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Health pricing is chaotic: The Wall Street Journal

Posted by on February 23, 2012

 

“To appreciate what’s wrong with the current system, imagine four patients identical in every way except for their insurance coverage. They report to the same doctor for a routine procedure, say, a colonoscopy,” writes Joseph Rago in an opinion piece in The Wall Street Journal, arguing that an unfettered free market will take care of the problems in health-care pricing.

In laying out the pricing disparities, Rago explains what the landscape looks like.

“The first patient is on Medicare, which controls prices. The program’s fee formula sets prices unilaterally for about 7,000 physician services and pays lump sums for 600 general hospital diagnoses, regardless of the quality of care. Medicare pays twice as much on average for a colonoscopy if it is performed in a hospital outpatient setting rather than in a doctor’s office.

“Patients two and three are covered by private insurers, but those insurers are likely to reimburse the doctor at different rates—whatever they’ve negotiated to include him in their networks. The rate will be higher than competitive to make up for Medicare’s below-cost fees—the gap between public and private rates is now about 40 percentage points. The rate is also likely to be a proprietary trade secret, or else literally unknowable: The doctor can only generate price information when he codes his services and bills the insurer.

“The fourth patient is uninsured. If she seeks treatment, she’ll be billed directly from a ‘chargemaster,’ a hospital’s list of marked-up sticker prices that no one with coverage will ever pay.”

So far, so good — that’s pretty much the way we see it, except for the fact that there is considerable evidence that Medicare rates are very close to what the insurers pay these days, despite Rago’s conviction that they are much lower in most if not all cases.

He then concludes that the health care reform law stands in the way of pricing transparency. His argument, perhaps not surprisingly, is that if the government gets out of the way, the private market will take care of pricing disparities and solve the entire health-care marketplace problem.

It’s a complicated argument that he makes, and there’s a debate on the comment stream on the site, with not everyone agreeing.

“If it wasn’t for a century of government intervention in the health care system, we wouldn’t be paying for a colonoscopy, a regular and known event, with insurance, which is designed for unusual and unknown events, and the pricing would be readily available and easily controlled by negotiation and shopping around. The same goes with numerous other procedures. If you know you’re going to use it and will do so regularly, insurance should not be paying for it. We’re in trouble today becuase we’ve incrementally allowed government into health care in a greater degree since 1910,” writes one commenter, Justin Murray.

“There is no free market in health care, it was killed during Woodrow Wilson’s administration.”

Your thoughts?

 


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