Blog

Kaiser Health News published some analysis trying to explain why hospitals may have been able to increase their prices without being nearly as maligned as others in the healthcare industry, notably pharmaceutical and insurance companies. Central to the analysis is that hospitals are local. For example, the author notes "It's easy to get voters riled up about a drugmaker in Silicon Valley or an insurer in Hartford. It's much riskier to try to direct their venom at the place where their children were born, that employed their parents as nurses, doctors and orderlies..." Additionally, hospitals may have been able to avoid some regulatory scrutiny because of their local political clout (with nearly every politician having a major health system in his or her district).

Kaiser Health News published some analysis trying to explain why hospitals may have been able to increase their prices without being nearly as maligned as others in the healthcare industry, notably pharmaceutical and insurance companies. Central to the analysis is that hospitals are local. For example, the author notes "It's easy to get voters riled up about a drugmaker in Silicon Valley or an insurer in Hartford. It's much riskier to try to direct their venom at the place where their children were born, that employed their parents as nurses, doctors and orderlies..." Additionally, hospitals may have been able to avoid some regulatory scrutiny because of their local political clout (with nearly every politician having a major health system in his or her district).

While hospital prices have increased less than many individual drugs (42% from 2007 to 2014), spending at hospitals is the biggest component of the healthcare industry expenditures. With that in mind, perhaps the American public would benefit from smaller but more numerous hospital systems that compete against each other.

For nearly two decades, many in the healthcare industry have held out hope that empowering consumers with sufficient information would exert enough pressure on providers that patients would receive higher-value care. It turns out that even diligent consumers can be frustrated in their efforts to find pricing information. Kaiser Health News reported on one patient who actively sought pricing information before his procedure, but the estimate was more than 50% off.

For nearly two decades, many in the healthcare industry have held out hope that empowering consumers with sufficient information would exert enough pressure on providers that patients would receive higher-value care. It turns out that even diligent consumers can be frustrated in their efforts to find pricing information. Kaiser Health News reported on one patient who actively sought pricing information before his procedure, but the estimate was more than 50% off.

When estimates can be that far off, it is difficult for shopping around to be meaningful. Ideally, the estimates have to be accurate (i.e. providers cannot charge much more than what was estimated), and estimates would be easy to obtain. Unfortunately, complications do arise, meaning that there can legitimately be variation on the price. Giving consumers a range of prices would be helpful, but not if the ranges are too broad and if the conditions for the upper end of the range are too vague. Health care is complicated, and even just procedure pricing can be difficult to obtain.

Kaiser Health News published a story about medical tourism, where a patient flew to a foreign country to receive care. In this case, the US-based patient was covered by health insurance in the US, and the insurer even paid the patient $5,000 in addition to covering all related expenses (including travel). This piece highlighted the role of a for-profit company that arranged for a US-trained physician to fly down to Mexico to perform the knee replacement surgery.

Kaiser Health News published a story about medical tourism, where a patient flew to a foreign country to receive care. In this case, the US-based patient was covered by health insurance in the US, and the insurer even paid the patient $5,000 in addition to covering all related expenses (including travel). This piece highlighted the role of a for-profit company that arranged for a US-trained physician to fly down to Mexico to perform the knee replacement surgery.

In this case, the surgeon made more money for the procedure than usual, the patient did not have to pay co-pays but instead was paid an incentive, the coordinating company made money, and the payer (the self-insured employer) still saved money. The biggest difference in cost is that the facility in Mexico was paid much less than a comparable hospital in the US would have been paid. As healthcare costs continue to rise, people (whether patients, insurers, or others) will continue to look for creative solutions, similar to how others are looking into the feasibility of importing drugs from foreign countries.

Kaiser Health News reported on the government of California adopting policies to help promote more engagement by health insurers. For one, it has offered state-level subsidies (in addition to the federal subsidies) so that more people would find health insurance premiums affordable. The success of insurance plans depend on pools large enough so that the premiums from the policyholders that do not need payouts cover the payouts of the policyholders that do. When premiums are too expensive, healthy individuals might drop out, forcing insurance companies to raise premiums, which in turn causes more people to drop out. California has also adopted a financial penalty to those who opt out of health coverage. Such a penalty was part of the original Affordable Care Act, but was later cancelled.

Kaiser Health News reported on the government of California adopting policies to help promote more engagement by health insurers. For one, it has offered state-level subsidies (in addition to the federal subsidies) so that more people would find health insurance premiums affordable. The success of insurance plans depend on pools large enough so that the premiums from the policyholders that do not need payouts cover the payouts of the policyholders that do. When premiums are too expensive, healthy individuals might drop out, forcing insurance companies to raise premiums, which in turn causes more people to drop out. California has also adopted a financial penalty to those who opt out of health coverage. Such a penalty was part of the original Affordable Care Act, but was later cancelled.

Interestingly, the executive director of California's ACA health exchange said that nearly 90% of Californians will have three or more carriers to choose from in 2020; apparently three options is a minimum threshold for meaningful competition. Other states also appear to be experiencing healthier exchanges as well.

Following up on an executive order signed earlier in the year, Kaiser Health News recently reported on a proposed rule by the Centers for Medicare & Medicaid Services (CMS, also known as Medicare) that hospitals disclose prices for common procedures (mandated last year), including negotiated prices (new). The proposed rule requires "payer-specific negotiated charges" so a procedure should have multiple prices listed (one for the cash rate, and one per insurer). We are pleased that CMS is proposing that the prices are to be published in a machine-readable format, which should make it easier for websites to incorporate the data. Even more powerful would be if this regulation applied to clinics as well, where a number of outpatient procedures may occur.

Following up on an executive order signed earlier in the year, Kaiser Health News recently reported on a proposed rule by the Centers for Medicare & Medicaid Services (CMS, also known as Medicare) that hospitals disclose prices for common procedures (mandated last year), including negotiated prices (new). The proposed rule requires "payer-specific negotiated charges" so a procedure should have multiple prices listed (one for the cash rate, and one per insurer). We are pleased that CMS is proposing that the prices are to be published in a machine-readable format, which should make it easier for websites to incorporate the data. Even more powerful would be if this regulation applied to clinics as well, where a number of outpatient procedures may occur.

Understandably, the American Hospital Association was not happy about the proposal. Interestingly, America's Health Insurance Plans was also against the proposal, suggesting that insurers feel confident about the effectiveness of their negotiations. If this proposal goes through (legal action to prevent it is expected), I think we will find that some insurers had been more successful than others in negotiating prices.