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By Tom Cushing

Power to the Patients?

Uploaded: Aug 26, 2013

Astute price-fixers and monopolists know that the enemy of their larcenous instincts is transparency. If folks know what an item ought to cost, or what its price is down the street, they will usually shop for it.

As reported here in March (Brill's Bitter Pill, RC 3/15), American health care costs have run amok because that market has been virtually opaque to anyone outside the cozy lounge where PPOs and providers do their sensual dance. Wonks could measure and report that health care costs are roughly double the amount here, as compared to elsewhere in the First World -- without discernibly better outcomes, but everyone has seemed much more concerned about "who pays" than "how much." The lounge was smoky, employers (who provide most of the coverage as a benefit) dozed outside and their employees have been basically impotent – with nary a pharmaceutical fix in sight.

I'm happy to convey that several things have begun happening that are starting the clear away the fog.

First, Brill's article did astutely diagnose and publicize the condition: increasingly powerful hospitals charge outrageous "chargemaster" mark-ups to insurers, whose whopping "discounts" from those fictitious, unchallenged retail prices fail to offset the gouge. Employers, remarkably, have gone along, often passing higher premium costs on to their employees, who just grumble. Only the near-poor uninsured/uninsurables actually have to pay chargemaster rates and go bankrupt (and who really cares about them?).

Second, in May the federal Health and Human Services Department published comparative cost data that revealed both what Medicare pays and the astounding chasm between that amount and what the chargemasters bill (generally about three-times more). One example, not an exception, is a joint replacement in Oklahoma for $5,300 -- it costs fully $233,000 in Monterey Park, CA. That's Forty-Four Times as much. (Want more? Howsabout a $170 Tylenol pill? A thousand-dollar toothbrush? The abuses go on and on.)

Third, a few clinics, driven by good old-fashioned ethics or the recognition of a business opportunity to attract patients by undercutting the competition (not that hard, obviously), have actually started posting their prices. They are dramatically lower than the competition's hidden ball, and these centers have begun drawing clientele from far afield. Other patients are using the facility's posted prices and plane ticket costs to leverage better deals where they live.

Fourth, and perhaps the most exciting development to-date, employers are actually stirring out of their torpor. They have awakened to the fact that the true meaning of that salacious chargemaster bump-and-grind is that They are the ones getting, well, screwed. They are seeking alternatives that threaten to break up the wanton amusements of the PPOs and hospitals.

Some employers are ditching the PPO model, self-insuring for routine costs, with coverage for catastrophic bills. They then hire one company to negotiate cost-plus pricing, and another to challenge higher hospital bills. Providers are not staffed-up to handle such informed challenges, and against a legal standard of "reasonable and customary" charges, they have so far generally folded their hands. One company has even established a preventive care clinic on-site with the savings.

Others employers, like CalPERS, have started using "reference pricing" – announcing in advance what they will reimburse to the employee for each particular procedure. The covered worker can go anywhere for the service, but understands that s/he will pay the difference. Thus armed, employees have shopped for plan-able procedures; predictably, providers whose chargemaster prices previously exceeded $100K have agreed to CalPERS' $30,000 reference price for a hip or a knee. (I suspect it also portends a redoubling of chargemaster's worst efforts on unplanned services, like the ER. If that heart attack itself didn't do you in, one glance at the bill will surely finish the job.)

Granted, these are currently exceptional situations – 80% of insured Americans are HMO or PPO members – but it's a start. It's also good, free-market stuff, with the government providing only useful data to facilitate the process. It's good news consumers, especially for folks who were uncovered – and for issues like American competitiveness in world markets (remember those ads about the worker health care fraction of new car prices?).

Every economic market model assumes that there is "perfect information" on the part of buyers – so they can comparison-shop. What America has had of-late is really not a free market, at all, but rather a rigged system of illusory charges that has mightily benefited a few, bothered covered businesses to just-under their action thresholds, and ruined little guys who could be crushed by the power of superior information. Transparency – whatta concept!

(Please note that this health care article has been an ObamaCare-free zone. Can we maintain that record in the Comments? Stay tuned!)