Another example of market failure
October 02, 2023
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October 02, 2023
KFF Health News reported on an agreement that was made five years ago: competing hospitals could join together as one entity, provided that the new health system would not raise prices excessively, would provide a certain amount of charity care, and would maintain or achieve certain quality standards. Unfortunately, the new health system appears to not be upholding many of its obligations.
It is understandable why competitors might want to join together and secure greater market power -- without competition, the new entity can dictate higher prices and not worry about being undercut. This trend occurred to such an extent (along with its ill effects on consumers) that the US federal government passed anti-trust legislation near the start of the twentieth century to stop companies from engaging in such behavior. Within the healthcare industry, state legislatures can pass a certain type of law to allow these mergers (essentially recognizing public need for a more efficient or more stable network), and one can imagine organizations influencing legislators through lobbying or perhaps less legal means.
Approving of these mergers seems to run counter to economic theory and the emphasis that it places on competition. When an organization becomes the only network to provide hospital care in a region, it also seems likely that they become too entrenched for the oversight agencies to allow them to fail. In that regard, it is unclear how states can remedy situations in which the merger is complete (and difficult to undo), but the new entity is not behaving as promised.
September 25, 2023
KFF Family News reported on a trend among health systems to charge patients for some secure messages with their providers. Traditionally, patients (or insurance plans) would pay for office visits and procedures, and not phone calls or secure messages. However, as more care moves online -- especially in light of the COVID-19 pandemic -- health systems have wanted to impose fees for some online communication.
Understandably, providers who spend a lot of time being thoughtful in their responses should be compensated for their time. Additionally, some health systems are likely trying to dissuade patients from asking frivolous questions or ill-prepared questions. It is customary for certain interactions (e.g. prescription refill requests) to not take much time and therefore not incur a charge. However, it is difficult to craft a policy around when to charge a patient. It appears that some health systems handle it by the amount of time that a provider spends; however, patients generally do not know ahead of time whether a provider will spend more or less than that threshold.
Aside from the question of how to charge patients, there is a separate question of whether health systems should charge patients. Online messaging can improve care, and uncertainty around whether a patient will be charged for an interaction might dissuade the patient from reaching out, even when appropriate.
September 17, 2023
As another data point of how the health care industry is not really a free market, KFF Health News reported on the California legislature passing a bill to increase the minimum wage of health workers. The new minimum wage ramps up to $25 an hour in 2028 for some health facilities, whereas large health facilities and dialysis clinics will see the $25 an hour minimum in 2026. For reference, the minimum wage in California is currently $15.50 an hour. Workers who are affected include "certified nursing assistants, patient aides, and food service workers."
Understandably, the employers who will need to pay the higher wages complained about the bill, with some estimating the bill to cost $8 billion annually. While the exact impact may be difficult to estimate, it does seem that the cost of health care in California will increase. It remains to be seen whether the accessibility of services will meaningfully diminish, or whether the legislature will end up subsidizing healthcare employers. Interestingly, the California Nurses Association also opposed the bill, citing the risk that it might cause employers to lower wages for nurses.
September 11, 2023
The shortage of primary care doctors has been years -- if not decades -- in the making. KFF Health News reported on the percentage of doctor visits that are for primary care declining from 62% in 1980 to 38% in 2013. Many people blame the reimbursement system for valuing specialty care over primary care, and therefore attracting more medical school graduates into specialty fields. At the same time, many feel that primary care is valuable because it can identify and address issues before they become severe enough to warrant the more expensive specialty care. The article also pointed out how current payment structures essentially force primary care providers to squeeze patients into a much tighter schedule, leading to less satisfied patients and likely worse quality of care.
Theoretically, prices paid for doctors' services would fluctuate in a free market and self-correct such that scarcity of primary care would drive prices up, attracting more doctors to the field. However, health care is not a free market. Relative values of one procedure compared to another procedure are determined by a committee, and the payers (health insurance companies) are dominated by large players, making it difficult for small provider offices to negotiate and switch. Even still, if it is indeed true that primary care can save the overall system money, it seems that some payers would figure out how to capitalize on the current trends and perform better than some other competitors. For now, the industry is watching Medicare try out value-based care, which probably better recognizes the value of primary care compared to the older fee-for-service model.
September 03, 2023
The Inflation Reduction Act allows the federal government to negotiate prices that Medicare pays, and the current administration has released its list of first ten targets. Up until the Inflation Reduction Act, Medicare was prohibited from negotiating drug prices. KFF Health News published an informative piece about this milestone. Negotiated prices are slated to take effect in 2026.
Understandably, pharmaceutical companies (or associations on their behalf) have filed lawsuits to stop the legislation from taking effect. The legislation requires that manufacturers not only negotiate, but also furnish data relevant to the negotiation. The extent to which manufacturers can refuse a price that Medicare asks for seems unclear. If a manufacturer is able to refuse a price, it will be interesting to see if Medicare will end up caving to public pressure for the coverage of specific medications.