Patients get what they pay for

August 26, 2013
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Do you ever wonder why it seems health care providers have only recently discovered the 1990s, at least in terms of the technology they use to interact with consumers? I do.

Consider these two startling statistics:

- Still today, less than one-third of physicians and nurse practitioners communicate with patients through e-mail.

- One-third of physician practices do not accept credit card payments. Because of that fact, UnitedHealthcare, the nation’s largest health insurer, recently created a web portal to allow its customers to make credit card payments even for doctors that don’t accept them.

UnitedHealthcare’s myClaims Manager tool is a first for the industry—even though a UnitedHealthcare spokeswoman told me the announcement sounds like something from 2003.

There are two major reasons for why health care providers lag the rest of the world on the adoption of the technologies customers prefer. One is the fact that health care is a highly regulated sphere, where the fear of violating privacy laws chokes off numerous innovations that occur easily elsewhere.

But another, which I’m going to focus on today, is financial. Patients, in spite of what it may feel like, pay only a tiny fraction of the total health care bill directly from their own pockets.

In fact, only 10.5 percent of all health care bills are paid for out of pocket, according to data from the Centers for Medicare & Medicaid Services.

That means, in the eyes of health care providers, patients are patients, not customers. The customers for health care providers are the health insurers and, through them, employers.

That’s why, for the most part, doctors and hospitals do not even try to compete based on price and service, as we’re accustomed to most other businesses doing.

If you have to wait 45 minutes past the time of your appointment to see a doctor, the doctor’s office is only mildly concerned. It’s not like you’re going to refuse to give them a tip or walk out the door and try the doctor’s office down the block. And even if you get so angry you refuse to pay your bill, your health plan still pays the doctor most of what he or she was owed anyway.

Your doctor has no financial reason to communicate with you by e-mail because doing so is entirely unpaid time. Doctors who use e-mail with patients are actually engaging in a form of charity care.

Neither doctors nor hospitals have incentive to make prices available to you, and have at best given tepid support to price transparency companies like California-based Castlight Health or Tennessee-based Healthcare Blue Book.

Health insurers are little better. For years they steadfastly resisted making accurate price information available by provider, for fear that doing so would allow their competitors to use it against them in competing for contracts with health care providers and employers.

That’s starting to change, but only because employers have started to pressure their health insurers to do so.

It took more than a year of requests from the largest employers in Indiana before Indianapolis-based health insurer WellPoint Inc. finally agreed to work with Castlight to provide accurate price information to those employers’ workers.

Employers have also been greatly increasing the percentage of medical bills that their workers have to pay, primarily by using high-deductible health plans. A study by the American Medical Association released in June found that 23.6 percent of all medical bills paid by private health insurers—not the Medicare or Medicaid programs—are now paid for by patients with out-of-pocket funds.

"Physicians want to provide patients with their individual out-of-pocket costs, but must work through a maze of complex insurer rules to find useful information," said Dr. Barbara McAneny, a board member of the American Medical Association, in a prepared statement. "The AMA is calling on insurers to provide physicians with better tools that can automatically determine a patient's payment responsibility prior to treatment."

None of us likes to have health insurance that pays for less care. But when it comes to the service and price transparency we expect, we get what we pay for.

  • Insurance is the Problem
    JK, I enjoyed your article. But if costs are ever going to come down in health care, we need to stop paying for everything via health insurance. Its a distortion that doesn't allow patients to become or act like patients. Even services like Castlight work within the pay-for-everything insurance framework and will do little to empower consumers. Take the examples of LASIK and Cosmetic Surgeries, which aren't covered or paid for through insurance. Unlike the rest of health care, prices for these procedures have continually dropped as quality and services have improved. The only way to make health care more affordable is to diminish the role of third-party payers.
    • Health Care ain't VCRs
      Attempts to compare health care services to usual consumer markets resembles comparison or prunes to pomegranates. Purchases of VCRs are made by comparing specs of the machine and prices across multiple providers before the purchase - facilitated online by places like Amazon and Ebay, credit cards and Paypal. The variation in the purchases likes mainly in the product characteristics and the prices which do reflect more or less the aggregate of manufacturing, distribution and marketing costs. On the other hand the variation in health care "products" are influenced by patient characteristics - age, past health history, geographical locations (oh yes the price and intensity of use of the same services differ considerably across different regions in the US). The distribution of the same conditions across age, gender,ethnicity as well prompting a tied sale of the health service with risk management - not unlike roofing repair is influenced by when hail storms appear and the dimensions of home-owners insurance. There is a reason physicians take a "health history" when you are a new patient. Not so likely at Amazon - although they know quite a bit too about your past purchases! Its so use trying to fit the health care services market into the shoes of VCR sales. The real transition in health care markets that occurred in the last 30 years was (a) the dramatic increase in health care costs and (b) the shift of insurance carriers from not for profit "Blues" into for profit commercial insurance. Certainly third party payment makes it possible to finance expensive medical technology - but the risk distribution of health conditions still calls up an associated market for risk management. For profit risk management entails benefit experience rating,homogeneous risk pools multi-part pricing, regional monopolies etc. as compared to non-profit markets community rating, everyone gets the same price, heterogeneous risk pools still with regional monopolies. Employer provision simplifies these markets by aggregating customers, providing a sure source of payment and community like rating (especially for large employers). So the bottom line is what does health reform bring (the implied thrust of this column anyway). Health reform brings regulation of the insurance market so it works like the old not for profit markets - a stool of three legs: no experience rating,everyone is covered, those with limited means getting subsidized premiums. the first two legs are required to invite for profit insurance companies act like not for profit companies - earning their profit on volume and good customer service rather than excluding the already sick. The third leg ensures most everyone is in the risk pool so it is heterogeneous.
    • An old irrelevent argument
      Unlike my comments on general health care services market (below) the markets for LASIK and cosmetic surgeries are hardly like heart disease and open heart surgery. In these markets products act more like commodities because, well, they are. The conditions of sale don't have such high stakes (whoever heard of a cosmetic stent operation). Some health history may be collected but it has less import. So it is not likely that all of health care services market would look like the nose straightening business even without all that evil regulation. Of course there is some regulation since,unlike a faulty VCR, one can't return a nose job, or a hair cut, for that matter.
      • Clear Arguments Needed
        David, I read your responses 3 times and still have no clue what you are trying to say. That patients/consumers shouldn't know the cost and quality of their medical care? That we should just continue forking over our wallets and trust that the experts (and health care industrial complex) will look out for our best interests? Anyways, a lot of the medical care we receive ARE commodities. It is planned for, routine, and standardized. Most people go to their primary care doc, eye doc, and dentist each year. Those visits do not vary, so economic theory holds that prices should converge to a market clearing price. This fails to happen due to insurance and a distorted market. The same is true for the battery of tests (X-rays, MRI's, etc). Now for the rare and more complex issues of open heart surgery. The point of transparency is for the patient who chooses, to be able to evaluate a facility on the basis of quality (successful outcomes, doc credentials, # of times procedure was performed) so they can make informed decisions. Are you arguing patients should not be provided with this information?
        • Health services markets
          No I am not against price transparency. JKW has addressed this issue in the past in this column with good discussion. My point is meant to counter the assertion that health market problems are due to the presence of insurance coverage. There are "distortions" but since health conditions appear with a community wide risk distribution, insurance like services would arise even if they were obliterated somehow. So my point is learn how risk management is best accomplished and do it well. I believe that the regulation in the ACA legislation takes good account of 30 some years of health services research and we shouldn't be bashing it at every opportunity.
        • Health markets
          There are a variety of reasons why "products" in health markets often don't act like commodities. There is asymmetric information meaning MDs act as agents for consumers, each service must be customized for each health history, prices in some cases can't be quoted up front, many technologies have high initial costs, but low marginal costs like prices for highway bridges or fire engines. Competitive pricing should be proportionate to marginal costs, if such prices are charged the bridge won't be paid for. Basic economic reasons health care markets differ in important respects from standard commodity markets
        • The point?
          JK I'm not sure I understand the point you are trying to make. Doc And hospitals don't care about patients because they don't directly pony up? I agree they may not care, but not for that reason. We "get what we pay for"? You then explain employers make us pay more in premiums, and now more out of pocket. Given this shift, which is true, shouldn't the doc care more, because "even if you get so angry you refuse to pay your bill", more of that bill is now my responsibility. And regarding price transparency, for many folks the "lowest price" means little, unless open heart surgery can be scheduled a year in advance, and completed via UPS.
          • No Mention of Alleged Free Market
            JK Nice article. However, you could have gone a step further with the information you provided to dispel the myth that the US health care market is a "free market." It clearly is not but the proponents/protectors of the current broken system (usually voices from the right) like to say it is a free market. Free markets can easily be entered by sellers and buyers and information is readily available to compare prices among providers. Our current health care system is anything but "free." My wife recently had an emergency appendectomy and we have no clue what our overall costs will be or our share of the cost after insurance is applied. The a la carte pricing that takes place among doctors and hospitals only compounds the problem.
            • To Betrn'u
              My apologies if the point of my post wasn't clear. I simply wanted to point out that the the frustrations I hear from many patients about doctors and hospitals--poor service, very slow adoption of new ways of communicating, and no price transparency--are a result of patients paying only 10 cents on the dollar (directly) for their health care. Now that that number has risen to 24 cents on the dollar, at least for privately insured patients, I expect that doctors and hospitals will get better at service, communication and price transparency. Even with that increase, however, the vast majority of the money that flows to doctors and hospitals comes from someone other than the patient. So expect doctors and hospitals to continue to be, by and large, focused on responding to the demands of those customers, rather than responding to the demands of patients.
            • To Jim
              I agree with you, Jim. Health care is not a free market. It is a highly regulated and highly dysfunctional market. That's why it's endlessly interesting to write about. It's also why it's maddeningly hard to solve the policy problems in health care.
            • health care markets
              What a wonderful group of comments and observations. Reminds me of macro and micro econ class. In a time long ago health insurance was conceived as part of a pay package to make one employer more attractive than another. Lets return to the days of old and pay employees in money not benefits. Then competition can be rediscovered. Rates of return of the health care industry will have a new look. Will it be chaos? Or back to Adam Smith for congress?
              • ACA makes breaking employer connection possible
                Before ACA, purchasing individual insurance if one had a preexisting condition was impossible or prohibitively expensive. Purchasing through an employer group policy was virtually the only solution. So don't think disconnecting insurance purchases from employers works without health reform.

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              1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

              2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

              3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

              4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

              5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.