Professor Mark J. Perry's Blog for Economics and Finance
Pages
▼
Monday, May 28, 2012
Markets in Everything: Medical Cash Discounts
At the Los Alamitos Medical Center, you get a 90% discount for paying cash for a CT scan of the abdomen, $250 cash vs. $2,400 average insurance price, read more here in the LA Times.
"That disparity in pricing is coming under fire from people like Snyder, who say it's unfair for patients who pay hefty insurance premiums and deductibles to be penalized with higher rates for treatment"
unfair? what an absurd notion.
insurers require piles of paperwork and are staggeringly slow to pay providers. these impose real costs onto the provider and real risks as insurers often arbitrarily disallow payment requiring piles more negotiation that may or may not be successful.
why would a provider not charge more for such hassles, delays, and risk?
try treating your hardware store like that and see if they will do business with you at all.
just pay cash. submit the bill to your insurer and get it credited toward your deductible or even reimbursed.
I'm curious how much this represents of the actual objective cost of such and how much of it represents a price discounted for the poor and uninsured. Does the hospital get any indirect kickbacks from state or local government for offering such a low price? I know where I am the ERs get a chunk of change from the county government for handling the uninsured types.
Not to dispute the idea by any means -- just to call attention to the fact that that might not be the only price paid to the hospital/medical group doing the scans. That, for example, may be why some hospitals want the income statements, the local laws might not give them a kickback if they aren't providing the service to those without income or coverage.
The obvious solution to any perceived "unfairness" is for employers - the ones who foot the bill - to demand that insurers either negotiate better or explain why they cannot.
Because this is California, I would not be surprised to see government interfere further in this market.
A variety of abdominal CT scans can be requested by a physician, with varying prices:
abdominal CT (no contrast) abdominal CT (with contrast) abdominal and pelvis CT (no contrast) abdominal and pelvis CT (with contrast)
It is not clear from the article that the quoted cash prices included just one or all four of the types. It is also not clear whether the average insurance reimbursements included all four.
The table shows that half of the cash prices do not include radiologist fees. It doesn't explicitly state that the other fees did include radiologist fees, or whether those fees were included in the insurance company reimbursement.
Despite the concerns I listed in my last comment, I am convinced that the variance in prices doesn't make a lot of sense. Morganovich makes good points about the extra costs of meeting insurors' requirements. But I don't think such costs can acount for all the variation shown in prices.
IMO, the burden is on the employers to shop around for insurors who provide the lowest overall costs. That should pressure the insurors to in turn shop around for lower prices for CT Scans and all other procedures.
of interest, i used to be a big investor in a company that was trying to do patient steering for insurance companies.
they set up a network of known providers with available price lists and tried to get insurance companies to save money by getting better deals and even to entice patients to get an MRI at a walk in facility not a hospital (for $500 not $5000) by waiving the copay or other financial incentives.
people just flat out did not respond. it seemed like a great, viable idea, but the insureds just did not give a damn. they wanted the close one or the hospital etc.
this is the real issue.
it's that people using insurance do not ask price and do not price shop. people paying cash do.
thus, it's a whole separate economy. how big a gap is appropriate just for inconvenience and risk and delay around insurance? who knows, but it may be bigger than you think. an all cash practice could get rid of several expensive computer systems and a couple of full time employees.
companies like athena health that outsource backend insurance processing take somehting like 30% of the claim value and still do not mitigate all the risk.
it's an expensive and difficult process.
even with serious price discrimination among insured patients, i would not be surprised to see cash be 50% cheaper.
dealing with insurance really sucks that much.
add in the fact that docs lose money on the rates paid by mediacare and medicid on many procedures and need to take it out of the hides of the privately insured insured, and this starts to get really ugly.
imaging is also an extreme example. you would not see this sort of variance on setting a broken arm or an apendectomy.
imaging has very low marginal costs and profit is all about machine utilization. there's a ton of room to discount that does not exist in other procedures. i'd expect rate variance to look more like 30-50% there based on what i saw attempts at patient steering.
"That disparity in pricing is coming under fire from people like Snyder, who say it's unfair for patients who pay hefty insurance premiums and deductibles to be penalized with higher rates for treatment"
ReplyDeleteunfair? what an absurd notion.
insurers require piles of paperwork and are staggeringly slow to pay providers. these impose real costs onto the provider and real risks as insurers often arbitrarily disallow payment requiring piles more negotiation that may or may not be successful.
why would a provider not charge more for such hassles, delays, and risk?
try treating your hardware store like that and see if they will do business with you at all.
just pay cash. submit the bill to your insurer and get it credited toward your deductible or even reimbursed.
kveranga said...
ReplyDelete^^^^^^^^^^^^^^^^
Blatant spam
=========================
I'm curious how much this represents of the actual objective cost of such and how much of it represents a price discounted for the poor and uninsured. Does the hospital get any indirect kickbacks from state or local government for offering such a low price? I know where I am the ERs get a chunk of change from the county government for handling the uninsured types.
Not to dispute the idea by any means -- just to call attention to the fact that that might not be the only price paid to the hospital/medical group doing the scans. That, for example, may be why some hospitals want the income statements, the local laws might not give them a kickback if they aren't providing the service to those without income or coverage.
Morganovich,
ReplyDelete"just pay cash. submit the bill to your insurer and get it credited toward your deductible or even reimbursed."
That's a good idea.
These hospital pricing arrangements probably have something to do with marginal costs vs. fully-allocated costs.
ReplyDeletePerhaps a professor of economics and finance could explain it to us.
The obvious solution to any perceived "unfairness" is for employers - the ones who foot the bill - to demand that insurers either negotiate better or explain why they cannot.
ReplyDeleteBecause this is California, I would not be surprised to see government interfere further in this market.
A variety of abdominal CT scans can be requested by a physician, with varying prices:
ReplyDeleteabdominal CT (no contrast)
abdominal CT (with contrast)
abdominal and pelvis CT (no contrast)
abdominal and pelvis CT (with contrast)
It is not clear from the article that the quoted cash prices included just one or all four of the types. It is also not clear whether the average insurance reimbursements included all four.
The table shows that half of the cash prices do not include radiologist fees. It doesn't explicitly state that the other fees did include radiologist fees, or whether those fees were included in the insurance company reimbursement.
Despite the concerns I listed in my last comment, I am convinced that the variance in prices doesn't make a lot of sense. Morganovich makes good points about the extra costs of meeting insurors' requirements. But I don't think such costs can acount for all the variation shown in prices.
ReplyDeleteIMO, the burden is on the employers to shop around for insurors who provide the lowest overall costs. That should pressure the insurors to in turn shop around for lower prices for CT Scans and all other procedures.
The story mentions a website by Dr David Belk.
ReplyDeletehttp://www.truecostofhealthcare.org/
It hosts a 52 minute video and a paper describing the cost chaos in medicine. Shocking.
Medical market functions have been annihilated. The wild disparity in prices proves it.
Can anyone also have an HSA even if they are also covered by employer-provided health insurance?
ReplyDeletethis idea about paying cash and getting reimbursement sounds too easy....
why aren't the the insurance companies selling "reimbursement only" plans ?
jet-
ReplyDeleteof interest, i used to be a big investor in a company that was trying to do patient steering for insurance companies.
they set up a network of known providers with available price lists and tried to get insurance companies to save money by getting better deals and even to entice patients to get an MRI at a walk in facility not a hospital (for $500 not $5000) by waiving the copay or other financial incentives.
people just flat out did not respond. it seemed like a great, viable idea, but the insureds just did not give a damn. they wanted the close one or the hospital etc.
this is the real issue.
it's that people using insurance do not ask price and do not price shop. people paying cash do.
thus, it's a whole separate economy. how big a gap is appropriate just for inconvenience and risk and delay around insurance? who knows, but it may be bigger than you think. an all cash practice could get rid of several expensive computer systems and a couple of full time employees.
companies like athena health that outsource backend insurance processing take somehting like 30% of the claim value and still do not mitigate all the risk.
it's an expensive and difficult process.
even with serious price discrimination among insured patients, i would not be surprised to see cash be 50% cheaper.
dealing with insurance really sucks that much.
add in the fact that docs lose money on the rates paid by mediacare and medicid on many procedures and need to take it out of the hides of the privately insured insured, and this starts to get really ugly.
imaging is also an extreme example. you would not see this sort of variance on setting a broken arm or an apendectomy.
imaging has very low marginal costs and profit is all about machine utilization. there's a ton of room to discount that does not exist in other procedures. i'd expect rate variance to look more like 30-50% there based on what i saw attempts at patient steering.