Health Care Prices Are Not Actually Real Prices

Good stuff from Peter Suderman at Reason

 In March, journalist Steven Brill published a lengthy piece in Time magazine on high medical bills, comparing hospital “chargemaster” rates—the listed prices—to the rates paid by Medicare. And over the weekend, Elisabeth Rosenthal compared U.S. prices for a variety of health services to the lower prices paid by other countries.

Both pieces offer essentially the same thesis: The U.S. spends too much on health care because the prices Americans pay for health care services are too high. And both implicitly nod toward more aggressive regulation of medical prices as a solution.

Part of the reason these pieces get so much attention is that most Americans don’t actually know much of anything at all about the prices they pay for health services. That’s because Americans don’t pay those prices themselves. Instead, they pay subsidized premiums for insurance provided through their employers, or they pay taxes and get Medicare or Medicaid. Even people who purchase unsubsidized insurance on the individual market don’t know much about the particular prices for specific health services. They may open their wallets for copays to health providers, or cover some expenses up to a certain annual amount, but in many if not most cases they are not paying a full, listed price out of pocket.

What that means is that, in an important sense, the “prices” for health care services in America are not really prices at all. A better way to label them might be reimbursements—planned by Medicare bureaucrats and powerful physician advisory groups, negotiated by insurers who keep a watchful eye on the prices that Medicare charges, and only very occasionally paid by individuals, few of whom are shopping based on price and service quality, and a handful of whom are ultra-wealthy foreigners charged fantastic rates because they can afford it.

This is the real problem with health care pricing in the U.S.: not the lack of sufficiently aggressive price controls, but the lack of meaningful price signals.

Much more at the link.  If they really want an interesting comparison, compare the prices of medical care not covered by insurance (actually pre-paid medical plans) in the US, and those that are -- e.g. for plastic surgery vs. other out-patient surgeries.

  • mlhouse

    Comparing US prices to European prices is not even worthwhile. To see this, consider a bottle of Coke. At the convenience store, a 20 oz. bottle is $1.79. At Wal-Mart, the same bottle is $0.40. The reason for the price differential is that even though both are "bottles of coke", they are not the same commodity. Time and space are two important factors the define a commodity. So, a MRI that you can get within two weeks is a different commodity than a MRI that you can get in 8 months waiting. Both are MRIs, but to create the health care infrastructure that can deliver the product with the timeliness the US system does versus the European is going to be much more costly.
    And, the wait time issue is not "free". The cost of waiting for the needed procedures is pain and suffering, and in many cases, unneeded death.

  • LarryGross

    well no prices in America are REAL ... AND they are substantially more than other countries.

    and all the other countries manage to have lower prices - how?

    How does, for instance, the bastion of capitalism - Singapore -handled high medical care prices?

    and if you want to compare "not covered" procedures .. great idea - let's compare such prices in this country with other countries!

  • Chris Kahrhoff

    by what moral authority will you tell a doctor to do a procedure that they don't find the compensation to be adequate?

  • LarryGross

    isn't that exactly what private insurance companies also tell doctors?

  • Chris Kahrhoff

    No, because the doctors don't have to accept plans that don't pay the rates they deem necessary.

    Are you really this obtuse in real life?

  • http://thegameiam.wordpress.com David

    I have long said that the one health care reform which I think would be worthwhile is that providers should be required to post their prices (like an auto shop).

  • LarryGross

    isn't this what you just said: " by what moral authority will you tell a doctor to do a procedure that they don't find the compensation to be adequate?"

    is that not what you meant?

    I point out to you that all manner of private companies do this in spite of your "concern" about "moral authority".

    Are you THAT dense also?

  • LarryGross

    what exactly is your problem here if Doctors can refuse?

    what's your point?

  • Chris Kahrhoff

    you are aware that when a government says to do something it isn't usually a suggestion right?

  • LarryGross

    and that's exactly what Singapore does.... they require the prices be disclosed.

    we could do that here ... but then that would involve govt... and that's apparently not good for some folks.

  • MingoV

    I used to direct medical laboratories. There are three components of lab economics: costs, charges, and receipts. These often bear little relationship to each other.

    Example: A single thyroid hormone test on an outpatient

    Cost: $19 (this includes overhead but not billing)

    Billing costs: self-pay onsite: $1, common insurer or Medicare: $5, less common insurer or bill-to-patient: $7

    Charge: $60

    Self-pay patient pays $60 for a $19 test.

    Medicare pay $48 for a $24 test.

    The common insurer pays $53 for a $64 test.

    The less common insured pay $56 for a $66 test.

    The billed patient pays $23 for a $20 test.

    The differences between costs, charges, and receipts are much worse for more expensive tests. Lab directors could not, by federal law, reduce prices for uninsured patients if the lab was testing any Medicare or Medicaid patients. We sneaked around that law by asking each self-pay patient to pay a reasonable amount (costs plus 20%) at the time of service. We then told the patient to ignore our computer-generated bills for the balance. We wrote-off the unpaid balance.

  • LarryGross

    I'm pointing out to you that the doctor, whether it's private insurance of Medicare/MedicAid - they can refuse.

    You do realize that ObamaCare exchanges are all private companies, right?

  • LarryGross

    well.. it's not only European. It's also Asian, Australian, Brazil, etc
    and most of those countries have better overall life expectancies...

  • Chris Kahrhoff

    I'm just going to highlight this idiocy for everyone to see:

    "You do realize that ObamaCare exchanges are all private companies, right?"

  • http://thegameiam.wordpress.com David

    Dude, if you were more obtuse, you'd be a straight line.

    A reform which increases information so that individuals can make their own choices increases autonomy and freedom. One which has centralized decisions determining what's best for all of the people reduces them. There is nothing wrong with *good* government, defined as being more of the former than the latter.

    And was Singapore somehow relevant?

  • LarryGross

    If you're looking for a real world example of real price disclosures for people to make their own choices - then yes.. Singapore is relevant - more relevant than any other alternatives that currently exist.

    otherwise, what's your real world analog ?

  • http://devilish-details.blogspot.com/ mesaeconoguy

    I got him to say that over a month ago.

    Awesome stupidity on full display.

  • marque2

    " most of those countries have better overall life expediencies."

    False

    Life expediencies are a bit lower in the US not because of the healthcare, but because we have more accidents and murders than other parts of the world.

    A note if you reach the age of 60 in the US your life expectancy is higher than any other nations 60 year olds. This is a fair comparison of the medical system since at age 60 is when you start to use it a lot.

  • LarryGross

    we have more murders and accidents than the rest of the world?

    Have you got a CREDIBLE LINK? not some right wing echo chamber link....
    but a real authentic credible link?

    so we don't pay more for health care compare to other countries if you subtract out the murders, accidents and geezers?

    ;-)

  • marque2

    We do pay more, but we get more. The business about paying so much for health care and not getting anything for it is a liberal trope.

    You can search this site, I am sure Warren has brought the issue of measuring actual parity.

    Another disparity, is in the USA all infant deaths are counted, no matter how early they are born, other countries - do things to goose the figures.

    Oh and remember how say 10 years ago Japan by far had the largest median age - turns out the Japanese were counting based on retirement benefits. A few years back they looked into it and found quite a few folk died, but it wasn't properly reported to the government so folks were still getting paid. Hmm. They are no longer number 1.

    When working internationally with disparate data sets and different assumptions it is really difficult.

  • LarryGross

    credible links margue2 - credible links - not right wing blather sites. We don't get "more" when the same procedure - like an MRI costs twice as much.

    you don't get "more". you pay more and this is why we pay twice as much as all the other countries - twice the percent of GDP for health care - no matter life expectancy and infant deaths.

    .

  • perlhaqr

    It might be even worse that that. I recently had a go around with my insurance company about some equipment (a CPAP) and in the course of it, (trying to figure out who I was actually supposed to give money to) I ended up talking to the local supplier, and when I was talking to the third party medical equipment middleman, they said "Oh, yeah, they shouldn't have told you any prices. It's in the contract that you're not allowed to know."

  • perlhaqr

    I'm pretty sure it's because infant mortality is factored into life expectancy, and other countries count "live births" differently than we do.

  • pmanner

    Just out of curiosity, why do you think that doesn't happen?

    Let me give you a couple reasons.

    First, it violates Anti-Trust law. Federal law prohibits publication of fees. Period.

    Second, should the posted fee be less than Medicare, the provider runs afoul of the False Claims Act. The False Claim Act basically states that if you charge less than Medicare, your new customary charge is that lower number, and you have now overcharged the Federal Government for every patient you have treated. At treble damages, plus $10,000 per occurrence, plus a felony conviction good for a stay at Club Fed, are you surprised that this is not a desirable thing to do?

  • marque2

    That is the way every store in the universe works. Safeway buys frosted flakes for about $2 and with stocking and checkout fees the cost is about $2.5. But they sell it for $4.50.

    A 100% markup for a product doesn't seem all that bad.

  • LarryGross

    what I've heard is that grocery has less than a 5% markup overall.

    @pmanner - I'm pretty sure a ton of various business have to currently disclose their fees and prices... for instance, the credit companies, by law, have to disclose to you their fees and penalties.

    are we saying that current law prohibits disclosing medical fees? got a cite?

  • marque2

    BS that is net profit, not net sales. Most stores mark up items 2 - 3 times for sale.

    If you go by net profit the labs average 3% and therefore should be charging more.

  • LarryGross

    if grocery stores make less than 5% net profit - why should labs make more?

  • marque2

    They don't, they make about 3% net profit.

    You are confusing net sales and net profits. You might want to take an accounting class.

  • LarryGross

    no. I'm asking about net profit..no matter the sales... or markup.... I've taken a number of such courses.

    what's the issue ? I thought it was making too much profit?

    "profit" is misleading when it comes to medical services because when you pay for an MRI or a doctor who is reading it - they are considered "costs" but just because the profit is low does not mean the costs are justified.

    if you do not disclose costs there is no way to compare costs, ergo, no incentive for the providers to be cost-effective.

    right?

  • marque2

    This reminds me of the Soda is 8 cents yet they sell it for a dollar. I knew a guy who owned a quickie mart - and he told me (circa 2007) that if he sells a medium soda for less than 68 cents he makes a loss. Yeah the soda is only 8 cents but then you have to pay for cup and straw, you need to include the ice make, and soda dispenser costs, you need to include store overhead costs, you need to consider labor costs, pilferage ...

    Goods don't just appear magically and folks just want to give it away for free and they are just charging you confiscatory rates because they are mean.

  • marque2

    Obviously you need to take the classes again, because you took them from some communist professor, or you slept through class.

    You don't think paying a doctor to review your MRI is a legit cost - wow you liberals have a lot to learn about how the world works.

    Anyway, you are trying to twist logic. Healthcare industry makes about 3% net profit, regardless of how you do the costs, if your grocery store figure is correct, don't you think that healthcare companies should earn at least as much as the grocery store, - they should raise the prices so net profit goes up to 5%. Thanks for illuminating this gross disparity.

  • LarryGross

    well you DO have to consider ALL costs that go into a product... why would you not?

    but it's no secret that some products essentially subsidize others.When you get fuel from a WaWa or Sheetz - the profit on the fuel is razor thin while the profit on the coffee and subs is pretty good and they are what pay for the store and the overhead.

    this is why you see far fewer fuel-only service stations these days.

    places like WalMart will actually sell some things at a loss that bring you into the store but they make significant profits on other things that balance it out.

  • marque2

    So a lab company should use their lab tests as a loss leader? You know it is also no secret, that the store might bring you in with a sale on paper towels but that is only because they can make it up with the higher costs of some other product.

    I don't think a loss leader sales model is appropriate for most business, other than certain retail outlets. Again, you are just making really stupid points to try to come up with some kind of left wing philosophy that might convince a low information voter to vote for leftists again.

    Yeah, duh, why you have a point, duh, if paper towels can be sold for less, then the lab results can also be sold as loss leaders, duh and my doctors visit as well. In fact they can sell all their products at a loss and make it up in volume - gee ain't Obamacare great, duh.

  • LarryGross

    loss leaders are pretty common guy.... in most markets.

    but I'm not necessarily advocating that - I'm just pointing it out.

    no left or right wing philosophy - just trying to get the basic facts straight which seems to be a problem these days with those who have ideological bents.

    but there is no reason to have loss leaders in health care if there is no comparisons right?

    If they just charge you what they charge you - and you don't care as long as it is covered, what exactly is your point?

    as far as ObamaCare is concerned, have you considered the current situation where hospitals charge you whatever they wish and use the money to pay for the ER operations that the folks who use them don't pay for?

    are you okay with that? how would you change it?

  • Emma Mercer

    Personally, i don't really care if the cost is expensive as long as i'm provided the best quality care. What's important is the quality of service they render for what we pay and this has been an issue for the longest time already, i think it's about time authorized officials do somethng about it but the question is how and when.

    AcuteAir.com

  • nehemiah

    I hope you are not planning to buy that 20oz sugar drink in NYC! Mayor Nanny won't be happy until all sugar, salt and fatty foods are prohibited.

  • nehemiah

    LarryGross, rather than lamenting the fact that we are not Europe, please relocate there so you can enjoy higher quality healthcare at affordable prices.