Tag Archives: third party payers

Wrong-Headed Cure for Reducing Healthcare Costs

As the debate about how to reduce healthcare costs rages on, Jeffrey Singer, a general surgeon in Phoenix and Cato Institute adjunct scholar, has published an opinion piece in the Wall Street Journal. “The Man Who Was Treated for $17,000 Less” chronicles how the surgeon “saved” the patient, with a low-cost indemnity type of health insurance policy, $17,000 by pretending that he was uninsured, self-pay. It is a wrong-headed cure for reducing healthcare costs.

healthcare - head in the sandDr. Singer concludes among other things that it is the third-party payment system that interferes with true price competition, so market clearing prices can’t develop. He goes on to chastise Obamacare for expanding the role of the third party and practically eliminating the role of the patient in the delivery of health care.

On the face of it, Dr. Singer’s arguments to diminish the role of third-party payers seem compelling. After all, by bypassing the insurance company the patient paid only $3,000 when he was asked to pay $20,000 upfront. But that’s like saying, “I saved $17,000 by not buying a Rolex I didn’t need.” Based on the examination of assumptions and facts, I contend that Dr. Singer’s arguments are hollow and his conclusions are erroneous.

By Dr. Singer’s own admission, the true price for the procedure was $3,000, and at that price “none of the providers was losing money on my patient.” Why on earth then the providers and the hospital felt compelled to mark up the price to $23,000 for this unsuspecting patient? Could it have something to do with the fact that the insurance policy had no provider-network requirements or preferred-hospital requirements?

These absurd markups saw the light of day, when Medicare released hospital billing data and outpatient services data this summer. As reported in The Arizona Republic, for every $4 charged to Medicare, Arizona hospitals collected $1 from the federal health program for those 65 and older. My own analysis showed that New Jersey had a markup of 6.2 times and the prices were marked up by 5.4 times on average in California relative to what Medicare actually paid.

Contrary to the statements made by the hospitals and providers claiming that charges don’t matter because Medicare doesn’t actually pay them, Dr. Singer’s example clearly shows that anyone without the enormous purchasing power of Medicare or a third party behind them is highly susceptible to these astronomical charges. In other words, Dr. Singer justifies the role of third parties with his own example.

I agree with Dr. Singer that when patients are directly involved in their own healthcare decisions, they are more accountable. However, another major flaw in his argument is the utopian assumption that all patients have the medical and financial knowledge, cost and utilization data, the necessary time, wherewithal, and ability to analyze and negotiate every healthcare expense on literally thousands of diagnoses codes on the basis of quality, outcomes, and price. If Dr. Singer hadn’t gone to bat for this patient, could this patient have accomplished all of what Dr. Singer did on his behalf by himself in today’s system?

If we are truly going to bend the healthcare cost curve down, among other things we must first shine the light on incomprehensible, nationwide markups that have become the norm. As a start, maybe Dr. Singer can start by quoting to all patients regardless of their insurance status the price he actually accepted instead of the “more than enough” $2,500 list price.

If the hospitals and providers accepted and published what Medicare pays as the “standard” price, instead of marking it up 5-7 times, it would automatically diminish the role of third-party payers.  The payers will no longer have to play the game of chicken with the hospitals. And the unsuspecting patients—insured, underinsured, or uninsured—will no longer be caught in the crossfire.