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.
No email address required.
Notes -
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.
More options
Context Copy link
More options
Context Copy link