Turning health care into a giant used car lot

I’m not a big fan of bargaining and my half-hearted attempts to get a better price for a used car, garage sale find or contractor’s service have been mostly unsuccessful. There’s always that nagging feeling that the seller is laughing with delight once I’m gone, thinking, “I really pulled one over on that rube!”

And so it has come as somewhat of a shock to me that medical care has become the new garage sale, as far as haggling goes.

First we found out that hospitals have “chargemasters” that hold the list prices for everything from knee replacements to aspirin tablets, and that these prices differ wildly between hospitals; even those in the same city. We also know that insurers, both private and Medicaid and Medicare, never pay these list prices but instead bargain with hospitals to pay substantially discounted prices. The only ones not getting in on the discounts are the uninsured or under-insured people who get hit with the full list price of hospital care.

The same thing happens with doctor bills. If you’ve ever compared what your doctor bills your insurer with what your insurer actually agrees to pay, it’s clear that there is a lot of bargaining going on. If the list price of an office visit is $125, the insurer pays $60; for a $200 lab test, the insurer reimburses $70, and so on.

A recent New York Times article, “The $2.7 Trillion Medical Bill,” focuses on the cost of colonoscopy to help explain how health care spending can be so much higher in the U.S. than other developed countries. In the article, patient bills for their colonoscopies ranged from a hefty $6, 385 to a whopping $19,438. Meanwhile, their insurers all negotiated the price down to about $3,500. As Elizabeth Rosenthal of the Times notes, this is still far more than the “few hundred dollars” that a routine colonoscopy costs in Austria or Italy.

Why do we have such price inflation here in the U.S.? Our for-profit health care industry has a lot to do with it, as does the maddeningly unregulated nature of the business. Rosenthal writes; “A major factor behind the high costs is that the United States, unique among industrialized nations, does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid, the government programs for older people and the poor.”

David Blumenthal, president of the Commonwealth Fund tells the Times; “In the U.S., we like to consider health care a free market.” He adds, “But it is a very weird market, riddled with market failures.”

Now back to haggling. In the last year, my family—like many others in the nation—has been covered by a high-deductible insurance plan. Before our plan kicks in to pay for doctor bills, prescription drugs or diagnostic tests, we must meet a $4,000 in-network deductible. After that, we still have co-payments and also face an out-of-network deductible of $8,000. Now responsible for so much out-of-pocket health spending, I’m face to face with Blumenthal’s “weird market.” It’s a market where no one tells you the price of office visits beforehand, doctors have no idea how much an MRI they’ve just ordered is going to cost, and you end up paying dearly for not being an aggressive shopper.

Here is an example of this new reality. I recently had a bike accident and ended up with a deep gash between two toes. Sewing this wound up was not simple; I had waited three days to address the problem (college graduation took precedence) and the cut was in a very tricky spot. The doctor x-rayed my foot to rule out a fracture, took a swab to rule out infection, cleaned the wound, gave me numbing injections and sewed it all up very thoroughly. He bandaged the foot and gave me a surgical shoe to wear to keep my weight off my toes. Then we talked money. I told the doctor that I had “crummy insurance” with a $4,000 deductible so would be paying out of pocket for his bill. He nodded knowingly and said something to the effect of “I’ll give you a good price…”

Into the garbage went the swab that had been destined for a diagnostic lab. (Saved $175). Down went the price of the surgical shoe; (“I’ll give it to you for my cost, $25.”) Into my bag (unfilled) went the antibiotic prescription. All the supplies, the surgery (also known as stitches), the anesthetic, and two follow-up visits were bundled into a single price of $650—a bargain, I was assured. I thanked my doctor, gave the office assistant my insurance information so the charges could go toward meeting my deductible and off I limped, feeling as though I had just scored a great deal on a used car. Or had I?

With the dawn of “consumer-directed care,” patients are being asked to take an active role in seeking out medical bargains. Those of us thrown into this mess know that we are woefully unprepared for this task. My husband was prescribed an MRI-guided cortisone injection into his hip not long ago. He asked the orthopedist how much this procedure would cost and the doctor had absolutely no idea but recommended an imaging center he is affiliated with. When my husband called the center and asked how much the procedure would cost, they told him it would run about $2,000. This seemed really high (and again, it would be coming out of pocket) so he called the doctor’s office and got a referral to another imaging center from the office assistant. The price of the same procedure was just over $800. Seemed like a bargain, right?

This anecdote will no doubt warm the hearts of conservatives who sing the praises of consumer-directed care and the power of market forces to drive down prices. My take on it is that my husband and I were just lucky that we had enough knowledge about pricing and had the time to haggle. Most people don’t have the wherewithal to compare prices—they are sick and need immediate treatment, get admitted to a nearby hospital or get sent to a particular imaging center and find out later how much things costs. Prices are not listed on the wall; you can’t find them easily online and no one ever tells you how much things cost. When we do bargain or seek out cheaper providers we never really know if the deal we’ve gotten is really that great.

I’ve got to say that the idea of turning health care into a giant used car lot doesn’t hold much appeal for me. I’d much rather know that my providers are working from a standard price list—much as they do for Medicare and in virtually every other developed country. “Let’s Make A Deal” is a television program; it shouldn’t take place in a doctor’s office.

Naomi Freundlich is a journalist, policy expert and health advocate who blogs at Reforming Health.

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  • Steven Reznick

    Physicians are no happier with the insurance and medical cost used car approach either. We also have high deductible health care insurance with instead of just a individual and family deductible we now have in network and out of network deductibles for multiple types of office visits, ER visits, diagnostic imaging, diagnostic lab and of course pharmaceuticals. The cost of the insurance is extraordinary for a policy that costs $1400 a month for 2 and carries a 10,000 a year deductible basically.
    Years ago Pete Stark and Congress decided that if one physician gave professional courtesy to another doc or their family it was in fact an illegal bribe for a future referral so this practice has virtually disappeared.
    On the physician side we know what we need to order to take care of you well but when we try to find out the costs of the tests or procedures we are sending you for we run into the same problems the patient has.
    The people of America have allowed corporate america and the insurance and pharmaceutical companies to kidnap the practice of medicine and hold it hostage. They first conquered and divided the practicing physicians and once they had eliminated a unifying lobbying medical political force, they stole the patients from the employers by promising them “quality” when in fact no one has yet been able to define that. A two tier system will develop with one tier being a government one payor system and the other being private fee for service direct pay medicine. In the meantime we all suffer from the greed of insurers, medical device manufacturers, pharmaceutical companies and some practitioners of exceptionally high priced procedures.

    • drll

      I always thought I would get decent medical care as a doctor, but unfortunately for the reasons you describe above I don’t think too many people get good care. The exception may be Congress and the elite. But as the system gets dismantled it will be more difficult for anyone to get good care.

  • buzzkillerjsmith

    Post is too long, Naomi.

    Summary: The market for medical care is not a true free market and is characterized by market failures such an incomplete information, price discrimination, monopoly power, and too much time spent bargaining and attempting to find information.

    Agreed.

  • Anthony D

    So, doctor, you don’t want Pres Obama with his Harvard Law degree make healthcare decisions and tell you how and what tests to run and what procedures are paid for by Medicare & the like. Come On, Doctor: don’t you trust Harvard Law training?

    (Sarcasm).

  • Anthony D

    “This is the way risk-sharing and pooling is supposed to work!”

    Not really.

    Using that logic, car insurers would not be allowed to offer “good driver” discounts; someone who drives only a few thousand miles a year and has never had a ticket let alone an accident would be forced to pay higher premiums in order to completely subsidies their neighbor who drives 5 times as much and has had three at-fault accidents and two DUI
    convictions in the last five years to boot. It would be illegal to
    charge cohorts of statistically very safe drivers, less than you would cohorts of the highest-risk categories.

    Risk-sharing and pooling in insurance has always traditionally utilized actuarial reckoning to #$%$ meaningful premiums to individuals and sub-groups within the total pool of insured, based on many factors.

    Under the Affordable Care Act, it will be illegal for insurers to #$%$s meaningful premiums reflecting risk against such self-inflicted conditions as morbid obesity, abuse of alcohol and other drugs, sedentary lifestyle, and even, in those states which intend designating tobacco use an excluded “pre-existing condition”, smoking. This of course means that premiums must rise sharply for those who are, to go back to my car insurance analogy, “careful drivers” of their own bodies
    and health.

    Despite the many noble objectives of Obamacare, I can’t see this ending well.

    • Guest

      You just totally plagiarised my comment from 3 months ago. Word for word. It was on the post “4 Hard Truths About Obamacare.”

      Shameless little man. Write your own comments.

      • Anthony D

        Since you made it so widely available. It was that good!

        So don’t cry.

  • Alice Robertson

    I am a bit surprised the author isn’t supporting competiveness considering her other liberal views on health care topics. Her view doesn’t help the working poor who often do have to bargain for care. I think it’s a terribly poor comparison.

    Of course, it’s not a completely free market. People like the author don’t want it to be. Government picks up about half of the cost of medical care already and if her supporting web posters are in agreement with her we will head towards a disaster of the government picking up the complete tab.

    At my recent MRI my insurer called and said instead of the $2000 outlay I could get one the next day for under $400. There are ways to comparison shop and I think it works for any product. But then again government involvement always raises prices. It does so for college and food, etc. And then we get into less quality but more “freebies” and used car lots don’t give away freebies.

  • ErnieG

    The “Chargemaster” debate spurned by Time Magazine’s article
    a few months ago is very misleading. There is a difference between charge, cost, and payment (from insurance to provider).

    1)
    For insured patients, almost all payments to providers are based on some percentage of Medicare rates. Hospitals, insurance, and physicians do not have time to haggle about specific rates for each specific E&M and CPT codes, so rely on Medicare rates as a base from which to negotiate, and do so in large blocks. What each
    hospital/provider decides to accept as payment above or below Medicare rates depends on many factors, including but not limited to the hassle factor, approval of ancillary services, etc. For example an office that has a lab, x-ray, and PT which a fast paying insurance company will cover may allow lower rates for E&M, compared to one that is slow to pay, and does not cover ancillary services.

    2)
    Almost all providers and hospitals inflate their charge to avoid a situation where undercharging may result in future repayment to insurance companies. This is because almost all insurance contracts state that providers must charge preferred rates to their members. If you charge everyone high and that charge is way above any
    reimbursement rate, then you reduce the risk being accused of not charging preferred rates to any one insurance. No provider expects to get payment for the charged rate, only the negotiated re-imbursement payment rate.

    3)
    For self pays, this creates a problem. In this situation provider charge self-payers lower rates, but you can offer discounts based on financial need if the patient asks for it. This protects the provider.

    All in all, this Chargemaster is not the cause of the problem. It is a problem of the proliferation of third party comprehensive medical insurance and price fixing (from Medicare’s large role it plays in defining payments). Unless someone is very wealthy, being underinsured or uninsured in this country sucks.

    The chargemaster is NOT THE PROBLEM. The inflated charges are a result.

    • Alice Robertson

      Did you see the TIME article today based on a Washington Post article about docs and the AMA inflating prices that makes the government pay more? I am placing the title because links end up in moderation. It’s from their recent issue so it should be on the front page:

      The Secretive Group Behind Medicare Reimbursements

  • LIS92

    ErnieG is right…as an insured patient, my insurance company sets the rates for care. If I want the care provided to count toward my deductible, I accept those negotiated rates. I suspect they vary slightly, based on the negotiating power of the provider involved.

    My daughter needs her wisdom teeth removed. Since the cost varies based on how complicated the procedure. we have to pay for a consult before the price can be determined. How many consults can I afford before it’s just cheaper just to go with the first doctor seen?

    Every example of market based medicine involves imaging or lab work…stuff that if fairly straight forward. The x-ray costs the same whether the teeth are impacted or not. How many doctors are willing to promise a certain price on a patient they have never seen before?

  • Dorothygreen

    Aren’t there more than enough words beyond the pages of the ACA to say STOP. Enough already. We need to reform health reform. I had hopes (not high) but hope that finally the ACA was a path, albeit filled with human speed bumps, that would make for more equity and lower the costs of health care.

    Now, it seems this will not be so.

    1. Employees are mandated to provide insurance and negotiate with insurance companies. They keep wages lower get a tax deduction and hire more part-time workers.
    2. insurance will continue to raise premiums because hospitals and physicians and drug and equipment companies make their own determination of what prices they charge.
    3. The “exchange” is in competition with e-insurance and others that will sell cheap, catastrophic insurance to young folks.

    4. Exchanges consist of but a handful of companies – mostly the Bigs who also competing in other markets or some have even said no to the exchange.
    5. The exchange will be used primarily by low income folks and those who have medical issues.

    The Swiss reformed their health care in 1995.
    1. They ousted for-profit for essential services.
    2. The government negotiates prices with all the players.

    3. Insurance companies thereafter do all the administration. 4. The insurance exchange is the only place one can purchase insurance and everyone must. There is no Medicaid.
    5. There is consumer choice. Insurance companies can make a profit on supplemental insurance for such things as private rooms ($100 a month) ability to see the top doc, adult dental, and on and on. All, keep 90 insurance companies doing well with efficient administration of the monies.
    7. Gov provides the subsides for low income to purchase insurance outside the exchange.

    Why can’t both sides of the political aisle see the value of this for the US. What have they to lose? The cost of insurance could be cut in half as the Swiss system is about half the US. (except that they have only about 8% of the population with excess adipose tissue (EAT). Who is dictating that “we the people” shouldn’t expect a sensible health care system? who would lose? Perhaps many specialist physicians and CEOs would be in the top 10% instead of the 1%. Why would unions want to continue having having employers pay for health insurance at the expense of livable wages and mobility?

    We the people, especially middle income tax payers are the real losers and we are going to continue to lose as long as the Bigs including Big Ag and Big food control our access to affordable health by dominating our eating culture with cheap, poor nutrient, highly addictive palatable “eatables” and access to affordable health insurance.

    Only in the USA.

  • Suzi Q 38

    I figured that out when I needed four MRI’s. The hospital wanted to charge more than $15K each.

    A small imaging center a few miles from the hospital was willing to do it for far less.