Thursday, May 09, 2019

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.

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