One of the arguments for keeping private insurers in the healthcare system is that they will incentives to control costs. In Massachusetts, erm, not so much. First, some background:
Call it the best-kept secret in Massachusetts medicine: Health insurance companies pay a handful of hospitals far more for the same work even when there is no evidence that the higher-priced care produces healthier patients. In fact, sometimes the opposite is true: Massachusetts General Hospital, for example, earns 15 percent more than Beth Israel Deaconess Medical Center for treating heart-failure patients even though government figures show that Beth Israel has for years reported lower patient death rates.
And, yes, it has an effect:
This payment pattern has become a driving force in the state's galloping healthcare costs, and it raises hard questions about why certain hospitals and physicians receive premium pay for care that is no better than that of their competitors. Until now, the growing pay gap has not been subject to public scrutiny because contracts between insurers and hospitals typically include confidentiality agreements...
"The same service delivered the same way with the same outcome can vary in cost from one provider to the next by as much as 300 percent," said Charles Baker, president of the state's second-largest health insurer, Harvard Pilgrim Health Care. "There is no other sector of the economy anywhere in this country in which that kind of price variability with no appreciable difference in service or product quality can sustain itself over time."
Health insurance premiums paid by the average Massachusetts family have jumped 78 percent since 2000, and Baker believes that a significant portion of the rise has been driven by hefty insurance payment increases to dominant providers, who use the extra income to install the latest technology and expand, often on rivals' turf.
These spiraling costs aren't due to an increasing patient population--in fact, patients have decreased:
Most patients don't think about the payments their insurance company makes to hospitals and doctors, but they should: Inflation of those payments is the main reason insurance premiums increased by an average of $1,800 per family during this decade. More than 85 cents of every dollar in insurance premiums goes to pay the bills in hospitals, doctors' offices, and other medical facilities. Five years ago, those bills were rising mainly because of growing patient demand for care, Blue Cross data shows, but now the escalating prices that hospitals and doctors charge is far more important. A recent Massachusetts study concludes that the price of inpatient care at hospitals is rising by 10 percent a year, while overall use of hospital beds is declining.
Why does this happen? Bargaining power:
The hospitals that are paid at the highest rates all share one trait: They have the bargaining clout to demand higher insurance payments. Often, that clout is based on a powerful brand name and elite reputation. Children's Hospital has negotiated the highest insurance payments in the state, arguing that its work with children is uniquely expensive. The high rates have allowed the hospital to consistently report profit rates three times the median for Massachusetts hospitals; still, insurers pay to keep Children's happy because they know parents won't buy insurance that doesn't include access to one of the world's most prominent pediatric hospitals....
Partners' dominance became clear in 2000, when executives of Tufts Health Plan had the temerity to refuse Partners' demand for a substantial rate increase. Partners countered by declaring it would no longer accept Tufts insurance at its hospitals. Within days, as thousands of Tufts customers threatened to change insurance rather than lose the right to treatment at the two famous hospitals, Tufts gave in to Partners' demands. Since then, Partners has negotiated one big pay increase after another from insurance companies fearful of a similar humiliation.
Today, the Brigham and Mass. General are paid an average of 30 percent more than similar nonpediatric hospitals statewide for each procedure, based on payment rates of Blue Cross obtained by the Spotlight Team.
In other words, quality of care doesn't enter into the equation. In fact, some prestigious--and well compensated--hospitals perform worse than hospitals that don't receive large reimbursements. For instance:
Cape Cod Hospital in Hyannis, for example, reported no deaths among 741 angioplasty patients from July 2007 to June 2008, an extraordinary feat that hospital officials attribute partly to the fact that theirs is not a teaching hospital. The care also costs less: $20,020 for angioplasty, on average, compared with $27,242 - 36 percent more - at Mass. General, according to the insurance records collected by the state.
In short, the only way to get prices under control--and to reflect medical outcomes--would be to have massive regulation. Price does not reflect quality of care:
At a Federal Trade Commission workshop on healthcare in April, the moderator asked a panel of healthcare leaders, "Is price a signal of quality in healthcare markets?"
A professor quickly offered a one-word answer: "No."
There was a pause. Then someone else chimed in, "There's a universal no on that."
The moderator concluded, "That was pretty easy," and moved on to the next question.
Once we start heavily regulating healthcare billing, I'm not sure what the point of having profit-seeking middlemen involved is, except to make things more expensive.
So, quality of care, it seems, doesn't affect insurance reimbursement rates. But private insurance is needed to maintain quality of care. Or something.
- Log in to post comments
The massive distortions and irrationality in health insurance are the result of decades of government interference in the free market. Numerous laws constrain insurers with respect to what sorts of policies they can offer, what prices they can charge, and to whom they must sell. The economic distortions we see are predictable consequences of these government regulations.
For more information, please see our article from the Winter 2007-2008 issue of The Objective Standard, entitled:
"Moral Health Care Vs. 'Universal Health Care'"
http://www.theobjectivestandard.com/issues/2007-winter/moral-vs-univers…
Paul Hsieh, MD
Freedom and Individual Rights in Medicine (FIRM)
http://www.WeStandFIRM.org
I'll reprise my comment that I placed on the Boston Globe:
It's important to point out that patients do not have control over insurance reimbursement rates, and so to conflate the terms patients and consumers is to perpetrate an injustice.
Moreover, the terms treatment and care are conflated, and they are not the same. In general, physicians treat, while professional nurses care. Not once was the word, nurse, used in the story. But it's the absence of professional nursing that is at the root of much of the problem.
Nurses provide over 95% of all reimbursed healthcare services (The Commonwealth Fund), although their costs are most often hidden in the room and board general charges, which is unacceptable. In current practice, nurses work as employees, and they are torn by loyalty to employers, which can withdraw their means of livelihood for advocating for patients and nurses, and often do.
Nurses and physicians have many similar aims, and they should consider looking for opportunities to collaborate such as in a model of self-governed professional practice groups, where they select their own members and leaders, contract directly with groups of patients, businesses or patient care institutions to provide negotiated professional services, and thus, can advocate much more effectively for reasonable patient case loads, for safe and reasonable practice conditions and for patient safety. This model has several advantages: it provides a larger united collective representation model for the key providers of professional healthcare services, the numbers of nurses and physicians together creates a synergistic effect to return practice autonomy and authority for the respective members of those two professions instead of allowing it to be usurped by administrators, insurers and other commercial entities, and it provides for the selected leaders to be accountable to the professional membership and patients instead of exhibiting loyalty to employers and third parties, thereby strengthening collegiality and trust.
The public is not at all informed about the vital and legitimate role that professional nurses provide - especially so in Boston after the nursing leadership pioneer, Joyce Clifford, was chased out of her critical nursing leadership role at Beth Israel when it partnered with the Deaconess. But it's the presence of absence of nursing care provided by nurses with at least baccalaureate education that makes significant differences in whether patients experience preventable complications, preventable suffering and preventable deaths.
I've long argued (since I was in high school, in fact) that health care and education are national security issues and should be treated as such. The health and education of the populace are critical to the future of the country. The private health care market has failed miserably and continues to get worse by the day, the underfunding of education has caused near irreparable damage to two generations. This has to be fixed.
Why is the kneejerk reaction "regulation" if somehow that will fix everything. If the patients who demanded the expensive hospitals actually had to pay (either through premiums or higher deductables), the effect might be a lot different.
While it is possible to come up with examples that appear to be great inequities in price without improvement in quality (overall death rate etc might NOT be an accurate measure because of patient mix), there are many times that enhancements can be made to care, at a price. If ALL hospitals had to charge the same amount, there would be no strong incentive for any to actually expand (even legitimately) the cost of their care, if all had to charge the same, there is real potential for cost-cutters to increase their profit margins.
There are lots of problems, but some bureaucrat fixing a price is not a solution.
If we can't nationalize healthcare maybe we can contract with Canada or Cuba to start up medical centers in the U.S.
To think this all started with Nixon and Kaiser and is now outright killing many people pisses me off. I don't hear the AMA fighting for national healthcare either, which reduces their ethical authority.
The only way out is remove the so-called free market from healthcare altogether.
jayh,
First, the whole point of the post is that prices are not being set by health outcomes (and, sorry, dying after heart surgery is a pretty good metric). So, if, essentially monosopy is largely determining prices, then intervention is needed. I didn't call for a rate schedule, but somehow that monosopy needs to be ended.
Second, while elective procedures do provide an opportunity for 'shopping around' (although given the woefully inadequate understanding of basic health, it's not clear that most people should be making this decision), many procedures, even if not requiring immediate attention, require quick action--and the patient (and family) are often not in a good state to make reliable judgements.
Third, as I noted, I never said all hospitals should charge the same amount--surely teaching and research hospitals, in light of their missions, should be able to charge more. But Partners is charging what it can, largely on the strength of a good PR campaign, not evidence.
Fourth, regarding "some bureaucrat fixing a price is not a solution", I have never understood why a government bureaucrat, who ultimately is responsible to elected officials, is profoundly worse than a corporate bureaucrat who is only accountable to the profit of his or her shareholders. Private institutions have deadly bureaucracies too.
"(although given the woefully inadequate understanding of basic health, it's not clear that most people should be making this decision)"
This it seems to me is the fundamental problem with applying free market ideology to health care. Free markets only work well, when you have people who can make a decent judgment about the value of the things they are purchasing. For healthcare to work within a free market, we'd need to have everyone be almost as knowledgeable about healthcare as a doctor.
And educating everyone that much is far too much of a pain in the ass, if it's possible at all.
Nice examples of how it's not working.
Here's an interesting bit of insurance trivia. Since 2001, insurance premiums in the country have risen by 78%.
it should be definitely treated as national Health security issue.