wonder why this happened already.
(zug)

There's a start-up trying to do this: Clear Health Costs. I saw the founder give a talk once; I don't know anything more about it.
posted by d. z. wang at 5:41 PM on November 19, 2012 [3 favorites]

-Insurance companies sell security against financial risk. If no one really understands what that risk is (because all prices are hidden or deceptive) then the price of the security (insurance) can be grossly inflated.

This is a very good point!
posted by eviemath at 5:45 PM on November 19, 2012 [7 favorites]

Asking a doctor to describe the health care system is like asking a mechanic to describe the highway system.
posted by docgonzo

Eponysterical, but he aught to know.
posted by oneswellfoop at 5:46 PM on November 19, 2012 [2 favorites]

My understanding is that hospitals actually can't charge different prices to different people, but they can give different discounts. Every line item gets billed at the maximum amount that any insurance company will reimburse times some number, the insurance company comes back with the amount that they're willing to pay, and the hospital says "OK." So, they bill $1,000 knowing that one patient's insurance company is going to give them $200, another's is going to pay $175, and someone else's is going to pay $300. But the guy with no insurance just gets the inflated $1,000 bill.

(If someone has a better understanding of this than I do, please correct me!)
posted by Blue Jello Elf at 5:46 PM on November 19, 2012 [3 favorites]

This seems to be some really good, sane, level-headed talk.

Almost all prices in health care are hidden from both doctors and patients. Any cost that’s hidden or confusing is easy to inflate.

Quite so, but I'd go further than that. It's not just the costs that are hidden. In the US, when you head to the doctor with a symptom, you have no idea what the financial consequences of your visit may ultimately be. The prices are not just hidden but actually unknowable until there's a diagnosis. That's the nature of the beast.

Some advance the idea that a free market can somehow operate in an environment of mystery prices and limited provider choice, but it seems clearly impossible. The "market" isn't free (I really have to pick a local provider that gets along with my insurance -- which I also can't choose) and it's not really a market (in the sense that I pay some agreed-upon-in-advance price for agreed-upon-in-advance services).

My family has incurred a lot of medical bills in the last couple of years, and I'm the one who does the related bookkeeping, so this stuff has been much on my mind. The prices the providers ask for up front are absurd flights of fancy, and the bills I see don't make it clear what's been paid for by insurance and what's been "adjusted" away into oblivion.
posted by Western Infidels at 5:51 PM on November 19, 2012 [15 favorites]

The "market" isn't free (I really have to pick a local provider that gets along with my insurance -- which I also can't choose) and it's not really a market (in the sense that I pay some agreed-upon-in-advance price for agreed-upon-in-advance services).

Another way the health care market is not and cannot be "free" is the fundamental imbalance of information. Free markets rely on the open exchange of information to regulate prices and quality. I can easily find out what Tide costs at Walmart vs. Target vs. Kroger, and make decisions about where I will buy it based on cost or other factors (convenience) of my choosing.

If the market for Tide was like the market for health care, I wouldn't know whether Tide would get my clothes clean. I might google it and see that others have claimed that Tide cleans their clothes, and see advertisements that tell me that Tide cleans clothes for some people like me, but I would have to go to a Clothes Cleaning Expert to find out for sure and get permission to buy Tide. I wouldn't have any way to comparison shop for Clothes Cleaning Experts based on price or quality.

Once I get the OK to get some Tide, the price is the same everywhere I go because it has been set by the Clothes Cleaning Insurer. I don't actually know (and cannot easily find out) how much the Tide actually costs or how much my insurer is paying. Unless I start asking people, I can't find out how much my friends and neighbors pay for Tide. Even if I find out that my neighbor is paying less, I can't advocate for a different price because my Clothes Cleaning insurance is different.

A market in which the consumers have little or no information is, by definition, not "free." This is why more active government regulation is not anti-capitalist, but a commonsense, equitable approach to dealing with a complicated, one-sided market in which the potential for conflicts of interest, unfair advantage and outright fraud are high.
posted by jeoc at 6:09 PM on November 19, 2012 [38 favorites]

While he makes a lot of good points, the heading on "Malpractice Insurance" is a touch misleading- the costs of that sort of coverage vary widely by the type of medicine a particular doctor practices and the particulars of their clientele. A dermatologist in an upper-middle-class suburb is going to have a very different impression of the cost of coverage than, say, an OB-GYN specializing in high-risk pregnancies.

In short, there's still progress to be made with regard to torts in America; some doctors really get the shaft when it comes to legal overhead.
posted by fifthrider at 6:24 PM on November 19, 2012 [3 favorites]

It further allows hospitals and insurance companies to abuse people.

Hospitals, and even insurance companies, aren't in business to abuse people. Most hospitals are non-profits, run by boards that really do want to provide as much care as possible, but that requires staying solvent. Margins in the hospital business are closer to what you'd see in a grocery store than anything else. The whole industry is beginning to collapse in on itself (look at the number of mergers and takeovers in the last decade) and is doing what it takes to survive. That means charging enough to stay in business. Problem is, the business model is so busted that "enough" is about 2 or 3 times too much.

Fundamentally, what sets us apart from the rest of the OECD is pricing. Every other country in the OECD has ONE price for a given procedure. It makes providers responsible for cutting costs and limits the total amount of money that can flow into the system. Incentives are nicely aligned.

We don't have one price. We have millions. Maybe literally, as there are hundreds of different payers with individually negotiated prices at each of the thousands of hospitals around the country. None of those prices are openly discussed and are absolutely classified TOP SECRET at any hospital. The only "flat" rate is what Medicare pays, and it's *way* below cost most places (on the order of 50% too low often), useful only as a reference value. Every other price is a function of the relative scale/scope of provider and payer. A big payer (Blue Cross, etc) pays a lot less than a smaller private insurance company. This puts all kinds of bad incentives in place, as it means that everyone is trying to grow in size and capabilities to outdo their competitors, trying to optimize their payer mix, competing for better markets, trying to jettison programs that lose money (which are the safety net programs like psych), etc.

Oddly enough, what medicare pays would be enough to turn a profit in most countries. IIRC, just the federally paid chunk of health care in the USA is 4th in the world. We take in enough tax dollars to provide care for everyone in the country, but then go and use it to provide crappy coverage for under 30% of our people. I KNOW, RIGHT?

There's one place in the country where prices are set uniformly across the board. Maryland's inpatient facilities charge all patients the same amount, thanks to a waiver they got from CMS back in the mid-70's. Guess which state has had the lowest medical cost expansion since 1980 AND the largest proportion of "investment grade" hospitals in the country?
posted by pjaust at 6:32 PM on November 19, 2012 [14 favorites]

He notes that OB/GYN pay significantly more than most doctors. Also 6 states account for the majority of malpractice awards but not directly tied to population. California with some 37 million medical consumers generated less than 1000 malpractice awards last year reported. Pretty damned good if you ask me.
posted by pdxpogo at 6:34 PM on November 19, 2012

It's not just the costs that are hidden. In the US, when you head to the doctor with a symptom, you have no idea what the financial consequences of your visit may ultimately be. The prices are not just hidden but actually unknowable until there's a diagnosis. That's the nature of the beast.

This. It's like taking your car to the auto mechanic, but without the option to junk it and buy a new car if the estimate is too high. Except in healthcare, you don't even get to see the estimate. And the mechanic (doctor) doesn't actually know how much it will cost, he's just the one deciding what work needs doing.
posted by vytae at 7:32 PM on November 19, 2012 [5 favorites]

It's like taking your car to the auto mechanic, but without the option to junk it and buy a new car if the estimate is too high. Except in healthcare, you don't even get to see the estimate. And the mechanic (doctor) doesn't actually know how much it will cost, he's just the one deciding what work needs doing.

Yeah, it's really bizarre to compare doctors to veterinarians. My dog had to have a minor surgery recently, and the vet presented me with an estimate showing exactly what she would be doing, with a low-end cost and a high-end cost (in case the dog needed more sedation, etc.), etc. etc. She also explained the benefits of a couple of the optional items on the estimate, and even offered alternate treatment options that were less likely to work but would cost less than the surgery. It was still expensive, but at least I knew what I was in for and the bill made sense!
posted by Blue Jello Elf at 7:46 PM on November 19, 2012 [5 favorites]

Most hospitals are non-profits, run by boards that really do want to provide as much care as possible, but that requires staying solvent.

Yes - I have a family member who's on a hospital board for a small community hospital. They have been cutting services to the bone for a number of years, and finally have had to cease hospital operations and turn into an urgent care center with very limited hours, because there is just no way to make the math work to keep the place open as a hospital with an ER. It's hard to understand, given how inflated some prices obviously are, but this is the conclusion they've come to after really trying their best to keep the place open.
posted by LobsterMitten at 7:55 PM on November 19, 2012 [2 favorites]

This. It's like taking your car to the auto mechanic, but without the option to junk it and buy a new car if the estimate is too high. Except in healthcare, you don't even get to see the estimate. And the mechanic (doctor) doesn't actually know how much it will cost, he's just the one deciding what work needs doing.

Worse yet, you're not taking your car to a single mechanic, but rather must push your broken-down car (which, let's remember, doesn't run very well, as that's the reason for the repairs in the first place) from mechanic to mechanic in search of a diagnosis and repairs. The first mechanic will send you to an engine guy will send you to the electrical guy, who will want you to get your emissions system tested too. These nice, well-meaning mechanics will probably never speak to each other, and no one will know precisely what's going on. You must make separate appointments, by phone, at all of these places and lug your car there. Some will want money up-front from you, while others won't, but you'll probably get a bill from each mechanic for an unknown amount sometime in the next year or so. Eventually, different mechanics will tell you that you need a new fuel filter and spark plugs, but they will specify specific models of these parts by illegibly scrawling on a form only the auto parts store guy can read. Nobody knows how much the parts cost either. When you get to the auto parts store, you'll find out that that the spark plugs cost $350/month because you're a Honda owner and that the new fuel filter sometimes catches fire when used with Pennzoil, which the engine guy told you to use. After sorting it all out with all the different mechanics, you do everything as directed, only to have your car stall out on the freeway because the fuel system guy accidentally left a sponge in your gas tank while he was poking around. It is at this point that you abandon your car in the #3 lane.
posted by zachlipton at 8:07 PM on November 19, 2012 [15 favorites]

I read the whole thing, cover to cover and I suggest that anyone else remotely interested in medicine should do the same. I learned more from reading this than from two years of required "BUSINESS OF HEALTHCARE" classes at my medical school.

That said, Dr. Belk takes a Polyanna approach to the uninsured, doesn't mention Medicaid even once in the whole treatise, and thus draws some conclusions with which I don't agree (especially as they relate to how individuals should purchase health insurance).
posted by The White Hat at 8:21 PM on November 19, 2012 [3 favorites]

The White Hat, I'd like to hear more about what you don't agree with and how you think individuals should provide health insurance. Can you elaborate?
posted by Sleeper at 8:54 PM on November 19, 2012

Western Infidels said: "In the US, when you head to the doctor with a symptom, you have no idea what the financial consequences of your visit may ultimately be. The prices are not just hidden but actually unknowable until there's a diagnosis."

This has been my experience with a High Deductible Health Plan (aka Consumer-Driven Health Plan). The idea behind any CDHP is that, in exchange for substantially lower premiums, the healthcare consumer is on the hook for the first, say, $5000 of all health expenditures each year before the insurance covers anything. Then the insurance company tries to educate the consumer on the costs one could expect with different health diagnoses. E.g., an office visit should cost X and an cholesterol test should cost Y. Then it's up to the consumer to drive the discussion with the doctor to one of costs, and then direct the treatment to the lowest-cost one since he (the consumer) is the one footing the bill.

Two problems I see with this:

1) My doctors should be doctors, not also bookkeepers and medical billing technicians. I would rather not have to second-guess my doctor on my care and get into a debate over billing.
2) How am I, the uneducated consumer, supposed to self-diagnose? Sure, I know when I've got a sinus infection. But last year I was diagnosed with MS. Nowhere in the CDHP cost estimates does it say "Here's what MS will cost per year." (Answer: $60,000 per year - and I'm healthy for an MS patient.)

In the end, this is the insurance company passing more cost on to the consumer under the guise of saving them money. Add in the previous comments about consumers lacking the bargaining power to negotiate lower prices, and the insurance company whistles all the way to the bank. In my case, the last two months of 2011 amounted to $4980 in office visits, tests, and MRIs in the work-up for a diagnosis. I paid all of that out of pocket, AND paid the insurance company about $60 per week for the privilege.
posted by OHSnap at 9:41 PM on November 19, 2012 [3 favorites]

Damn it Sleeper I was going to read some biostats and go to bed.

I want to properly frame this critique. I really like the investigative work that Dr. Belk has done here, and the majority of his conclusions are right on point. People should totally be more involved in all aspects of their healthcare, including the billing side of things (conclusions 1, 3, and 4). They should also be politically active and advocate for rational change (conclusion 2). I only really take issue with two things, his sixth conclusion about buying health insurance and an argument he seems to imply but does not present as a conclusion-- that people should pay out-of-pocket whenever possible, and that this will lead to increased pressure on providers and insurance companies to reform.

First, about the out-of-pocket stuff. Ok, so Dr. Belk is basically taking all the data he gathered and building a solution based on his experience as an internal medicine physician in private practice. Like many private practice physicians (especially ones in smaller practices), he only accepts a handful of private insurance providers. Medi-Cal, California's Medicaid program, is not on the list, which is to say that (if the list is complete-- I'm not a Californian and am not very familiar with their insurance companies), Dr. Belk's practice seems geared toward more affluent patients.

And that's fine, but when he intimates that folks should forgo their insurance and pay out of pocket when they can, he is providing a solution that is unrealistic for the vast majority of the community I serve in Kensington, Philadelphia, where nearly 60% of folks live in poverty. About 48 million people in the US have Medicaid, compared to the two largest private insurers in the US which have 67 million folks between the two of them, so this is not small potatoes we're talking here.

Folks have noted above that people are not particularly good at predicting what kind of healthcare they'll need in the future. His sixth conclusion that people should err on the side of stinginess is unwise for a large swath of folks. Maybe this is *me* being a little naive and Pollyanna, but I think it's wise to talk with a healthcare provider who knows you about what kind of coverage is best for you given your medical and family history. I mean, this is what the insurance companies do anyway.

This is all to say that the demand-side changes he's advocating are unlikely to gain a whole lot of traction, and even less likely to create any popular demand for change. I'd like to think that we'll have another whack at healthcare reform during Obama's second term and maybe get closer to a single-payer system by the time I'm out there and practicing. With Congress and the State Legislatures the way they are until the next census, though, I'm not holding my breath. If this article has done one thing, though, it's convinced me even more to stay the hell out of private practice. The Public Health Service uniform even comes with a sword!
posted by The White Hat at 9:49 PM on November 19, 2012 [6 favorites]

"The only "flat" rate is what Medicare pays, and it's *way* below cost most places (on the order of 50% too low often), useful only as a reference value."

Can you provide a cite for this? I'm curious about it — I remember an NPR story on how Medicare rates were assigned in the first place, which was basically a doctor guessing what should be paid for what, and they were all almost always significantly higher than the price of the procedure because they needed doctors to accept Medicare. I'd like to know how that changed.
posted by klangklangston at 10:55 PM on November 19, 2012

Just my anecdote, one of the worst parts about finally getting a good insurance package from an employeer is that I've had multiple physicians (and a dentist) up-sell treatment without giving me a full run-down of costs and alternatives. When I was a poor graduate student paying out of pocket, I'd be shuttled out the door with a script for a generic treatment and a backback of samples. Now, I'm getting scripts for $500 tubes of skin cream. I was so used to doctors (and dentists) starting cheap and raising the costs as necessary that I thought it was the default mode of operation.
posted by CBrachyrhynchos at 12:59 AM on November 20, 2012

My receptionist called his insurance to get the proper authorization and I even spoke with them myself to make sure it went through; it did...He has insurance, they approved the procedure, and still, he has to pay $1,200.

Protip: When an insurer approves a procedure, or verifies coverage, this never, ever, ever means they're going to pay anything toward the cost. All approval or verification-of-coverage means is that the procedure in-question is not specifically disallowed under the policy provisions.

We learned this one the hard way.
posted by Thorzdad at 4:42 AM on November 20, 2012

Here's the libertarian version of the story. Did they get something right for a change? Or am I being sold a bill of goods?
posted by Obscure Reference at 5:29 AM on November 20, 2012 [1 favorite]

I was just about to post the same thing, Obscure Reference. It is interesting that it's framed as being anti-PPACA when it's a whole lot more damning on the current state of American healthcare.
posted by gyc at 8:36 AM on November 20, 2012

Obscure Reference: "Here's the libertarian version of the story. Did they get something right for a change? Or am I being sold a bill of goods?"

The argument being advanced in the Reason video -- that customers should "shop around" for the best deals -- makes sense if the product is a refrigerator or piano lessons. When you're dealing with medical care, there is more often than not an incentive to get things done quickly, not to shop for deals. Plus, even if you waved a magic wand and created perfect price transparency, there is no way to know what the price is giving you unless you also have a second magic wand that creates transparency about medical efficacy -- something that either means the dreaded "big government" or something akin to ratings agencies for doctors and hospitals -- and we all know how the Wall Street ratings agencies worked out a few years ago.
posted by tonycpsu at 8:50 AM on November 20, 2012

It's interesting to see this post in light of the most recent EconTalk (A++ GOOD LISTENING WOULD BUY AGAIN).

It's even more interesting to see that most folks agree with the symptoms and the underlying issues affecting healthcare in the U.S., yet have completely disparate opinions on how to fix the those issues i.e. market-driven vs single-payer solutions.
posted by dangerllama at 9:03 AM on November 20, 2012

dangerllama: "market-driven vs single-payer solutions."

False dichotomy. ProTip: single payer health insurance can co-exist with market-driven healthcare. In fact, it usually does.
posted by tonycpsu at 9:13 AM on November 20, 2012 [1 favorite]

This was great, pdxpogo—thanks for posting it.

I always hear that the insured/government are picking up the costs for the uninsured, and I assume this must be true on a population level. My experiences as an individual have been totally different, though. Once I tried scheduling a test a doctor had recommended as an uninsured payer and was quoted $1k, no discounts. The next month, I was able to get insurance temporarily, and had that test done at the same facility. Not only did the insurance company only pay $300—they were only billed $300.

On an individual basis, the uninsured patient gets charged more for everything than the insurers actually pay. It's great that we can get some medications cheaper at Costco than the insurance copay would be, but the appointment required to get the prescriptions for those medications costs a lot more if we're uninsured.

I think Dr. Belk is a bit too blasé about patients' ability to pay for smaller "maintenance" services. True, absent our horrifying insurance behemoth, costs would be lower. Medicine just isn’t like auto repair, though. If you wait to replace a headlight it won't eventually result in the engine not working, and nobody else will pick up the bill for your car when it eventually fails and you can't pay to repair it.
posted by asperity at 12:26 PM on November 20, 2012

The whole idea of price vs. cost vs. payment in health care is weirdly disconnected. The price applied to a good or service quite often will be an MSRP, and it often has nothing to do with what it costs to provide it (not uncommon in this or any other market). The payment received -- from cash-paying customer A or B, from Insurance Company D or E, or from the government -- is also seemingly random.

(should say, I'm the founder of the ClearHealthCosts site mentioned above. Thanks for the shoutout!)

It's quite a lot like the airline ticket marketplace used to be, marked by opacity and information asymmetry. Same as car sales, and real estate sales.

Asperity's experience is quite common -- and thorzdad's too. Who pays, and what will they pay? It often seems like it's just what the market will bear.

And klangklangston and pjaust: we have heard a lot about private insurance companies paying less than Medicare in some cases. It's weird: used to be that Medicare was rock bottom. But no more. the private insurance companies know what the Medicare rate is -- heck, everybody does, and we'll show it to you up front on our site -- and the insurers have been able to negotiate prices off of that. ("We'll pay you 85 percent of the Medicare rate.")

It's opaque, and it can't last. What follows once transparency and price visibility arrive, even spottily, is hard to predict. But it's coming.
posted by Jeannne at 1:48 PM on November 20, 2012

This quote from the "Medications" section deserves to be in caps:

THE SYSTEM WORKS BETTER FOR THEM IF YOU'RE CONFUSED.

This is true of so much more than just prescription drug coverage. It's pretty much the bedrock principle of our economic system.
posted by Corvid at 3:26 PM on November 20, 2012 [1 favorite]

Now Comes the Real Fight Over Healthcare
posted by homunculus at 4:14 PM on November 20, 2012