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".
Jump in the discussion.
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Notes -
Just as a preliminary matter, I looked up some statistics at work today on the issue, and they were surprising. The average malpractice settlement is around 350k, and the average verdict is around 1 million. I thought these numbers were low, but I saw them quoted in multiple sources, so I'm going to assume they're true. I practice product liability and toxic tort law, and while I don't know the total settlement average due to the number of defendants, we usually estimate verdicts in the 2 to 3 million range for someone with cancer, even if it's an older person in bad health. There are very few verdicts we can use for comparison, but they're almost all significantly larger than this. That being said, I saw another statistic suggesting that 80%–90% of cases with weak evidence resulted in defense verdicts, 70% of borderline cases did, and only 50% of good cases did. This suggests that juries really don't like awarding damages, but when they do, they go big. In my line of work a defense verdict is highly unlikely, so 1 million may be a reasonable amount if you consider that the modal jury award is zero.
I also learned that 29 states already have tort reform that limits non-economic damages, including some big ones like Texas and California. These caps range anywhere from 250k to 1 million, but they're still significantly smaller than what you'd expect from a jury. Without non-economic damages, it's pretty hard to get to these huge amounts, since they are by nature designed to put a dollar amount on what's priceless. For economic damages to get truly large you'd have to have something like a high-earning plaintiff who is totally disabled and needs to be in a skilled nursing facility for the rest of their life, and even then I can't see it getting above 20 million or so. To show you how we'd calculate that, say you have a 25 year old who makes 100k a year and is permanently disabled. That gives you 4 million in lost earnings assuming retirement at 65. However, if he's entitled to disability payments totaling $1500/month, you'd deduct that leaving you with about 3.2 million. If the skilled nursing facility costs 10k/month and he's expected to live an additional 50 years, that's 6 million, except medicaid is covering part of that cost so you have to deduct that. Add on the medical bills and other stuff and you might get to ten million, which is steep, but nothing like 70 million for pain and suffering alone. And this isn't something the plaintiff is just going to assert out of thin air; they have to show medical bills and hire an economic expert to estimate future earnings and costs. To address your points:
Like I said earlier, trials are rare. Something has to go seriously off the rails for a case to go to trial. While caps eliminate some of the tail risk of claims, they don't seem to eliminate the amount of total claims. It's worth remembering that most claims are going to settle well within any reasonable award cap. Even in states without caps, while plaintiff's attorneys may dream of huge awards, they're really a mixed blessing. A settlement offers cash almost immediately; a jury verdict means waiting months for a shot at a large judgment that may get appealed, keeping the money out of your hands for years. If you get sued as a doctor it's more likely to be the kind of case that settles for 200k than the kind where a jury awards a multi-million dollar verdict. The only thing I can conclude is that even if you were to make large awards impossible, as long as you're allowing any kind of malpractice suits the insurance companies are going to want to limit the risk, and if that means defensive medicine, that's what you're going to have to do.
Requiring arbitration isn't something you have to wait around for the state legislature to require; doctors and hospitals can and have put mandatory arbitration provisions in their patient care agreements. If the patient doesn't like it, they can choose another doctor or go to another hospital. But these provisions are actually becoming less common than they were a couple decades ago. Why? Because the average settlements are higher.
For whatever reason, arbitrators (and judges) love splitting the baby. With juries it's all or nothing. With arbitrators, it's like they calculate the damages and make the award based on how strong they think the case is. They aren't going to give out a bonanza in any circumstances, so the ceiling is lower compared to juries. But the floor is higher; a weak case that would result in a defense verdict at trial is going to result in at least some award in arbitration, even if the award is small. And since the process is significantly less expensive than litigation, the whole calculus changes. If I go to a traditional trial I'm going to spend a ton of my own money in exchange for, at best, a 50/50 chance of getting a favorable verdict. In arbitration, the marginal cost of going all the way is lower, and the chance of walking away with something is higher. There's less of an incentive to settle, so if the defendant wants to make the case go away he's going to have to offer something close to what he expects the award to be. Realistically, though, in arbitration the plaintiff has no real motivation to settle, so what you end up with is an arbitration award that ends up being more than you would have paid in a traditional settlement, and since the process is so frictionless for the plaintiffs, they're going to file more suits.
Now, you could say that you meant that this panel should include doctors and not lawyers, or maybe a combination of the two, or maybe that you didn't mean arbitration but a more formal system like trial but with an expert panel instead of a jury, or whatever. Just keep two things in mind. The first is that the system is designed to compensate people for injuries, not to make things easier for doctors. The effects of malpractice suits on medicine are unfortunate, but as long as we believe that people who are injured by malpractice are entitled to compensation, they will persist. You may think certain cases are bullshit, but the plaintiff is still suffering, and I'm saying this as part of the defense bar. The other thing to keep in mind is that there's no reason to believe that some alternative fact finder is going to do better than a jury. You can change things, but you may not like the result.
Wow.
First of all - thank you for writing this up, I imagine if I had asked for this in a work capacity it would have cost me, so I very much appreciate it (and I'm going to feel somewhat guilty about replying in a lot less words).
Second - I spend a ton of time here complaining about myths in medicine and so on so you bet your ass I'm paying close attention when a subject matter expert in something else is talking (again, thank you).
Third - Shit. I guess this means I have to drop this line of "here's the solution!!!"
To dig into some of the specifics you mentioned, those numbers don't surprise me. Supposedly (correct me if I'm wrong) damages in most cases are soft capped near the maximum the insurance will pay out because that's "easier" to get approved and would therefore result in lower numbers. Again this is all supposedly, but the numbers you tossed out line up with what I've seen a lot.
Ultimately physician decisions on this topic are absolutely vibe based - you see one colleague get nailed for something that wasn't even wrong and end up going through a five year trial and become a different, broken person... that changes what you do, even if it shouldn't. Or maybe we just say that's what we do and it's a meme? Hard to accurately study.
There are costs for settling though and we hate it even if it makes the most sense (or the hospital/our insurance forces us to). That's because it impacts all the hugely annoying paperwork we have to do for the rest of our career which sounds like a lame complaint but with the hoop jumping we have to do it adds up to a huge pain in the ass.
Fourth - Double shit. You are spot on, I was asking for arbitration - and I hate arbitration! I don't know if it is actually bad but my opinions on it are totally drive by the anti-arbitration memes.
I guess the next move would be to request the malpractice standards used in the VA and Prison, which are different. Not happy about that though because the care they give is awful typically.
Two sidebars:
Meddit has a running medmal blog poster. It's pretty instructive and you see a mix of "Jesus Christ fire that expert witness into the sun" and "fuck I hope I never make that mistake." Generally good discussion, if you develop any interest in this take a look!
OB malpractice can be absurd - as high as 150k a year (although that's the high end). On the low end Psych is like 5k. Darkly hilarious given that's the specialty with the most people who want to sue. That's an absolutely insane business expense though (for OB).
Is this for OB's who've already been sued, or is this some kind of adjustment for high risk markets(Louisiana...) or whatever?
That's the high end of the range, here's what google AI bullshit says on the matter:
"Obstetric malpractice rates are high, with OB/GYNs having one of the highest malpractice rates of any medical profession: Malpractice claims: More than 62% of OB/GYNs are sued during their career. Malpractice insurance: OB/GYNs have some of the highest malpractice insurance rates. Costly claims: Obstetric malpractice claims are among the most expensive medical malpractice claims. Birth injuries: Birth injury claims are the most expensive obstetric malpractice claims."
And from an article: "As a result, an OB in Chicago typically pays about $140,000 a year for med mal insurance, while the median premium for other specialties is $30,000 to $40,000."
Some key bits - OB gets sued a lot, OB patients are pretty much by definition healthier than most patients so that means bad outcomes are more expensive (compare 75 year old with kidney failure with 30 year old mother of two with no past medical history). If you injure a kid literally while they are being born you are like on the hook for everything that ever happens to them...
I think it's probably more of a practice environment issue than mistake issue, on average they get sued (62%) and there are states that are known to be hell holes for this (example: NJ).
Don't know for sure though.
I mean I've definitely heard whisperings about this- there's a pro-life canard that abortion doctors are mostly ones who can't carry insurance for a live birth because of this issue+being on the left hand of the bell curve for good doctoring- but the magnitude is a surprise.
Doctors (and myself) certainly exaggerate sometimes but the amount of good (and bad) shit that happens and sounds fake is nuts.
I'm assuming quite a few of the downvoters on my latest posting spree are assuming that the 24 hour shifts aren't real or are a gross exaggeration.
Nope.
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Why do you say that VA care is abysmal?
The classic example is that pretty much everyone who rotates through there has arrived in the morning to see a patient and found someone dead and cold but who was charted as alive by the nurses. The follow-up is "what's the difference between a VA nurse and a bullet?" "you can fire a bullet" "a bullet can only kill one person" "a bullet can draw blood."
The care quality is pretty bad. However the VA is actually pretty popular with veterans.
If you mean "why is it abysmal."
Well it is government run is probably most of the answer. However it is also a jobs program for vets instead of a health system so that may be a big chunk as well.
I meant "What about itis abysmal?" Your examples refer to hospitals, not clinics? I ask as it is my only source of care. All the horror stories (mostly undiagnosed conditions) I've heard were in the private systems.
Fair point, my only personal VA experience is with hospital and residential programs.
A common problem whenever healthcare discussions come up is that patients view the outpatient experience as the majority of healthcare but for us it's the opposite. Most of the training, complexity, fun stuff, whatever is all hospital based. Ideally as a patient you do that the absolute fucking minimum and mostly interact outpatient.
The more general problem with the VA is that standards are very different from the rest of American healthcare except for things like Prison/Indian Health Services.
Malpractice standards, rationing, staff competence and speed and quality of care, documentation standards. VA staff work less hard and get to skip some very frustrating types of administrative work (like having a lower documentation burden), VA patients are some of the most fun to treat because they are often pleasant and friendly. This leads to happier staff and therefore pretty high patient satisfaction.
Unless you fall afoul of some rationing or speed based need I doubt it makes a huge difference in an outpatient setting, but I get very, very nervous every time one of my relatives or friends ends up in a VA hospital.
I'd love to hear more about this. Outside some scummy for-profit systems like HCA this is totally alien to me.
Horror stories is a little strong, to be fair.
My cousin had a sarcoma that the doctors said was nothing for about a year, then he ended up going to an expensive clinic for a ton of surgery chemo radiation. My brother's shoulder pain has been ineffectively treated for about two years, being referred from specialist to specialist. And there are long waits for any appointments with a specialist.
My primary care dr told me he gets way more time with patients at the VA then when he was at the local privaye clinic. Unfortunately he left to do research. Now I have a Nurse Practitioner whom I haven't seen yet.
Thank you for sharing.
Yeah slow pace does have some benefits - you carry less patients you spend more time with patients, which is mostly what we want. It has the costs though.
I'm not going to say the VA is a guaranteed death sentence and depending on what you need the quality of care can be higher (I'd say that psych is probably better in the VA because you see people with more time and specialized knowledge and time and that helps a lot in psych), but the VA is usually the butt of the joke in general medicine.
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The anti-arbitration memes have given the practice an unfair rap, which has in a perverse way contributed to a self-fulfilling prophecy that was ultimately bad for consumers. Arbitration clauses were added to consumer contracts primarily as a means of preventing class-actions, not as a cynical way to rig the outcomes. We can argue over whether limiting class actions is all that noble a goal, but I can assure you that they aren't initiated by aggrieved consumers but by lawyers who figured out that if consumers were being biked out of 50 cents worth of Cheerios for every box sold, 1/3 or the total payout will be boku bucks. So they file a class action representing anyone who bought Cheerios during the year that their scales were defective and millions of consumers get dollar-off coupons while the lawyers take home a third of the total settlement value.
Anyway, studies came out that showed consumers lost a disproportionate percentage of arbitration cases as compared with regular court cases and people concluded that this must be because the companies choose arbitrators they know will rule in their favor and who have financial interest in not biting the hand that feeds, and since proceedings are secret they don't even have to face public scrutiny. This was a convenient explanation, but someone looked harder at the numbers and found that the study showing arbitration was a raw deal was flawed. It included all cases heard under consumer arbitration clauses, not just consumer-initiated ones. And the bulk of these cases were debt collection claims filed by credit card companies against people who didn't pay their bills. In other words, the numbers were skewered by claims that were vastly different than what one thinks of in terms of "consumer claims", and that would have had the same result in a regular court.
Actually, they would have had a worse result in regular court. In almost all of these cases the debtor has no real defense so they don't bother to fight the charges. In regular court this results in a default judgment. In arbitration, however, the arbitrators actually made the credit card companies prove their case. And they found that arbitrators rarely awarded debtors the full amount. So even in cases that would normally seem hopeless, arbitration was better for the consumer. And it was better for the consumer in other cases as well. I forget the exact numbers, but assuming that the odds of a satisfactory outcome are 50% in normal court, they were like 58% in arbitration. Not a slam dunk, but not exactly strong evidence that the deck is always stacked against the little guy. Nonetheless, companies started including arbitration clauses to guard against class actions. Eventually they became boilerplate, even in contracts that had little exposure to class action. People like Ralph Nader took notice and published studies saying that this was bad for the consumer. Consumers responded by assuming that arbitration claims were unwinnable, and stopped filing them. Companies started including more of them because they became a surefire way of preventing claims. That all of this was bullshit was lost.
It is thus that I present my own personal experience with arbitration, to show you how the process goes. In the winter of 2022 I was driving from Pittsburgh to Colorado to ski, and my right rear wheel started making noise around Kansas City. Suspecting that this may be a bad bearing, and having a long drive to get home, I decided to have it looked at in Denver. I used a shop my cousin's husband recommended (though I found out later that he only named it because it was close to his house). I explained the situation and that I needed it done that day and they quoted my $2400. Not having much of a choice, I agreed to having the work done. When I was driving back I called Subaru in Pittsburgh to get a quote for the work. $1200. From the dealer, with genuine Subaru parts. Needless to say, I felt ripped off.
But what to do? I had agreed to the price. But upon looking at my bill, I was only given a total without an itemized breakdown. Subaru had given me more information over the phone, without my even having to ask for it. So I began looking for something to use as leverage. According to the Colorado Auto Repair Code, the shop had committed several violations, for each of which I was entitled to statutory damages of $500. The most obvious one was that they didn't provide a breakdown of parts and labor costs. When I got home I called them, knowing it was futile. I told them that Subaru in Pittsburgh quoted me the job at half the price. They said things were more expensive in Denver. I asked them if they'd match a quote from Subaru in Denver. They said no. I asked them for the itemized breakdown. The labor costs were actually reasonable, but, for aftermarket parts, they charged me more than double the list price of the OEM equivalent and more than triple the list price of the parts they actually used. This markup over OEM plus the diagnostic fee (which is usually waived if you have the work done) was responsible for the difference between their price and the Subaru price. I explained the code violations. He said that every garage he ever worked at did it that way. I told him that the law is pretty clear and that they're in violation. He told me that if I was threatening legal action he had to end the call.
So I looked at my bill and immediately found the arbitration provision. You have to inform them in writing and wait 30 days before filing a claim. I sent a certified letter explaining the situation. I received no response. 45 days later I opened a claim with JAMS, and arbitration association. The advantage with JAMS over the American Arbitration Association is JAMS requires an in-person hearing in the consumer's county. Within a week, I got a call from the owner, who was very apologetic. I think the reality hit him that it was going to cost him somewhere in the neighborhood of 5 grand to defend this arbitration claim (in consumer arbitration, the consumer is only resoponsible for the initial fee). He offered me $500 plus a waiver of the diagnostic fee. I told him I wanted the difference between what Subaru quoted me and his price, plus $250 to cover my filing fee. He bristled at having to cover the filing fee, and I told him I had tried to resolve the issue with the service manager weeks ago and it could have ended there. In the meantime, it could end here, or we could take it to the arbitrator. Another weeks delay and he'd have to pay $1500 for his side of the initiation fee, which is about what I was asking. He agreed to charge back the amount I was asking for.
If it hadn't been for that arbitration clause I'd have had to go to Colorado and file suit in small claims court there. He wouldn't have had to pay any fees, and it would have been really convenient for him to defend the suit. I don't know if I would have won. I don;t know if I would have won the arbitration hearing either. I do know that a Pennsylvania arbitrator deciding a case involving a local tourist who feels he was swindled by an out of state mechanic who knew he was in a desperate situation is not going to feel too much sympathy for the mechanic. He's also not going to be familiar enough with Colorado law to offer a sophisticated analysis of the legal issues. I might not have gotten what I was asking for, but I would have gotten something. In any event, since the expense is borne by the merchant, there's a strong incentive on their end to resolve the matter quickly. It may not be great for malpractice cases involving hundreds of thousands of dollars, but for little shit like this it works much better than the court system.
Goddamn that's a huge confounding variable.
This is overall great teaching, you explain the issue and then tie it into a humorous and relatable anecdote that gives it context.
I appreciate you sharing and have updated my thoughts on arbitration.
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