Price-fixing leads to unintended consequences
March 08, 2015
At DocSpot, our mission is to connect people with the right health care by helping them navigate publicly available information. We believe the first step of that mission is to help connect people with an appropriate medical provider, and we look forward to helping people navigate other aspects of their care as the opportunities arise. We are just at the start of that mission, so we hope you will come back often to see how things are developing.
An underlying philosophy of our work is that right care means different things to different people. We also recognize that doctors are multidimensional people. So, instead of trying to determine which doctors are "better" than others, we offer a variety of filter options that individuals can apply to more quickly discover providers that fit their needs.
March 08, 2015
Medicare sets the prices that it will pay providers for specific procedures. These prices consider locality (i.e. procedures performed in certain zip codes will be paid more than in other zip codes, even though the same procedures were performed) and some other factors (e.g. whether the provider is a teaching hospital). For the most part, Medicare pays different providers in the same locality the same price for the same procedure. On one hand, this makes some sense -- why should the same procedure be paid different amounts just because they are performed at different locations? On the other hand, in what other industry are prices set the way that Medicare sets them in health care? Can you imagine being able to go up to any hotel and demanding the same price as the hotel down the street? Even in the airline industry (where customers have largely the same experience), airfares can vary significantly. In large part, Medicare can get away with setting prices because it is the nation's largest payer.
So, what happens when Medicare sets a price for a specific procedure too low? Duke Medicine reported an interesting finding: the frequency of that particular procedure dropped, but the frequency of a more expensive procedure went up. From the article, it's unclear if Medicare's price reduction caused the frequency of the other procedure to rise, but the time periods overlap very nicely. Additionally, the other procedure lacks evidence to demonstrate that it is superior. Therefore, it seems likely that when reimbursement for the original procedure was cut, providers looked around for alternatives and found one that they like more.
Whenever a market has its price set for external reasons, distortions occur. Medicare could additionally regulate a price decrease for the other procedure, but chances are that providers will find another alternative, or not enough people will get the right procedure. In a more classically functioning market, consumers would be exposed to a greater part of the financial cost, they would also know the price of the procedure ahead of time, and they could choose which provider to go to. We might be headed a little closer towards that model (with patients being exposed to higher deductibles and co-insurance) and we might experience plenty of short-term pain (in the absence of meaningful pricing information) before the market becomes healthier.
February 28, 2015
Back in May of last year, I was excited to learn that three major insurers were banding together to make health care prices available to consumers. There seemed like there was so much potential. This past week, The Health Care Cost Institute announced that their portal launched as Guroo.com. It turns out to be a rather modest step -- currently, it only gives average pricing by location, and only for seventy or so conditions . Granted, this is only the launch, and the press release hints at much more to come. However, this data seems available via some other sites, and this release falls far short of what the portal could do with the data that they have (e.g. price comparison among providers).
At this point, the rationale for these insurers to release this information remains unclear. Do they actually want to change the provider industry by helping patients make more informed healthcare purchasing decisions (which in turn should lower their costs)? If so, releasing the information at the individual provider level makes a lot of sense. It would make even more sense to release this data so that other tools can also harness it to benefit the patient community. Do they want to build and control their own popular consumer-facing portal (as someone from Robert Wood Johnson Foundation suggested they have the potential to do)? Do they want something that they can point to in the realm of healthcare transparency for the sake of appearance? We'll see how the site develops, and how they respond to competitive websites.
February 22, 2015
Whether a physician is considered in-network or out-of-network by a patient's insurance plan can have large financial implications. Unfortunately, ascertaining that status can be difficult. Kaiser Health News ran an interesting article exploring one couple's difficulties in this area. In this particular case, a doctor was part of two different medical groups and could bill under each one. The doctor billed under one medical group that was not in-network, resulting in out-of-network charges for the couple, despite the insurance company's own website assurance that the doctor was in-network. It was a bizarre case of the doctor's staff having more influence on the final charges than the actual patient.
Insurance network coverage can be tricky and in our own investigation, we have found plenty of incorrect insurance information. While not a perfect solution, one step that would help immensely would be for insurance companies to release network information in a industry-specified format that could be understood by computers. Tools could be built on top of those data feeds to help physicians catch errors and to help patients make better decisions.
February 13, 2015
We are planning on turning off our server for a few hours tomorrow night (Saturday, February 14, 2015), starting around 9:30 PM PST. This website will be unavailable during that time.
We will be moving the server, and performing some minor maintenance.
February 06, 2015
The New York Times ran an interesting article about how prices in health care can be irrational. Medicare sets its own prices, rather than having the price determined by supply and demand, like most other industries in the US. As a result, some of the prices can seem odd to outsiders. The article points out that there are certain procedures that cost significantly less in the doctors' offices (in a clinic) than they would when performed at a hospital -- even though the procedure is the same and the setting makes no difference. The result? Hospitals have been buying up doctors' practices and then charging the hospital rates.
Mandated pricing often leads to distortions in the marketplace. For example, drugs that are sold at higher prices in the US might be smuggled across a border. In this case, Medicare may be accelerating a perverse cycle where larger and more expensive providers get even larger by acquiring lower-cost competition.
Not surprisingly, people representing the more expensive providers resist the idea of leveling the payments across both settings. The AHA executive who was interviewed raised the point about hospitals being more expensive to operate. In most other industries, suppliers don't get paid more for the same service simply because their costs are higher. Rather than trying to spread the higher costs of operating a hospital across all procedures, maybe it would make sense to pay identical services the same rate, and specify a higher price for the procedures that can only be done at a hospital -- that would help the market get closer to the true price of a procedure.