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The Healthcare Marketplace — There is No Invisible Hand (until when consumers start paying)

October 26, 2015 Leave a comment

The Tampa Bay Times included on its front page this morning an article entitled: “Big swings in medical prices make for a wild market, but savvy patients can benefit”

“It is a chaotic landscape, which is why it is so difficult for consumers and employers to navigate,” said Castlight vice president Kristin Torres Mowat.

So what gives?

For one, the market for health care doesn’t behave like most other markets. Consumers usually don’t know how much a procedure costs until after they’ve had it, and it can be challenging to compare prices beforehand. That means providers can set their rates somewhat independently of normal market forces — the forces that keep prices consistent at neighboring gas stations.

Bruce Vogel, an associate professor of health policy at the University of Florida (and a dorm mate at UF many years ago) was quoted in the Tampa Bay Times article — “It’s hard to find a market that deviates more from the perfectly competitive structure.”

Even Florida Gov. Rick Scott, a staunch conservative who opposes most government regulation, has expressed concern over the healthcare marketplace, focusing on the transparency of hospital pricing.  In the September 29 online edition of Florida Politics, Gov. Scott was quoted:

“This is all about patients and empowering patients,” he told reporters after a Florida Cabinet meeting. “They should know what (a procedure) costs and be able to get as much information as they can.”

You can read the Governor’s official statement regarding hospital price transparency and supportive comments from members of the Commission on Healthcare and Hospital Funding here.

Gov. Scott is a smart guy – an M&A attorney, who founded Columbia Hospital Corporation which merged into the Hospital Corporation of America to become Columbia/HCA, of which he was CEO for a number of years (during which time Medicare fraud issues arose). It is not like he does not know how healthcare providers in general, and hospitals in particular, price their services.

Since the advent of third-party payers, healthcare has always been an artificial market. Vendors of healthcare and consumers of healthcare (those with health insurance) have rarely negotiated prices.  The insurance companies negotiated with providers over what they would pay and with the insureds (or their employers) what their premiums would be. Add Medicare to the mix which set an artificial payment standard of some negotiated percentage of the Medicare rate, and pricing for healthcare services became almost completely independent of typical economic forces like supply and demand. Don’t even try to analyze pricing in rural or underserved markets.

So what is happening nowadays, when everyone is supposed to be insured, that makes healthcare pricing and bargaining with hospitals and other healthcare providers such a hot topic?  I think it is because of high deductible plans. Health insurance has basically become insurance only for catastrophic claims. When the family deductible may be $5,000 or more, the cost for “unreimbursed” services becomes a matter of personal economics — even if the provider is charging the rate previously negotiated with the healthcare insurer.

Unfortunately, the negotiating for healthcare services is far more complicated than the negotiating over the price of a car. Transparency in healthcare pricing is important, but transparency in healthcare quality is critical. Quality of care will soon be the dominant factor as we move away from procedure based payment for healthcare services to preventive care services (paid 100%) and bundled/global payments focused on the episode of care.

Adam Smith never had a chance in healthcare.

What is the Appropriate Scale for Delivering Health Care?

October 25, 2015 Leave a comment

In the prior post, I noted the opening of Yale Law School’s new Solomon Center for Health Policy and Law.  At the opening, there will be a conference on “The New Health Care Industry: Integration, Consolidation, Competition in the Wake of the Affordable Care Act.

Of course, the so-called “new health care industry” is anything but new. It has been evolving for years, though Obamacare has certainly accelerated it.  A better title would be “The Continuing Evolution of the Health Care Industry: Consolidation and Extinction.”

Given its title, the conference will likely focus on BigHealth — the consolidation of health systems and insurers.  We are seeing it everyday, and it is certainly important.  Unfortunately, the conference will ignore the real battles in the evolving health care industry and where they are being fought and by whom.

I am in the tenches everyday with solo and small physician group practices and other small health care providers as they try to remain independent and give quality health care services to their patients and get paid a fair price for their expertise.

I doubt that there will be any room for LittleHealth in the future, but maybe there should be.  One size does not fit all.  Who hasn’t experienced the difference between the service provided by Bank of America and that provided by the local community bank?

Nearly 40 years ago, E.F. Schumacher wrote “Small is Beautiful.”  One of the lessons he sought to teach us is that we often overlook what is the most appropriate scale for an activity.

Small may not always work, and sometimes bigger is better.  But I don’t know if anyone has really thought about it where people’s health is concerned.  I would like to see a conference focus on the question of what is the appropriate scale for health care delivery and how to get there.  If there is room for the small health care provider, we better find out before they all go the way of the dinosaurs.

Advice to Law Students

October 25, 2015 Leave a comment

When I graduated law school in 1981, health law was pretty much nonexistent.  Now, to be relevant, most law schools offer some health law courses.

Because?  Health law is hot.  It was hot before Obamacare, and it will remain hot.

Harvard Law School has its health blog, Bill of Health.  Yale Law School is opening its new Solomon Center for Health Policy and Law next month. U.S. News ranks the country’s top health law programs.

Getting healthy and staying that way is a passion for most Americans. Obamacare has changed the way the country thinks about dispensing health care.  But there will always be sick people. New drugs will be invented, and new procedures adopted.  All to make us healthier or to make us more comfortable in our sickness.  Health care is big business, and, by necessity, will remain heavily regulated.   After all, there will always be patients and providers who will try to game the system.

So, law students, if you don’t know what path to follow, you could do a lot worse than health law

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