The ACP Advocate Blog

by Bob Doherty

Friday, March 9, 2012

“Feeling much like a cow on a milking machine”

A reason getting a handle on rising health care costs is so hard is that many of the approaches people hope will work to lower costs turn out to be not terribly effective, and those we know from evidence will work usually involve unpopular trade-offs.

Today’s blog will examine several new analyses that call into question the effectiveness of price competition and transparency in lowering health care costs. (Future posts will examine new studies on the impact on costs of health information technology and care coordination.)

The argument for price competition and transparency is straightforward. Markets do better than government in setting a fair and competitive price for health care services. For price competition to work, there needs to be more transparency in the price of health care services, so that patients can anticipate in advance what they would have to pay and can shop around for the best deal. And patients need to have more “skin in the game”—for instance, through high deductible conventional health plans and health savings accounts.

This all sounds great—in theory. Market-based competition works great for cell phones and tablet computers, driving down costs while steadily increasing capabilities and performance, so it should work for health care, right?

But what if health care is different, and price competition and transparency ends up driving up health care costs?

National Journal's Maggie Fox reports on a new Health Affairs study that found that if consumers are given information only on the cost of treatments, they prefer the more costly medical care. The study involved 1,400 workers, who were offered different doctors and care options. “If they were given details on price alone, the volunteers chose the most expensive choice,” presumably because they associated more expensive care with better care. Providing patients with quality and cost information “moderated” their choices—but the U.S. is a long way from developing a reliable “quality score” for patients to use in selecting a physician or hospital.

High deductible plans in theory should counter the bias for more expensive care, because patients would have a more direct economic interest in selecting a less costly source of care.

But a patient’s first-hand account, posted in ABIM’s Medical Professionalism Blog, shows how difficult it is for patients in high deductible plans to get physicians to reveal their prices or find less expensive care options. The patient, Court Nederveld of Florida, writes

“Hypertension was the trigger that forced medical cost awareness to the forefront. My doctor decided that with my rise in blood pressure, it would be prudent to prescribe a blood pressure medication and order a nuclear stress test. With only a catastrophic insurance policy and a $5,000 deductible, it was imperative for my financial health to know the cost of both the drugs and the procedure up front.”

But he found this was much easier said than done.

Mr. Nederveld researched and sought out a less expensive hypertension drug than the Lotrel recommended by his doctor. He encountered resistance when he tried to get his doctor to reveal in advance the cost of a nuclear stress test or to consider a less expensive conventional stress test. Only after Mr. Nederveld’s persistence did his physician agree to a modest discount in the fee for the nuclear stress test, but even then, it was more than he could afford. He continues:

“Feeling much like a cow on a milking machine, I began to test the theory that medical procedures should be available as a commodity. Using the Internet to begin my search, the only specific criteria required was that the location of the facility performing the test be within a short drive from home. It took very little time to find and confirm a company that would provide a nuclear stress test sans consultation, and would willingly and promptly forward the results to my primary care physician. To verify that all was understood, I informed them that I would have a check for the exact amount they quoted and no further remuneration would be forthcoming. All was as stated and the procedure was done. Total cost was $938.11.” [Compared to his own physician’s “discounted” fee of $1,900 for the test plus an initial $250 consultation fee.]

You might say that Mr. Nederveld’s experience shows that high deductible plans and price competition can work in driving down costs, since he was able to get his nuclear stress test for less. But the enormous obstacles he encountered raise doubts in my mind about how realistic it is to expect that most patients, especially the elderly and those facing life-threatening conditions, will have the time, skills, and persistence needed to get a better deal, when the system is skewed against them and time may be of the essence.

Finally, another study has found that the United States spends more on health care than other countries because U.S. residents pay higher prices for common procedures. The Washington Post’s Ezra Klein blogs about a new Health Affairs study, which found that “in 22 of 23 cases, Americans are paying higher prices [for common procedures] than residents of other developed countries . . .Usually, we’re paying quite a bit more.”

And the reason we pay higher prices, Mr. Klein argues, is that in most countries the government controls or negotiates prices with physicians and other providers, whereas in the U.S. “it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured”—except for Medicare and Medicaid, which regulate the prices charged by physicians and hospitals.

So let’s connect the dots. When patients are given information about the cost of treatments by different doctors, they choose the most expensive ones. When they have more skin in the game because of a high deductible plan, they encounter huge barriers to getting advance information about the cost of care and finding less costly alternatives. And a main reason health care in the United States is more costly than in other countries is that there is less government involvement in setting prices, not too much.

People who argue that getting government out of health care and unleashing the market will lower health care costs start from a good, principled position that seems as American as apple pie. (ACP, for its part, supports greater price and quality transparency, and the option for physicians to privately contract with patients to charge a higher fee than Medicare allows, as long as there are safeguards to protect patients when they have no real choice.) But free-market advocates don’t get to simply ignore evidence that health care is so different from other markets that competition, price transparency and less government regulation might have the opposite effect of driving up prices and costs.

I think that there is a better way of looking at the question of market competition in health care than posing it as an either-or choice of more government or less. Instead, we could acknowledge that government works best when it uses its regulatory authority to make free markets work better (the reason our Founding Fathers gave Congress the constitutional authority to regulate interstate commerce), not to replace free markets.

So, instead of using its regulatory authority to directly set prices, the government could establish the rules of the game: require clinicians to provide accurate pricing, cost and quality data before care is rendered, mandate safeguards to protect patients from being over-charged when they have no real choice of physician, and break up insurance monopsonies that hinder competition. In theory, such regulated competition should work to lower costs, but even so, we can’t rely on theory and blind faith alone. We need solid evidence.

Today’s questions: What is your reaction to the studies that show that price transparency, competition and less government price regulation may increase health care costs? And what does Mr. Nederveld’s experience tell you about the barriers to market competition, even for a patient who knew “it was imperative for my financial health to know the cost of both the drugs and the procedure up front”?

Note: the original post of this blog incorrectly cited the author and source of the article on the study that people prefer more expensive care.  This version has the correct reference.

5 Comments :

Blogger ryanjo said...

"But free-market advocates don’t get to simply ignore evidence that health care is so different from other markets" But I do get to ignore bad data, spun in an slanted fashion:

If you ask someone to choose based on price and they don't have to pay but a small fraction, who wouldn't choose the higher price? The system of co-pays distorts the market.

Mr. Nedervelt's experience is exactly what the market needs, multiplied by millions. He reduced his cost by more than half, by treating the whole nuclear stress test as his own transaction. Compare that to the patient who has no concern with cost, a third party pays it. Imagine the cost savings if every patient had this option and motivation!

Unfortunately, recent studies confirm that the ACA’s Medical Loss Ratio (MLR) rule, instead of making high deductible plans (like Mr. Nedervelt's) more affordable, will make affordable plans more difficult to find. A bit of social engineering by our "nanny government", perhaps?

As far as negotiating reduced fees with patients -- you should already know that present contracts binding doctors require the lowest price be paid by Medicare or the private insurance plans. If you are found to lower costs for some of your patients, you are simply paid at that cost for all!

How about showing me "solid evidence" that the mega-health cartels and risk sharing programs proposed by ACA will lower costs and improve quality. On the other hand, the free market is on display in most of our economy. Of major segments of the economy only health care and defense are dominated by government contracting. And those results are for all to see.

I certainly support the conclusion that government has a place in regulation -- but not price-setting and favoring certain economic models.

March 9, 2012 at 5:19 PM  
Blogger Harrison said...

I tend to agree with ryanjo. The anecdote presented in this blog post is more powerful than the study.
I don't think it means anything to ask pt's to pick a procedure when they really don't have to pay.
What they would choose if they had to pay is much more important.
And the experience from this one pt and the nuclear stress test does suggest that the market may work in health care.

But, and of course I would come up with a but, my concern is that the patient looking for the stress test took the recommendation that a stress test would be helpful and worth the money as a charge for him to do without question.
That is where health care fails in the market.
Of course it isn't.
Stress tests, nuclear or otherwise, have very limited predictive value beyond the history and physical exam.
So yes, the patient worked the market to save some money -- but was the $938 worth spending at all. How does a patient choose between the suggestions of a primary care physician and a cardiologist if they differ?

What if the recommendation was for an elective cardiac cath? How many market options will there be for that?

What would happen if the nuclear stress test precipitated unstable angina and a transfer by ambulance to an ER with an outpt observation stay with serial troponins?
Would that also be part of the $938?
Would the pt be allowed to sue the stress test provider for the ambulance ride and the ER stay if it turned out that the suspected MI was not present?

No this didn't happen.
But if you repeat it 100 times, it will happen on 4 or 5 occasions.
And then we have to go back to the statistical signficance of the test.

In a free market we will become even more wary of the tort system. And in a free market, tort reforms will be even less likely.

Do we really think we can get what we want all the way around? Freedom to charge what we want for services rendered, and freedom from liability stemming from the outcomes of those services?
It will all be intertwined.

As for solid evidence that the suggestions for reform and bargaining power embedded in the ACA will work, we simply need to look to other countries. Similar systems work in Europe.

Harrison

March 10, 2012 at 1:14 PM  
Blogger Robert J. Sobel, M.D. said...

As an opted-out physician, the law is quite explicit. My fees must represent the same fees I charge everyone else. A single standard in fees (and I may say care) is legally mandated. Before opting out, what we were paid, was determined by the fee schedule for Medicare. That reality has become the basis of reimbursement for most private insurers, and I am sure it also factors into out of network payments (though this area is legally rich).

I agree with ryanjo on several points of late. And it is absolutely unfair that we continue to use terms like competition, quality, and transparency with very little understanding of what and to whom we are referring. We have jettisoned fee for service just in time for empoyer hospitals and health care entities to swallow up physicians who have zero chance of hanging up a shingle and surviving.

I'm not sure, however, that a fee schedule isn't the best option. Medicare has taken us this far, and it is hard to see us going back. Whether IPAB or RUC, it is the same basic concept. What has failed is that the SGR conflated retail services that have both high and low yields to both patients and physicians. The structure of a primary care practice is undervalued, while the role of useful but easy to over-utilize high end tools is expanded by over-compensation (needed to cover the overhead the practice subsumes when it offers such services). Corrections are ongoing. Shopping around to then feed a report to the cardiologist and deny him his fair due is not, however, a long-term solution.

The more the answer involves another bureaucratic mandate, the less I trust it. The more it involves building on our current model, refining it in a way respectful to both primary care and specialty physicians, and protecting us all from the over-bearing profiteering of big entities, the more I would argue that we can quit waiting for the "evidence." I'm sorry. We are being deluded by studies that reinvestigate what is already known about human nature.

The second trillion has evolved out of many factors. It did not come from over-valuing primary care. I am not a big fan of a monopsony or a duopsony, but the chaotic vacuum that allows high tech bubbles in health care may be worse.

The FDA is looking at moving drugs over the counter. That would solve Part D, wouldn't it? Would it be constitutional to deny Americans coverage for needed medications? Look what our Hatch-Waxman compromise in the age of ACA has spawned?

March 10, 2012 at 2:49 PM  
Blogger Steve Lucas said...

Of interest may be the March 10, 2012 Wall Street Journal article China Hospitals Seen Defying Reform by Shirley S. Wang. As China brings health insurance to 96% of the population what they are finding is that hospitals and doctors order unnecessary test, procedures and higher priced drugs for their own financial gain, ignoring government guidelines.

My friends and I find we are told:

Generics are junk.

You only pay a co-pay, so the cost to you is the same.

We only do branded drugs, if you want substandard care find another doctor.

A couple of weeks ago a post on another blog highlighted a patient being told their insurance company would not reimburse their hospital stay unless they agreed to additional invasive testing, not true, insurance will pay if a patient declines.

With so many financial conflicts, and hospitals owning so many practices it is difficult or impossible to receive straight forward cost information. In a market with one major health care provider it is impossible to even get a response to the question.

Steve Lucas

March 12, 2012 at 7:36 AM  
Blogger Jay Larson MD said...

Mr. Nederveld’s experience is all too familiar. See the doctor for a brief appointment then walk out with an order for a $1900 test (which is unnecessary if he has no symptoms that would warrant further for coronary artery disease) and a brand name anti-hypertensive medication that is $300 per year. Perhaps another 5 minutes of discussion about clinical utility of nuclear stress tests and a prescription for the generic components of Lotrel (which is $25 bucks each at Costco) and blam a savings if almost half of his annual deductable.

In regards to the discussion about letting the free market system determine value in the health care system that would only work if the direct cost of healthcare was not buffered by the insurance companies. Totally get rid of health insurance and let the free market system reign free and we would see a dramatic drop off of hospitalizations, ER visits, and costly procedures. Because the PCPs are able to do so much for the whole patient, their value would rapidly ascend up. But alas, we have what we have.

As far as patient’s choosing, there was an interesting article in ARCH of INTERN MED this week that showed that higher patient satisfaction was associated with less emergency room use, but and INCREASE in hospitalizations, all healthcare and prescription drug expenditures, and an increase in mortality.

There was a great article on “Medical Professionalism in a Commercialized Health Care Market” in JAMA back in Dec 2007. It is worth the read. “Medical work was totally unsuited for control by the market or by government or business and, therefore, the practice of medicine could only be conducted properly as a profession.” “Professionals have an ideology that assigns a higher priority to doing useful and needed work than to economic rewards an ideology that focuses more on the quality and social benefits of work than its profitability.” “When physicians think of themselves as being primarily in business, professional values recede and the practice of medicine changes.”

March 13, 2012 at 2:16 PM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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