Less competition yields higher prices among provider groups
October 11, 2015
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October 11, 2015
Health Affairs published a study showing that counties that are dominated by large provider practices tend to have higher prices than counties that are not so dominated. This finding makes sense given that concentration of providers means less competition, and less competition usually means that the market would bear higher prices than if there were more competitors. Nevertheless, it's interesting to see empirical evidence to support what people learned in economics classes.
What's ironic is that as people have been talking about the rapidly increasing price of health care, providers have been consolidating into larger and larger systems. Part of this has to do with how physicians will be compensated in the future, where it's easier for larger groups to bear risk (through structures known as Accountable Care Organizations).
I think that some of this consolidation also has to do with how concentrated the buyers (insurance companies) of these medical services are. It's not hard to imagine large insurance companies demanding low prices from smaller physician groups, but being unable to extract similar concessions from larger groups. After a while, physicians who were working in smaller practices might simply decide that they would be better rewarded for less work by simply joining a larger group, thereby eliminating some choices for the insurance companies. Hence, a short-term optimization for insurance companies (saving money on procedures provided by small groups) leads to a worse long-term scenario for them (higher prices overall).
There are clearly reasons that medical care can benefit from larger groups of providers; however, these benefits might also come with a financial cost.
October 03, 2015
America's Health Insurance Plans (AHIP), the trade group representing most of the nation's insurers, released an analysis of out-of-network billing practices. Of the 100 or so procedures that they analyzed, they found a wide range of how much out-of-network providers billed, with providers on average charging as little as 118% of Medicare for some procedures to as high as 1,382% of Medicare for other procedures. Understandably, insurers want to limit the ability of providers to charge whatever they want and have highlighted how this is a problem for patients who receive unexpectedly high bills after they visit an out-of-network provider. Providers obviously have their own take in their long-running antagonism against insurers, with the president of the American Medical Association countering that AHIP essentially cherry-picked their examples and that insurers are responsible for the industry's higher costs and for creating overly restrictive provider networks.
Restricting providers in terms of what they can charge when they are out-of-network for a patient would shift the balance of power towards the insurers. After all, if insurers can be assured of reasonable rates regardless of whether a doctor is in-network or not, they have less incentive to court providers. While this amounts to a cute angle of attack, it seems that insurers could have been much more effective in lowering costs by creating tools for patients to benefit from a more competitive market.
September 27, 2015
RAND offered a critique of Propublica's Surgeon Scorecard. Without commenting on whether issues raised were valid, the critique is probably one of the most detailed pieces that I have encountered regarding the methodology used in Surgeon Scorecard. I am glad that others are engaging in this conversation, but the line that stood out the most to me was actually not directed towards Propublica.
The report notes that "It is important to advise... providers to substantially improve their efforts to collect and share useful performance data publicly," underscoring the dearth of meaningful performance data, and the responsibility of the medical community to share this data. RAND notes that Propublica's efforts could be one step in a much longer journey for the industry to develop better reports, even while noting Surgeon Scorecard's failings. We too hope that Propublica's efforts and RAND's critique will move the industry further in helping consumers make better decisions.
September 19, 2015
The Office of the Attorney General of Massachusetts released an interesting report describing how health care costs in the state are growing faster than what was targeted. Massachusetts seems to have one of the most engaged state governments trying to trim the cost of health care. The report describes some variation in the cost among providers (showing, for example, that Partners was about 43% more expensive for BCBS patients in 2013 than average) and note that higher-priced providers are attracting more patients. Apparently, the analysts reviewed quality data from insurers and providers and determined that the variation in quality did not support the variation in prices, leading to some providers labeled as higher-value and some others as lower-value. Despite the frequent discussion of price and value, there seemed to be very little discussion about quality (e.g. how it was measured, how much variation existed), which is somewhat ironic given that the report touts transparency as a way to improve the current situation.
The report does include some recommendations on how to get the growth in spending in line with targets. One recommendation, for example, is to simplify the tiering of providers, by doing so at the organizational level rather than at the individual level. That would likely simplify the transaction for prospective patients. The recommendation that seems likely to be more effective is to have the patient contribution more closely linked with the underlying price difference. That is, if a patient really insists on going to see a provider that is 40% more expensive than average, the patient should pay a much bigger part of the difference than he or she currently does. This step seems critical: having the decision maker (the patient) more fully bear the consequences of his or her decision. Until recently, it's been the insurer that has been paying for most of the difference, so there's very little direct downside to the patient to choose the more expensive provider. With costs continuing to grow faster than people would like, I expect that patients will increasingly be asked to pay more of the difference in order to help stem the tide of rising costs.
September 14, 2015
The cost of medical care is increasingly becoming a concern for many Americans. This is especially true in light of higher deductibles and higher co-pays. Interestingly, this trend is strong enough that the provider community is taking notice. NPR reports that most of the surveyed medical schools that responded indicated that they offer a required course about the cost of medical care. The article cites the Affordable Care Act as the reason, as it moves the medical community towards high-value care, not simply rewarding doctors for volume.
As providers engage with patients more and more about cost, patients themselves will increasingly start thinking about higher value care. As time goes on, maybe we'll start to see a bend in the so-called cost curve.