Noah Smith has entered the debate:
So the fundamental reason your health care costs so much is not that the health insurance companies are lining their pockets. And it’s not that insurers are an inefficient mess. It’s that the actual provision of America’s health care itself just costs way too much in the first place.
The actual people charging you an arm and a leg for your care, and putting you at risk of medical bankruptcy, are the providers themselves. The smiling doctor who writes you prescriptions and sends you to the MRI and refers you to a specialist without ever asking you for money knows full well that you’re going to end up having to wrangle with the insurance company for the cost of all those services. The gentle nurse who sets up your IV doesn’t tell you whether each dose of drugs through the IV could set you back hundreds of dollars, but they know. When the polite administrative assistants at the front desk send you back to treatment without telling you that their services are out of your network, it’s because they didn’t bother to check. The executives making millions at “nonprofit” hospitals, and the shareholders making billions on the profits of companies that supply and contract with those hospitals, are people you never see and probably don’t even think about.
Excessive prices charged by health care providers are overwhelmingly the reason why Americans’ health care costs so cripplingly much. But they’ve outsourced the actual collection of those fees to insurance companies, so that your experience in the medical system feels smooth and friendly and comfortable. The insurance companies are simply hired to play the bad guy — and they’re paid a relatively modest fee for that service. So you get to hate UnitedHealthcare and Cigna, while the real people taking away your life’s savings and putting you at risk of bankruptcy get to play Mother Theresa.
So the way to make our health care system affordable is not to browbeat insurers, in the hope that they will be able to reduce their profits and pay for us to have cheap health care. Insurance companies simply do not have the power to do that, even if you threaten to shoot them. What we need is to reduce costs within the actual medical system itself...
He jumps in to the comments to add:
They [providers] don't know the exact costs, but they have a general idea, they know the costs are very high, and they typically don't talk to patients about those costs when prescribing services to them. This is understandable, given that talking about costs would make patients less comfortable while receiving care, and one of doctors' main jobs is to make patients feel comfortable. But there's basically no point in the process of receiving care at which patients could make a decision based on cost.
Incentives matter, and patients aren't automata who are unable to follow incentives, as much as some doctors would like them to be. They can understand pricing concerns/risk, and they're coming from a wide variety of financial situations. A recent NYT op-ed admits as much:
One of my first lessons as a new attending physician in a hospital serving a working-class community was in insurance. I saw my colleagues prescribing suboptimal drugs and thought they weren’t practicing evidence-based medicine. In reality, they were doing something better — practicing patient-based medicine. When people said they couldn’t afford a medication that their insurance didn’t cover, they would prescribe an alternative, even if it wasn’t the best available option.
As a young doctor, I struggled with this. Studies show this drug is the most effective treatment, I would say. Of course, the insurer will cover it. My more seasoned colleague gently chided me that if I practiced this way, then my patients wouldn’t fill their prescriptions at all. And he was right.
Of course, the op-ed is doctor-apologia, working as hard as possible to finger point at insurance companies and only admitting a possible problem of lacking clear and reasonable pricing when it comes to drugs; after all, patients and their insurance companies pay pharmacists and drug companies for drugs, not doctors. They can't see that there could be a similar problem for their own services (insert Upton Sinclair quote). But they admit that patients can and do make decisions based on their understanding of prices and risk. Yet, when it comes to their own services, this is absurd to them. Surely they know better than the patient, and the patient should just do what they say; cost doesn't matter.
But as Noah points out, they "know", but they don't know. They "don't bother to check". They give every excuse imaginable to avoid the topic. And some of this is understandable! As Noah points out, they just want to focus on the medicine; they want to make the patient feel comfortable with the medicine; medicine is sacred and money is profane, so never the two shall meet. Doctors don't want to know. They're happy to sit back and say that they're prohibited by law to consider their costs in providing recommendations, but conveniently forget to be patient-based, not remembering that patients can and do make such decisions. But patients can only do this in a reasonable way when they're properly informed before making decisions. Without information, it's generally fear that rules the day, be it fear of medical issues or fear of medical expenses. Some doctors want to not know so much that they can't even identify the names of the relevant numbers in the billing/insurance process that might be involved in the decision-making process. This is perfectly fine, of course; they shouldn't have to spend all their time becoming intimately familiar with the details of how each of their patients' insurance works.
It's hard for me to come to any conclusion other than that providers shouldn't be bothered to know those details. Instead, there is an extremely simple solution that takes one small step toward what Noah wants - providers just need to inform patients of what they know about the pricing for suggested courses of actions before those courses of action are taken. We need to create a point in time where patients can have the relevant information with which to make a decision that takes their own understanding of their own finances into account. I have suggested that providers simply provide the price that they will be billing insurance and their negotiated rate. The negotiated rate gives the patient a good idea of what to expect if the procedure is covered. Sure, the provider doesn't know the rest of the details of the insurance policy (deductibles, co-insurance, out-of-pocket max, etc.), which are important for estimating things like out-of-pocket costs - again, they shouldn't. But the patient can know these things. The only information the patient is missing is the information that the providers refuse to give them. In addition to the negotiated rate, it would be nice to have the full bill amount, so the patient can consider the risk of an insurance denial (and perhaps have a conversation about this risk or gather more information). Then, they at least have some idea of how much they could be nominally on the hook for if there is an insurance snafu.
I am generally anti-regulation, but the good doctors here at TheMotte have convinced me that there is no way that we are going to persuade them on this point with reason, so I am reluctantly throwing in my support for as minimally-scoped regulation as we can come up with, just as much as it takes to cast off the excuses and actually get numbers in front of patients at a point in time where they can use those numbers to make decisions. Hopefully, someone can get this idea to people like Noah, so they can consider advocating for something like this rather than tired ideas he gave like having the gov't "play hardball" to negotiate prices. He seems open to ideas:
There are probably other ways to foster competition and increase efficiency in the medical care system.
Indeed, there is, and it's right in front of your eyes. It's the natural conclusion of your request in the comments for what NYT would call "patient-based medicine".
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Notes -
This is viable for some services, but much of the expense in healthcare is unplanned and transferring between systems is hideously expensive and complicated. If you get hit by a car and end up in the ICU for three weeks and rehab for five months that's as expensive as thousands and thousands of doctor's visits, and price transparency doesn't help a lick. Even if you are awake and say "take me to the cheaper hospital" the ambulance is going to take you to the place you are triaged to, because if you die your family will sue the shit out of them and win.
Furthermore how do you want handle cost overruns. Let's say you get your appendix out and you shop around to whoever reports the lowest price (and it's urgent not emergent so you leave the hospital AMA to go to the cheaper place). Let's say 5k. What do you do when the surgery is a bit more complicated and expensive and the bill is 15k. What do you do when you have a major complication and the price is 1.5 million dollars? People would be furious! And if you want to just average out how much the hospital spent on all of those surgeries...well you've just reinvented general insurance again (since healthy/less complicated people are subsidizing the complicated).
Typically, the solution to these problems is advanced pricing. The hospital examines you and gives you a fixed quote. If there are complications, the hospital is on the hook for them. I've gotten medical services that were effectively not covered by insurance and this worked really well. For a bigger example, take a look at https://surgerycenterok.com/. There's an old but great interview by the founder: https://www.econtalk.org/keith-smith-on-free-market-health-care/.
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This kind of risk distribution seems to be the big question. I'm not sure what the most just way to handle it is, or that it is the same question in every case.
But this isn't a crazy problem that we only run into in medical care. Every contractor in the world is subject to the same problem. Estimates and quotes from any HVAC contractor or excavator takes account of the possibility of cost overruns. The placement of that cost overrun is negotiated in the contract. They offer you an estimate of the cost, and then a clause in there will tell you that it may cost more, or that this price is only certain for X days, or that cost overruns may require progress payments or be split 50/50 or be subject to additional Good Faith Negotiations. Or they just eat the cost when they get the estimate wrong. Or you have a bond on the job completion which will pay out if the job isn't done.
One could easily sell, as part of the price of the procedure, insurance on the procedure itself covering possible bad outcomes. Rather than tying in the price of every medical procedure in the country with the price of every other medical procedure in the country.
These are all solved problems in every field, except medicine.
Including medicine outside the US. Private hospitals in the UK are happy to offer fixed-ish prices for elective surgeries and take most of the financial risk of complications.
ASCs in the U.S. will sometimes do cash pay for low risk things, so it is possible in the US but keep in mind that due to greater access to expensive technology, salary costs (nurses get paid more in the US than doctors do in the UK right?), and lack of rationing mean that the price of care can be much much more expensive.
By a lot.
California alone has more ECMO centers than the entire UK.
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If contractor is redoing my attic and on starting renovations it turns out that my uncle stored there 10kg of U-235, his collection of land mines and 1450kg of asbestos and top secret documents of USA, Ming Empire and Slovenia... Then they can just announce that they stop work, pay penalties stipulated by contract and run away screaming.
The same for say programming contract, if I discover that part of system run on literal punchcards in sealed off bunker then I will likely (depending on contract structure) pay contract penalties and run away or announce that 800h time estimate gets revised to >4800h.
If doctor is doing routine appendix and discovers clot/cancer/other medical emergency equivalent to above they are, I expect, not allowed to run away screaming and pay just modest penalty stipulated by contract and leave patent there.
It's extremely common to abort a surgical procedure because of unexpected complications. And, to scale, a surgeon would face similar liability: modest penalties for damage done, reliance.
This is easily figured out in contract.
Why are y'all so dramatic with your examples?
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I think one of the common problems is that intuitions from other fields die in medicine. Your HVAC contractor fucks up and it costs 2-5 times more. If it's bad somebody goes out of business.
If something has 50x or 100x times cost overruns like idk the F-35 it becomes a national scandal.
In medicine that's just Tuesday.
You have a bad reaction to anesthesia during a routine case, die on the table, they revive you and dump you in the ICU for three weeks before you can think again and then end up in rehab for six months and it's going to cost millions of dollars for what was supposed to be 4.5k.
That's an extreme example but that kind of stuff happens, and lesser versions all the time.
The hospital can't go out of business, society says no. And we can't let you die. Society says no. I'm fine with both of those but they balloon expense.
Except that lots of businesses face similar problems.
Every day trucking companies send out employees onto the highways criss-crossing the country, there are about 150,000 accidents en route, and about 600 of them die each year. That doesn't prevent a broker from being able to give me a quote on the phone in ten minutes as to the expected cost of sending a container to Des Moines. The expected cost doesn't contain the possibility of the truck being wrecked, of the cargo being lost, of the driver getting killed, of the trucking company facing liability from multiple passenger car drivers for damage or injuries or fatalities resulting from the wreck. The cost every time the truck goes on the road could range from a thousand dollars to a hundred thousand dollars.
Plenty of fields are picking up pennies in front of a bulldozer.
If your trucking company goes out of business because they can't eat the loss then another firm will open and fill the economic hole.
We've had issues with hospitals going out of business lately due to COVID and other factors, and nobody replaces them. The patients go elsewhere (sometimes 50 miles elsewhere) and stress another system. It's a slow motion domino effect. The expense and risk is too much and the reward is too low.
Not directly related but we've seen issues with generic meds - generic medication has profit margins that are very thin, so manufacturers just don't make them. Then a drug is missing. That's not good.
That's usually downstream of regulatory oversight making the production cost aggressively high, which I'm not sure I mind (because safety is important), but we do often have shortages of stuff for that reason.
There are many times where they're not allowed to. Or they're prevented from entering the market prior to failure, whereas if they had been allowed, it might have been more robust to individual failures.
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I think this is something that would be covered under "insurance" as I said above. Insurance works for cases where only a fraction of the people who pay into it every year have an event that requires it. Random trauma like car crashes only happen to a small percentage of people every year, and so it's the kind of thing that insurance is good for.
This is the point where someone might be able to shop around and find rehab center with less frills for less money.
This is a choice we are making. We could just as easily dismiss such cases as frivolous and instead have people sue ambulances for taking them to an undesired hospital.
Lots of industries have a way to handle this. One way to handle it is the quote for the service can have the expected price (5k in your example), and then a Not To Exceed amount (15k, or whatever the most likely highest number is), and authorization (from a spouse, someone who will agree to be on the hook for the money) needs to authorize exceeding the NTE. Another way is to just have a single price for the surgery that averages out complications. No, that is not general insurance. Most industries provide services for a set price that allows for some one-off situations and it isn't called insurance.
It's not quite clear to me that we should be spending millions of dollars to save a single person's life. Unless it's really simple/easy to do, in which case why does it cost millions of dollars?
Also, do not discount how much money each person would have in their HSA, if they put as much into it as they pay insurance. Average premium for family coverage is 25k a year. Stash all that away into a HSA, accumulate interest, and there would be lots of ready money for emergencies.
It's a small percentage of total healthcare contact by number of events, but it's a huge percentage of total healthcare spending. Fundamentally seeing your doctor is at most, getting a lawyer consult expensive. The hourly rate could be high but it's reasonably throttled. Being hospitalized is buying a house expensive. It takes a lot of lawyer visits to add up to a house.
Tort reform would dramatically decrease the cost of care without upending all these other apple carts.
This just isn't feasible with how badly things can go. If the "normal" price is 5k but the "Averaged" price is 35k we are absolutely screwing over people who have routine surgery. When stuff gets expensive it can get really, really, really expensive.
Simple and easy is flexible. A lot of problems are managed by forcibly keeping someone alive while their body heals itself. This is what most hospital COVID treatment was. We can provide a short term external heart and lungs and the person's body will fix itself without our intervention then we can turn it off. We can put someone on a ventilator. A vent is "simple" - but it's not cheap.
HSA type situations require real teeth, otherwise people will bet they won't get seriously sick and most of them will be right, but the ones who aren't will fuck the system. One bad episode of sepsis wipes away hundreds of thousands of dollars but is totally survivable.
In the U.S. we spend a lot of time and money keeping people alive we really shouldn't, but we also spent a lot of time and money keeping people alive and it works great but is reasonably expensive. A good amount of these are otherwise young and healthy and economically productive (to say nothing of the ethics). In resource strapped countries these people just die.
You also have things like heroic efforts to keep children alive, many of whom have healthy lives if they make it through whatever acute thing is happening. Might cost a few million to keep the kid alive but their parents will think its worth it and society may actually also.
Why isn't a vent cheap? Do they involve rare minerals?
To be on high flow requires an ICU and constant observation, I guess most of the cost is in personnel?
You can vent someone by hand with a bag, especially if they are sick enough to not require sedation. Horrifyingly we were doing this at times during the pandemic, and we do this all the time acutely to manage emergencies, start anesthesia and so on.
The machines automates the process and doesn't have the attention issues of a really person (or like physical exhaustion).
So yeah a huge chunk of it is personnel - the doctor (who needs to be caring for a smaller number of patients because ICU level care requires much more attention and closer eye), the nurses who need to have very tight patient to nurse ratios. Both of these need to be round the clock including weekends and holidays.
But more personnel are involved than you think - cleaning staff, people to bring up the medication and fluids, dietitians and respiratory therapists to focus in on those sides of things because they are cheaper, than having the doctor do it, unit clerks to manage angry family and paperwork, tons of mostly invisible people.
Everything in an ICU needs to be "safer"/cleaner/whatever because the patients will die at the drop of a hat.
Fundamentally its not like this could be done at 85% instead of 95%-100% for much much much cheaper, but nobody wants to get fined or sued so we spend twice as much money to go from 85-95.
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Awesome. Start doing it.
How does the current system prevent this problem?
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