Monday, March 15, 2010

Talk is Cheap; Retail Clinics Already DO Bend the Cost Curve Down; Latest Example: $35 Physicals

From CPAC's 2010 Blogger of the Year, Ed Morrissey of Hot Air, "Retail Health Care and Reform":
With the ObamaCare bill approaching a final vote, this seems like a good time to remind readers that other options are available for reforming the cost structure of American medical care.

What are “retail health clinics”? Chances are, you’ve already seen them. These clinics have begun rapidly spreading to malls, big-box retail stores such as Wal-Mart and Target as concessionaires, and drug stores like Walgreens. Instead of hiding behind insurance co-pays, the clinics offer pricing up front to consumers, so that they can decide for themselves what to “buy” and how much they want to pay for service.

This is the same mechanism that works to keep prices down and supply consistent in other areas of health care that insurance plans do not traditionally cover. For instance, cosmetic surgery and Lasik rely entirely on consumer compensation. There are no third-party payers to get in the way of rationally allocating resources to demand. In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise.

If we want to reform care, bend the cost curve downward, and promote supply in the health-care industry, we need to learn the lesson from retail health clinics. The top-down reform proposed by Congress threatens to stop real reform and amplify everything that’s currently wrong with the system.
Bending the Cost Curve Downward, EXHIBIT A:

DRUG STORE NEWS -- Take Care Health Systems, which is owned by Walgreens, has announced that it now is offering camp and sports physicals at all Take Care Clinics nationwide. The clinics, located within nearly 360 Walgreens stores nationwide, are offering physicals for $35 through the end of September. The physicals are administered by nurse practitioners and, in select markets, physician assistants.

HT to Wright Truesdell for the Ed Morrissey link.

10 Comments:

At 3/15/2010 1:35 PM, Blogger bobble said...

amen, retail clinics are a great trend.

another issue that needs to be addressed is the cost drugs still under patent protection.

the rest of the world gets these at discounted prices. seems like only U.S. consumers pay the high prices needed to fund research on new drugs.

i don't know what the answer is, but it seems like there should be a way to spread the cost of research to all of those who benefit from new drugs.

 
At 3/15/2010 1:50 PM, Blogger Jet Beagle said...

I agree that having consumers pay for routine health care will lead to lower costs for that portion of their health care expenditures. But I believe it unrealistic to believe that third party payment will be eliminated in this nation.

Economists I admire seem to advocate eliminating third party payment from all health care except catastrophic health care. But that seems to ignore that it is the high cost illnesses and injuries which constitute the lion's share of our national health care expenditures. It also ignores that third party payers have just as much incentive to hold down costs as do patients.

IMO, we do not have high medical costs because we have health insurance. Rather, we spend large sums on health insurance because we wish to be assured that money will be available for the high cost medical treatment we desire.

Economists should be focusing on government mandates, tort reform, and interstate commerce in insurance. Trying to change the role of health insurance is a waste of time.

 
At 3/15/2010 2:47 PM, Anonymous Lyle said...

In particular we need to address the end of life treatment issue. Unfortunately the republicans demigoged the proposal for paying physicians to help people fill out living wills and make end of life decisions when healthy. Since a large part of medical costs are incurred in the last 6 months of life more preparation and thinking about what should happen could reduce these costs. I suspect that a lot of people would not want heroic measures used on them preferring the hospice model

 
At 3/15/2010 4:02 PM, Blogger Jet Beagle said...

"In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise."

I agree that markets work effectively in absence of third-party payers for elective medical procedures. That's precisely because these are elective procedures. Not consuming the service when the price is too high is a rational option.

Not consuming life-saving chemotherapy because of cost or not consuming a pacemaker or defibrillator because of cost is a choice which rational consumers do not wish to make. So they rely on insurance to ensure the funds for those treatments will be available.

Economists can talk till they are blue in the face about the merits of Health Savings Accounts. But few Americans can save enough to pay for the expensive life-saving medical treatments they may face. That's why we will always need some form of risk sharing, which implies third party payment.

The use of third party payers for routine health maintenance is a red herring. Continuing to cite that factor as a key to controlling health care costs undermines the influence which free market economists such as Boudreaux and Perry might have on the whole health care cost issue.

 
At 3/15/2010 5:52 PM, Blogger Craig said...

I believe it unrealistic to believe that third party payment will be eliminated in this nation

Of course, it won't and no one is suggesting that it will or should. The problem is precisely the routine care you mention. Insurance is meant to spread risk -- it's the unforeseen health crises, the risk of serious illness -- that insurance should cover.

I realize this is anecdotal, but three years ago, my employer (self-insured) instituted a puny $300 annual deductible and our health insurance premiums haven't risen since then so great was the drop in the number of claims for plain-old office visits.

 
At 3/15/2010 6:27 PM, Blogger Jet Beagle said...

"The problem is precisely the routine care you mention."

I don't think so, my friend. If you mean checkups, dental care, and treatments for minor injuries, routine care is a tiny portion of this nation's health care costs. 80 percent of our health care is consumed by only 20 percent of us. Research by the Center for Disease Control and Kaiser have revealed that 75% of our health care costs arise from chronic diseases. These would include heart disease, cancer, diabetes, mental illness and conditions, and a few other conditions which can hardly be described as "routine".

Please do not advocate economic activity just based on some definition of the word "insurance". It really matters not whether one considers regularly consumed pharmaceuticals or mental health counseling or any other medical treatment to be insurance. American consumers are realizing economic benefit by sharing the risks that they will incur such costs, regardless of how one defines the word "insurance".

Medical spending is not rising because Americans choose to share risks. Spending is rising:
- because Americans are aging;
- because Americans can afford more expensive treatments than any other nation on earth;
- because lawyers and their clients can play the malpractice lottery without risk;

and especially

- because government has grossly interfered with free markets.

 
At 3/15/2010 7:16 PM, Blogger W.E. Heasley said...

At 3/15/2010 4:02 PM, Jet Beagle said...

“Economists can talk till they are blue in the face about the merits of Health Savings Accounts. But few Americans can save enough to pay for the expensive life-saving medical treatments they may face. That's why we will always need some form of risk sharing, which implies third party payment.

The use of third party payers for routine health maintenance is a red herring. Continuing to cite that factor as a key to controlling health care costs undermines the influence which free market economists such as Boudreaux and Perry might have on the whole health care cost issue.”

Jet Beagle, a few of us economists actually work in the insurance business. Here is some headline news for you Beagle: high frequency/low severity risks are a highly inefficient position within the risk management matrix. The most efficient position in the risk management matrix is low frequency/high severity risks. Any movement away from low frequency/high severity risks to any other combination frequency/severity within the risk management matrix is the inefficient use of the mechanism known as insurance and consequently increases cost.

It ends right there Beagle. Its an axiom within insurance. Your entire position is busted.

Actually Beagle, you are advocating an insurance plan that causes over utilization as well as the third party payer effect of cost AND amount of procedures, which consequently becomes an insurance plan that becomes a cost driver that magnifies the underlying problem of health-care resource inflation. In other words, you are advocating an insurance plan that, in itself, will cause prices to increase.

By the way Beagle, you transfer a risk for a consideration (premium) to an insurer which assumes the obligation of the risk. The insurer wants homogenous exposure units over a wide geographic area. Your comment “we will always need some form of risk sharing”, is a 1700’s insurance theory. Modern insurance is not based on “risk sharing” as once was found in Fraternal Plans in the 1700 and early 1800’s.

Solomon Huebner’s ghost will surely visit you tonight.

 
At 3/16/2010 9:00 AM, Blogger Jet Beagle said...

W.E. Heasley: " you transfer a risk for a consideration (premium) to an insurer which assumes the obligation of the risk."

You are right, of course, though this is a minor point. But I should have been more precise. My statement should have been:

"We will always desire some form of risk transfer mechanism."

W.E. Heasley: "Any movement away from low frequency/high severity risks to any other combination frequency/severity within the risk management matrix is the inefficient use of the mechanism known as insurance and consequently increases cost."

No argument here. But I'll stand by my claim (and Kaiser's) that 80% of medical costs in this nation are incurred by 20% of the consumers. Which is why focusing on routine medical care for the 80% is not going to reduce health care expenditures to any great degree - no matter how inefficiently that routine care is being provided right now.

Low frequency/high severity risk does not necessarily mean high one time costs. A diabetes victim is going to incur recurring but not enormously high expenses for decades. Over three decades, though, such expenses may amount to $100K or more. The prudent consumer will seek insurance which covers such expenses.

W.E. Heasley: "you are advocating an insurance plan that causes over utilization as well as the third party payer effect of cost AND amount of procedures"

If you mean I am advocating the status quo, that is incorrect. But I do disagree that catastrophic health insurance - more properly "high deductible insurance" - is not a wise option for most consumers. The diabetes patient I described would incur many years of high medical expenditures under a catastrophic health insurance plan.

 
At 3/16/2010 10:16 AM, Blogger juandos said...

"Unfortunately the republicans demigoged the proposal for paying physicians to help people fill out living wills and make end of life decisions when healthy"...

They did?

You got something to link to regarding that lyle?

Thanks in advance...

 
At 3/16/2010 6:55 PM, Anonymous Anonymous said...

If retail clinics can make money at prices like these, then why do youpredict so many doctors will leae the profession.?

Hydra

 

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