Thursday, August 13, 2009

Medicine's New Car Pricing

One of the most distasteful moments in life is walking in to a car dealership and knowing that the prices on the vehicles mean nothing relative to the purchase price you must "negotiate."

Once you decide on a car (and your heart's set on it), you are immediately ushered to a nice desk and a polite salesman types on a computer, adds a few numbers to a spreadsheet, lets the speadsheet add in a little extras sales tax and numerous "fees," and then swivels the monitor your way to show you what the real cost of ownership. You smile politely, knowing he's padded the amount with his commission and dealer mark-up, then start negotiating.

At first the dealer is appauled that you would do such a thing. You threaten to leave. Magically a few thousand dollars disappears. You're still not impressed. He asks if you have a trade-in. You say, "No." He offers you dealer financing. You decline and offer cash. He gets his manager. His manager, looking like "Slick Willy," turns up the heat. They walk away. They return and remove a few hundred more. You know other dealerships can do it cheaper. They say best of luck. You walk out, thoroughly pissed. The salesman runs out to the parking lot and offers a final price two thousand cheaper. You stop, and wonder, "who the hell are these guys?" and drive off.

Such is the case with health care pricing, too.

The only problem is, of course, that you're dealing with your health at a very vulnerable moment in life. "List price" in medicine means nothing any longer. Whether your insured or uninsured, the prices that appear initially on your bill mean nothing. You must haggle.

Insured folks have agreed to let most of the haggling be done for them by the insurer, since the prices insurers pay for health care are pre-negotiated with hospital systems beforehand. You, in accepting a particular policy plan, get to "pick" your deductible and co-pay amounts, knowing full well that the negotiators are taking their piece. But that's the price the War Lords of health care system have exacted on the common man in the name of "transparency."

Noninsured folks have it much tougher. They get the list price sent to them after their care and get to feel the impending doom of realizing they've bought a Mercedes when they could only afford a Hyundai. So they make an appointment with the financial assistance office at the hospital. The nice lady there determines your ability to pay. If your "lucky" enough to be unemployed and have little income, you might get a flat 35% off. If not, no worries, an easy payment plan will be arranged. Never mind the bills will continue for years. Never mind that you have to have another operation and another admission in three months.

But even worse are to poor saps who have insurance and come from out of state, or those with tons of cash and don't want the world to know about their illness. They pay full fee. That's how the game goes. And that's why hospitals inflate their prices: "there's money in the thar' hills!" That extra money pays for lots of little extras at hospitals.

To be fair, hospitals aren't the only ones to blame. Like a co-dependent spouse of an alcoholic, the payment system that only pays only 80% of costs and leaves the rest to be paid by secondary insurers or the patient (as Medicare does) further enables this dysfunctionality. The lack of price transparency for our entire health care system is staggering. No wonder no one knows what things really cost in health care and no wonder ANY attempt to estimate costs always underestimates reality (poor CBO).

And so, when we see survey's from the New York Times finding that there are high fees in medicine, I can only say, "Duh!"

Welcome to the world of obfuscation and new car pricing.

Real reform would require no-haggle CarMax pricing but none of the current proposals require this.

If they did, then maybe we'd get somewhere in the health care debate.



Keith said...

You have hit on the reason that we have such runaway costs in health care and why this system can be blatantly so unfair to those without insurance. Even at that 35% discount the hospital offers the uninsured patient, they are still making more than if the patient had a commercial insurance policy. Why the insistence on draining those without insurance of every last penny and foisting them into bankruptcy? The health care system may deal with the short term health crisis, but then leaves these patients bankrupt and emotionally distraught. If there are families involved, then others are significantly impacted as well.

On top of this, we find the large medical centers in this country have managed to leverage their reputations to get higher reimbursements from the insusrers! Who is going to buy a health insurance policy that doesn't include Mass General hospital in the Boston area! The result is higher reimbursements to these large health care entities that are using their extra cash to expand into other territories, driving small commuinity hospitals that may be more cost efficient into extinction! This will only lead to higher health care costs as large hospitals like Mass General consume more of the market and thus increase their leverage while driving these small community hospitals out of business. All because the health insurance company does not pass on this extra cost to the consumer as it should (at least when there is no discernable difference in quality that can be proven).

At least when you go to the car dealer, you end up knowing what the price actually is. Most the time in health care, you don't ever find out.

Anonymous said...

There are two generic ways out of cost spiral: a healthy dose of competition & a big hammer (ie gov regulation).

In a field that lacks of either, price of good/service tends to soar out of control. If, say, you were to buy a car where there's practically a dealership around every corner, the negotiation will generally end up in consumer's favor.

Health care in US generally lacks of such leverage. Monopoly and compartmentalization enable price to be arbitrarily raised by the nameless few. Consumers are often left with one cruel decision to make: find the mean to pay the bill or stay ill. The insured are not much better off if they lose or are denied coverage. The bargain chips are almost entirely in hand of the industry and/or the billing institution.

In Europe, industries are frequently fined or hammered big time when they go out of line (eg withdrawing generic drugs). In US (at least until very recently), the government usually sides with the industries and their lobbyists in setting ground rules and regulations (in name of promoting [deregulated] entrepreneurship, i presume).

In a field where the good or service is in demand but competition and regulation are weak or nonexistent, price soars.

Anonymous said...

Originally titled:

"EU Warns Drugmakers of Blocking Generic Drugs" *

Since when has US government - namely, the FEA and US equivalent of consumer protection agency (if there is one) - taken such initiative?