Distributing the Costs of Care, Part Two: More Than Just Me

A thing costs what it costs. That’s as true for a medical procedure as it is for a strawberry.

I started with a new primary care provider recently. That start involved meeting with a new professional provider, and a set of lab studies and tests - nothing exciting, but part of the process.

Now, I will have certain expenses out of pocket for that, but how those charges are determined is, again, a reflection of a slew of costs. There is the cost of the professional’s time; and, trust me: these days any health care business has some idea what to charge by the hour, even if that’s not how the charge is reported on the bill. And then, going into that cost is the cost of educating that professional, which may or may not include education loan debt. There is the cost of the computer system used to keep the records, the software it runs on, and the hardware that holds it. There’s the cost of the malpractice insurance that any professional will have; for after all, a suit can be filed before anybody actually determines whether the facts support it. And of course there are the costs of the facility - rent, utilities, insurance. There are also costs of getting paid: paying someone to issue the bills, to report to the insurance company, to know relevant law and regulation. And, there are the costs of not getting paid. Medical debt has been an important cause of bankruptcy for individuals, even if that’s been reduced under the Affordable Care Act. Sometimes people can’t, or won’t pay.

And that’s a simple new patient visit. Had I needed a procedure, then there would have been more costs: the required equipment, and amortization of that; the costs of nurses and other technicians, including their professional education and expenses; and, again, losses to charity care or refusal to pay. That’s kind of like the dropped box of strawberries: costs are raised and/or shifted to that the institution can cover here what is lost there. The big difference in healthcare of course, is that it’s not a $4.00 box of strawberries, but a $50,000 hospital stay.

All of this affects, but isn’t shown in the bill I will receive. What the bill will show, though, is something about the ways that my out of pocket costs are reduced by the distribution of charges. There are, of course, all the other patients in my new professional’s practice. More important, though, is insurance. Insurance, really, is the ultimate distribution of charges. I’m one of a large group that pays into the insurance company, and so far I’ve hardly ever had to use as much in one year as I paid - or, since so far my insurance is been provided by employer, as much as was paid in on my behalf. The insurance company distributes the costs of any current claim across the premiums paid by all the covered members. Then, again, my employer distributes the costs. The employer negotiates with the insurance company based on a pool of covered employees, figuring that the expenses for any individual employee will be lower. (I’ve written before that the currency of that negotiation is not dollars but “covered lives” - you and me and our family members.)

A medical procedure costs what it costs. For good and ill, though, I won’t see that cost. What I will see is what I pay out of pocket, and also what the insurance company paid on my behalf. Oh, and I may also see the results of the negotiation between hospital and insurance company as a discount or reduction. Of course, that’s what I see. Another patient with another insurer or another employer (or a person not having either) will see different numbers. That’s because there’s a different negotiation with each different company. Oh, and because for any given procedure with any given patient the insurer may renegotiate and pay less - which almost inevitably ends up with you or me paying more out of pocket.

We hear about that a lot now in efforts for “price transparency” for medical procedures. Everybody agrees it would be a nice idea. However, it’s hard in practice. There are differences in negotiations between each institution and each insurer. There are differences in negotiations between each medical practice (and most medical practices are still small businesses). Newer equipment costs more, and takes more procedures to amortize out that older. And, of course, large research and educational health care centers in urban settings take both higher risk patients, who need more resources; and more patients who can’t pay. A procedure costs what it costs; but the various inputs into those costs can vary a lot from setting to setting, as can the various ways to distribute costs as widely as possible. A procedure costs what it costs; and it may well cost more in one place than another.

Of course, we may also be willing to pay those costs. If I need a procedure, I may be willing to pay more for the professionals and the institution that have more experience - literally, that have offered that procedure more times to more patients. Professionals and institutions with more experience get better results. Or, I may be high risk myself for one reason or another. So, I may well be willing to pay for an institution with more resources. I don’t know I’ll need them; but if I do need them I don’t want to have to go somewhere else.

Then, of course, there is emergency care. If it’s really an emergency, I’m not about to start haggling over prices. I want to be where the right people and the right equipment are available for a good outcome, not a lower bill. And, I want those resources available 24 hours a day, whether I’m using them right now or not. “Just in time” may work well enough in having the right parts at the car plant for assembly, but I don’t want to trust “just in time” staffing for my emergency room. “Just in time” staffing may not be just in time to save me.

But, still, the biggest issue with price transparency, and one of the biggest things shaping what I pay out of pocket, is the sheer number of different insurance companies negotiating with the number of different health systems and institutions, and professional practices; and that includes the two biggest insurers, Medicare and Medicaid.

Once again, that sheer number is also part of the distribution of costs. My out of pocket expense feels small because the insurer distributes all my expenses across the premiums of all of us who are members; and because my providers, professional and institution alike, distribute my expenses across all the patients cared for using that expertise and equipment. A thing costs what it costs, whether a strawberry or a medical procedure. It can just feel less expensive to me because of how a lot of other people participate in paying those actual costs; and that will be the starting place for part Three.

This Week’s Challenge on Informed Consent

In this week’s news, this article from the New York Times caught my eye:

Louisiana Tests Unapproved Anti-Addiction Implant on Inmates. Now, there have been a number of references to the fact that these devices haven’t had FDA review. However, that lack of review only highlights the more basic problem: the problem of informed consent.

I actually learned in detail about research ethics in healthcare before I learned about clinical ethics - the difference between ethics in research and ethics in actual treatment. Our concept of Informed Consent is actually rooted in professional and political reaction to abusive research, and only then applied to abusive care. Reflecting such research horrors as the Tuskegee Syphilis Experiment and the atrocities that came to light in the Nuremberg trials, we developed the standard that human subjects participating in research have the right to informed consent: to decide freely whether to participate, based on thorough information about risks, benefits, and procedures.

In that light, then, we developed the concept of “protected classes,” subjects to have special protection because they could not participate in informed consent. While the categories defining protection could be complicated, they largely fell into two broad categories: those who needed protection because they couldn’t or wouldn’t be informed (think children, or adults of limited capacity); or those who needed protection because their capacity to consent wasn’t free.

Among those “protected classes” are prisoners.They are not free in their daily life, and their freedom to consent it assumed to be limited until proven otherwise. That isn’t about the capacity to understand. It’s because being in prison limits freedom of action, and makes one potentially subject to coercion or to inducement that wouldn’t have the same power outside the walls.

The story as reported in The Advocate provides a more thorough discussion of the situation. For example, it lays out how this happened - apparent largesse from the decide manufacturer (who will, perhaps, benefit greatly) - and how the prisoners involved might benefit. The device provides a steady dose of a medication proven effective for some in curbing opioid addiction. However, it also highlights the issues of prisoners and informed consent. In that light, it only highlights the concerns that the device hasn’t had FDA review: part of informed consent has to do with knowing the risks, and FDA review is usually how most of us learn about risks.

It doesn’t explain, though, other aspects of research. For example, in most situations there is a review committee, commonly referred to as an Institutional Review Board or IRB, that reviews risks and benefits on behalf of the institution or company overseeing the research. While the company in this may have one, there’s no reference to it. The company, too, is funding this internally, so we don’t know about conflicts of interest, etc.

All in all, this is a questionable and concerning event. I’m not opposed to these few prisoners benefitting. However, if this becomes a more common practice for bypassing the FDA, it becomes a practice that should concern us all.

Distributing the Costs of Care, Part One

Can we begin with a simple premise, that a thing costs what it costs?

I know that sounds trivially true, but in fact most of the time, most of us don’t think that way. That is, we note what we pay out of pocket for an item, but don’t think about all the costs that went into what we pay.

I bought some strawberries yesterday morning. What that box of strawberries costs is the result of a whole slew of expenses. What did the farmer pay for the land, and what is the measurable (if tiny) incremental cost of one strawberry in light of those and other costs of production - water, fertilizer, labor, etc? What is the cost of processing and shipping that strawberry; of warehousing it for the wholesaler; of having it in my local market? Just because we don’t think about that strawberry’s contribution to paying the electric bill of the grocery story doesn’t mean that it isn’t there and fixed. When we remember that a thing costs what it costs, we can look beyond just what we pay out of pocket.

And, of course, we can remember that those costs are shared with others. If my box of strawberries were priced so that my purchase would sustain the market, I wouldn’t be able to afford them. If I alone were paying the fuel charges of the trucker and the labor charges of the wholesaler, that box of strawberries would be far out of reach. I can only afford those strawberries because a whole host of folks participate in distributing the costs of those expenses. That’s the difference between the economy of a large society and -  well, really, any society. Once upon a time, perhaps, there was an individual working an individual plot of land and providing only for himself, and so paying personally all the costs of having a strawberry; but once folks started living in communities and sharing resources and exchanging (even in barter), costs started getting distributed.

That’s particularly true when we find a “bargain.” If I find my box of strawberries on sale, it might be that the farmer somehow produced for less, or that diesel was temporarily down. Or, it might be that these strawberries are getting close to the end of their shelf life, and the store loses less by selling them at a reduced price than by letting them get old and not selling them at all. And, after all, the store can take that decision, not out of the goodness of anyone’s heart, but because the store can adjust prices somewhere else, and so better distribute those costs. Someone else paying a dime more for apples allows me to pay a dime less for strawberries. It costs less out of my pocket, but it didn’t cost less in the real costs of production. J, at each stage of production, one of the costs that gets distributed is losses. If one field fails, that’s going to raise the price (not the cost) of the strawberries from fields that succeed. If someone drops a box in the store and all those berries are ruined, you can be sure that the store has some calculation of how that loss can be made up elsewhere. In a market economy, those losses get covered, or the person at that level can no longer produce or provide.

A thing costs what it costs, with all those costs of production figured in, and with all those distributions of costs worked out. What it costs out of pocket is a combination of all those costs, and how all those costs are distributed.  It’s true of a strawberry; and it’s true of a medical procedure. And that’s a thought that I will explore in Part Two.