Thursday, May 9, 2013

Crazy Health Care Pricing ... The Lack of Pricing Transparency and Buyer "Skin in the Game" is a National Disgrace ... We Need a MOM-Like Approach

{NOTE: On Saturday, February 23, we posted "U.S. Health Care Costs Are a Chaotic Mess and Completely Out of Control, Too ... Medicare v. Private Insurance Charges and Reimbursement Rates Are Totally Different ... Complete Chaos Is the Result." You may wish to refresh your memory on this after reading this morning's update.}

Hospitals and physicians set high regular health care list prices. Medicare reimbursements and insurers of company insurance plans don't pay these "regular prices." That said, what is paid is often a mystery and generally ignored by individuals who receive the services. It's all because of government rules, hospital and physician secret billing practices and third party payments where individual users aren't involved or even aware of what's being charged and paid. Total chaos, in other words, but chaos cloaked in secrecy.

Much of America's health care pricing is similar to, but much worse than, the retailer who sets the regular price of an item at $100 and then has 50% off sales which generate 90% of the business. In other words, 90% of the sales occur at $50 and 10% of the sales take place at $100. In that example, the average selling price is $55, and nowhere close to the "regular" price of $100. At least with the retailer, it's all done in plain sight and the customer knows the real terms of the deal. That's because he has lots of his own "skin in the game," aka MOM, unlike the OPM based third party payer American health care system.

Since out-of-pocket health care costs for each uninsured individual buyer depend on the individual's awareness of the reality of discrimatory health care pricing, as well as the individual's negotiating power and ability, a person may pay $10, $20, $50, $60, $90 or $100 for the exact same service.

In sum, America's health care "system" is a wild west show when it comes to pricing. That's crazy, of course, but that's the way it's done as the government knows best gang, insurers and individual hospitals and physicians are almost totally in control and individuals are almost totally uninformed "buyers." Let's look closer.

Hospitals charge wildly varying fees for the same procedures, HHS says reports on the health care pricing discrepancy fiasco and ongoing wasteful saga as follows:

"Hospitals throughout the country charge widely varied fees for services, a new examination from the Department of Health and Human Services says, with one California facility billing 42 times what an Oklahoma health-care provider charges for the same procedure.
HHS posted a list of the most common procedures covered by Medicare that offered an example of an inpatient joint replacement procedure that costs $5,300 in Ada, Okla., but $223,000 in Monterey Park, Calif.

The data show not only widely varying fees across state lines, but also large pricing gaps within a specific geographical area, HHS says. In Jackson, Miss., for example, the cost to treat heart failure for an inpatient ranges from $9,000 to $51,000....

While President Obama’s health-care overhaul initiative is geared toward getting more citizens insured, growing discontent over medical billing and prices is taking center stage in the health-care debate. With insurers footing the bill for most Americans, little attention is paid by the medical consumer to costs and so health care now comprises roughly one-sixth of the nation’s gross domestic product.

“Transformation of the health-care delivery system cannot occur without greater price transparency,” Dr. Risa Lavizzo-Mourey, Robert Wood Johnson’s CEO, said in a press release. “While more work lies ahead, the release of these hospital price data will allow us to shine a light on the often vast variations in hospital charges.”"

Summing Up

Health care costs represent 1/6 of our nation's GDP. That's a really big deal and it's scary to think that it's such a total mess financially. Worse yet, the mess has no end in sight. It will probably get worse, in fact.

The lack of market pricing in health care is due to an absence of a market based system where buyers have skin in the game and are at least somewhat accountable or even aware of the costs they're incurring for services rendered. Vouchers, high deductibles and co-pays aren't sufficiently in place to cause the great bulk of buyers to make sure they are getting a "good deal" or fair value for money paid on their behalf.

As a result, third party payers such as government programs and company health plans which don't involve vouchers, big deductibles, high co-pays or something similar all contribute to the lack of pricing discipline and resultant financial mess in the health care market.

The current chaotic pricing formula for health care is simple. Hospitals and physicians establish high "list" or regular prices and then discount as required to get to the "cash register" price.

As a result, our health care costs are out of control and inefficient and ineffective.

They are unlikely to be brought under control anytime soon in such a third party payer non-market oriented government controlled health care system.

That's my take.

Thanks. Bob.

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