April 2, 2012

Soak the Senile

Steve Lopez in the L.A. Times has a column on one of the craziest but least talked-about aspects of health care finance: arbitrarily high list price billing.
Gary Larson has a $5,000 deductible insurance plan, but has found that his medical bills are cheaper if he claims he's uninsured and pays cash. Using that strategy, an MRI scan of his shoulder cost him $350. His brother-in-law went to a nearby clinic for an MRI scan of his shoulder, was billed $13,000, and had to come up with $2,500. 
Kaiser member Robert Merrilees had a colonoscopy at an affiliated surgery center, which charged $7,500. His co-pay was $15, Kaiser picked up $470, the rest of the bill "just went away." Merrillees was left scratching his head over the crazy math in medical billing.

My family got a bill from a hospital once for $34,000. So, we sent it to the insurance company, and they paid $2,000 and we paid $200 and that was the end of it. But in the meantime, the bill itself set off heart palpitations, feelings of numbness, and other symptoms.

Maybe the hospital's strategy was that one out of hundred patients will be senile enough to pay the original bill in full. 

I must say that I haven't kept up with all the health care debates over the years, but, if memory serves, this subject didn't seem to come up much. I have no idea if Obamacare will even try to fix this or not. Most things that interest me seem orthogonal to what interests everybody else.

42 comments:

Ed said...

I'm also finding that medical care is cheaper if you are uninsured and just pay cash. I think the relation with Obamacare is that it was an attempt to force people who are discovering this to get insurance anyway. But the insurance industry is getting screwy enough that it would still be cheaper to just pay the fine or tax or whatever they wind up calling it to get it past judicial review and go uninsured.

I am paranoid about getting the Big Medical Expense that Bankrupts my Family and would like genuine catastrophic insurance for rare events or conditions.

TGGP said...

Russ Roberts did an EconTalk episode with the CEO of a hospital system. The list prices are completely made up and just about nobody pays them.

Extropico said...

I had an experience last year regarding my emergency appendectomy. I was billed $33,000 initially. Then a second billing later reduced it to $7,500 under a insurance company contract, plus I co-paid $125.

I know I will risk earning conservative ire, but to me most health care is like a monopolist utility. You have little choice but to get it and the barriers to entry and economy of scales dictate a certain noncompetitive nature to the business.

Perhaps there should be more price strictures and regulation of price disparities quoted based on one's insurance status. Or should we be so easily subject to bankruptcy.

Anonymous said...

I had massive surgery that would have cost 100+ with insurance. I paid 12K out of pocket and was in full control of my life.

My friend (non-white who I think was running a scam and the doctor was her relative) had a small minor operation equivalent to having a toenail surgically removed...the bill was 25K

Crazy Crazy

Antioco Dascalon said...

Etropico,
That would be the case if medicine were a natural monopoly. But if the monopoly nature were the result of regulations and price strictures rather than the effect, then more would simply make the problem worse. Healthcare is already one of the most regulated industries, with great separation between the recipient of care and the payer. Auto manufacturing also has economies of scale and high barriers to entry but is highly competitive because the prices are transparent and the competition fierce.
Prices are conveyors of information and if prices are invisible, they cannot work to make the market more efficient. If people don't pay directly for their healthcare, they don't need to know the price and if they don't know the price, there will be no consumer pressure to reduce the price, only producer pressure to raise the price.
College education is the same way, with maximal separation between the payer and the consumer.

Get Off My Lawn! said...

Yes, list charges at hospitals are ridiculously high. One reason is that a few (nowadays, a very few) of insurers pay a percent of charges, as do international medicine organizations that arrange care for rich foreigners in top US medical centers. Thus, there is an incentive for setting charges high. Big insurance companies - just about the only kind left in the market - negotiate their own deals, so they don't care. Medicare and Medicaid have fixed fee schedules that aren't affected by charges, so they don't care. Self-pay patients usually get a discount of some kind (as Mr Larson discovered), and they're not organized anyway and thus have no negotiating clout.

It's a crazy system, but what are the alternatives? Either some independent regulatory body sets fees, which would make our system "socialized" and set off screams of outrage on the right, or we set deductibles so high that hospitals compete on price. The problem with that model is that people don't want to choose the cheapest hospital, they want to choose the best. A large part of the population is accustomed to being able to choose the best because their insurance hides the cost. Instituting real price competition would force people to make choices they don't currently have to make about their health care. That would be wildly unpopular with the general public.

There is no good solution, only less bad ones.

I had massive surgery that would have cost 100+ with insurance. I paid 12K out of pocket and was in full control of my life.

Except that insurance would have paid most of the bill, and you'd be $10,000 or so richer now. And if the surgery was elective and dangerous, and you had to choose where to have it done, would you really want to have to pick the only hospital you could afford, as opposed to the one that was most likely to save your life?

Chris said...

If you're interested in this sort of thing, you should read Porter and Teisberg's Redefining Health Care. I think lots of accounting irregularities have arisen as a result of attempts to create "savings" in one part of the health care system by moving costs to another. Anyhow, except for costs introduced by inefficiency, I don't think these strange billing practices represent anything as far as out of control health care costs are concerned.

NOTA said...

Medical billing is rife with fraud, IMO. The common scam we run into is that six months after some insurance-covered service (like an ER visit for a broken bone), a billing office in some other town sends you a bill with no apparent connection to the service, and works at being opaque and unhelpful and unable to answer questions like "what's this bill for?". I assume families dealing with a serious health problem, or next of kin after someone died of whatever ran up the bills, will often just pay the bill to get rid of it.

This is one of rhe many places where rhe US has third-world levels of corruption, just organized so that larger organizations get the benefits of the corruption rather than the bureaucrat or cop hitting you up for a bribe. See also the robosigning scandals, credit card and cellphone providers' "assumptive selling" scams, etc. (I'm usually not much for populaism, but the country would be a better place if a few notable perpetrators of this crap spent some memorable hours in the ER getting the tar and feathers scraped off.)

One consequence of this is that less business gets done. Lots of parents get their kids a prepaid cellphone, simply to avoid some kind of surprise where rhey discover their 12 year old was tricked into running up a $50 bill because they didn't know what their plan charged for text messages. Prepaid cards are basically a way to limit the ability of big organizations that are above the law wrt fraud to rip you off.

fish said...

An unplanned stroke (I guess there is no other kind) at 46. A week on my back pumped full of blood thinners, cat scan, MRI ( they had to have an ambulance service strap me to a gurney and take me on a 25 second trip across the parking lot to the imaging center. Apparently the hospitals insurance wouldn't cover them if they tipped me over in the parking lot). Nice hospital staff....out the door for the princely sum of $128,100...$250 deductable!

Still good to know that you can negotiate over these things.

Anonymous said...

With Viagra and sex related drugs, it's also Soak the Penile.

Paul said...

Gary Larson has a $5,000 deductible insurance plan, but has found that his medical bills are cheaper if he claims he's uninsured and pays cash.

---

This anecdote seems cartoonish, like it comes from the far side of possible outcomes. But I'll never accept that even less extreme cases can be controlled by a single panel. I'll believe that when I see cows walking around upright in my morning paper.

Anonymous said...

"I know I will risk earning conservative ire, but to me most health care is like a monopolist utility."

You have no idea what those words mean.

Anyway, on topic...medical billing is like that because someone else pays. The hospital charges, you get the treatment, and someone else pays for it. Same deal with education loans. That's why costs skyrocket - you can soak someone who really doesn't feel it.

The solution would be, you know, capitalism, but that's evil or something.

NOTA said...

Somewhat relates: Retired people still carry tons impossible to get rid of student loan debr.

Douglas Knight said...

One use of the list price is that if you're uninsured and poor and convince the hospital to write off the bill, they can count it as charitable work.

Rev. Right said...

Antioco Dascalon said...
If people don't pay directly for their healthcare, they don't need to know the price and if they don't know the price, there will be no consumer pressure to reduce the price, only producer pressure to raise the price

That is exactly the mechanism that has driven healthcare costs up so much faster than just about anything else.

Replacing insurance companies with the government won't change the underlying dynamic except to moderate the price the producers get, which will of course lead to scarcity and rationing of the expensive stuff.

Also, once the government is 'paying' for your healthcare, they then have a direct interest (and say) in how you take care of your health. What you eat, drink, smoke, drive and do for fun becomes explicitly their business.

Harry Baldwin said...

I agree with Mickey Kaus that the trouble with the Paul Ryan Medicare plan is that old people will just be taken advantage of by insurance agents and end up with lousy plans. I'm not even that old and I got confused into buying a lousy plan.

For a sole contractor, buying medical insurance really sucks, especially if like me you have a chronically ill child. We pay $15,000 a year in premiums, with what I thought was a $10,000 deductible. Only when we got well into it did I discover that the plan had TWO $10,000 deductibles -- i.e., TWO family members have to exceed $10,000 before we all have coverage. I had never heard of such a thing. Can't get out of it now, as my daughter has passed her 19th birthday and no one would take us on.

Obamacare may be a lousy plan, but the status quo is pretty lousy for people like us.

morleysafer said...

The system is very strange and I haven't yet heard a comprehensive explanation from any freakonomist on TV. Obama has occasionally talked impotently about Orszag's idea of eliminating "waste and fraud" but that term could cover much of the administrative edifice involved in health care which employs tons of folks. Earlier this year Mark Steyn had a story of him and his friend stuck in the drive-thru at a pharmacy in Vermont. The clerk was trying but failing to process the woman's insurance # through the chain's computer verification, leading to cars backed-up in the driveway, till one of them finally just asked to pay for the Rx sans insurance: "Oh, OK, that'll be $15"

sideways said...

Fairly well done, Paul.

Anonymous said...

I have heard of cases that if you are not insured they charge you a much higher fee than if you are insured because you have no health insurance company negotiating a fee with the hospital.

RKU said...

What a totally crazy system!

I suppose it's what you should expect in a country when the elites are mostly crooks and the voters are mostly morons...

Anonymous said...

Nice, Paul.

Extropico said...

"The solution would be, you know, capitalism, but that's evil or something."

It is true that government payments and money printing tend to augment the cost of both college and medical care.

That is hardly an intellectual argument as to why health businesses don't have monopoly or oligopoly pricing power. First world people have standards and regulations; a medical license is not just some red tape to dispense with.

How can we truly effectively negotiate on price when we don't always possess much information on the costs involved.

Thanks

jody said...

MRI and CT billing is positively out of control. no way it costs 3000 per instance, which is the rate i've been charged.

Anonymous said...

The problem could be solved by forcing all insurance policies to eliminate the "deductible" and substitute a "residual" payment. The insurance policy reimburses the doctor or hospital by the same schedule as medicare and anything above that amount must be paid by the patient. Medical providers would still try to rip off their patients, but these could always vote with their feet and find a new health-care provider or simply refuse to pay the bill. The reason that medical care is so expensive is the same reason body and fender work is so expensive--no one cares how expensive something is as long as someone else is paying the bill. Making medical insurance compulsory like car insurance would make the whole sorry system even worse.

Mondraggin said...

There is estimated to be $60 billion a year in US health care fraud. A single doctor was able to scam $375 million. http://www.justice.gov/iso/opa/dag/speeches/2012/dag-speech-1202281.html
That is the biggest problem, and it affects society in general, not just health care.

Get Off My Lawn! said...

The reason that medical care is so expensive is the same reason body and fender work is so expensive--no one cares how expensive something is as long as someone else is paying the bill. Making medical insurance compulsory like car insurance would make the whole sorry system even worse.

Maybe, but if the body shop does a lousy job on your car, you can get it done over, and the worst that can happen is a banged-up looking car.

If your oncologist messes up your chemotherapy because you picked Dr Nick Riviera to save money, you probably can't do it over. We all know what the worst outcome can be, and you'll blame yourself (along with Dr Nick) to your all-too-soon dying day for going with the cheap choice instead of the high-quality but expensive choice.

I've been hearing talk about soaring health care costs and assertions that "something must be done soon" for 30 years. Maybe we've reached the tipping point, but I will be surprised if we tip to the libertarian side. I think too many people have too much to lose*, and too many people don't want to have to make choices about their own and their family's health based on price.

*I don't mean just people in the health care industry, although that alone is a pretty big chunk of the population. I also mean the millions of Americans who have decent insurance now and don't want to give it up.

Anonymous said...

Obamacare is a tax on the young, healthy, and gainfully employed (a subgroup of whites) to pay for the diseases of heredity and poor lifestyle choice of the non-white poor. Obamacare also covers the maternity expenses of non-whites, who are far more likely to have unhealthy children with chronic conditions and birth defects. Obamacare is also a retroactive tax on the white elderly, who are likely to have paid premiums into a health plan all their life, but will ultimately be denied therapeutic services when they need them most. That is to say, the 48 year old Mexican granny will get 5 operations for her dairy cheese clogged arteries, while the 78 year white granny with a weak heart will be sent home with some pain killers and told to get her affairs in order.

kaganovitch said...

I have often wondered about healthcare accounting in general such as the oft repeated claim that emergency room care is the most "expensive" care. Why should this be so? Emergency room care resembles most closely clinic care-(which is usually touted as a low cost alternative)High patient dr. ratio etc etc . I suspect that most of what passes for wisdom/knowledge in healthcare debates is just accounting games

Jerry said...

Karl Deninger has written some interesting posts recently on the lack of price transparency in health care as a symptom of anti-monopoly law exemptions that the medical profession has been able to get for itself.

Steve, you missed the extra costs for the "undocumented," the system has to recover that elsewhere...

Jeff W. said...

Getoffmylawn! said:

"There is no good solution, only less bad ones."

I think I know a good solution (though there are no vested interests to support it, which makes it politically impossible).

1. Deregulate medicine completely. We want a functioning free market.

2. Pay patients a small amount to report their experiences/outcomes and prices paid to a Internet-accessible database.

3. Purchases of medical services to be done through "medical buddies." Buddies are well-informed about the availability and quality of all procedures and their prices, and they are compensated so that their incentives align with those of the patients. They are rewarded for keeping patients healthy and for getting them cured with minimal time, effort, and expense. When you feel sick, you call the medical buddy and he tells you what to do.

That would fix it. It would also created massive new unemployment, as 75-80% of medical people would lose their jobs.

Anonymous said...

Hmm, my experience is entirely the opposite. Insurance companies get huge discounts on healthcare bills, while the uninsured are stuck paying the list price. The hospital might discount some if you are poor, and might set up a payment plan, but as far as I know there's nothing requiring them to. If you don't pay, they just send a credit agency at you.

I had an operation that cost 6500 or so, only discounted to 4000 after I demonstrated that I had no job or money at the time. And I had to demonstrate it, with proof, not just tell them. But if they had not discounted then I would have been on the hook for the full bill. So...sounds fishy.

beowulf said...

"I know I will risk earning conservative ire, but to me most health care is like a monopolist utility. You have little choice but to get it and the barriers to entry and economy of scales dictate a certain noncompetitive nature to the business."

Exactly, healthcare is one market failure piled on top of another. There is no free market in healthcare and there never will be unless we're willing to eliminate state licensing of doctors, federal parents for drugs and the nearly $300B a year in tax breaks for private insurance (to say nothing of the $700B what's spent by Medicare and Medicaid), oh yeah and let the poor die in the streets without care (Emergency rooms are required to provide assistance because of a federal law, nothing free market about that).

Sometimes the best way to deal with a fish hook is to push it farther in, there is no solution for our healthcare trainwreck short of making Medicare universal and nationalizing healthcare costs. Of course the same people who think the "free market" can calm the seas and heal the blind also think the US Govt will someday run out of dollars (where do they think dollars comes from?), so good luck seeing that happen anytime soon.

riches said...

In the early eighties after a month’s stay in a Chicago hospital, I saw that the hard copy of my bill had a delivery room charge - I am male.

I immediately complained even though the bill was my self-insured employer’s responsibility. When the clerk learned a third party would be paying, he told me not to worry about it. (Just to be sure, I warned my employer.)

Maybe the hospital was building its coffers, knowing they'd be paying Michele OB $300k/yr. for close to a decade in the next century.

Udolpho.com said...

Now I wonder if I should start telling clinics that I'm uninsured. Like a lot of self-employed people, I have a high deductible HSA plan which basically gets me catastrophic coverage plus negotiated rates for a low, low price of $500/month. Of course with Obamacare my rates went up.

Prof. Harold said...

It's true! We just got billed for a hospital visit for which -- get this -- the hospital said they hadn't even yet coded and submitted! "The insurance company just hopes we blindly put the check in the mail," was my comment. I'm sure some people do.

ben tillman said...

Exactly, healthcare is one market failure piled on top of another. There is no free market in healthcare....

You just contradicted yourself.

Anonymous said...

In the UK, I had a brain scan (NMR) on private health insurance - not sure of the bill but I think it was over £1,000. The clinic told me the cost to an uninsured cash payer was £400.

not a hacker said...

In '05 I got a CT scan at a Norcal ER, bill $8,300, no ins. Sent the hospital a letter offering to pay 1,000. Only response was a form for hospital's charity program. Filled it out, bill disappeared.

Evil Sandmich said...

This is a big hobby horse of Denninger's. I know when our son was born the hospital sent us some outrageous bill that was completely unrelated to the clinic price that we agreed to. When we called them they said to ignore it and that it was just the bill they sent to the insurance company to see what they could get out of them, as far as a "negotiated rate" (wink, wink, nudge, nudge). When we called the insurance company to let them know that they were being scammed, they didn't care as it was just part of the game the two behemoths apparently play between each other (while everyone else gets squished).

DPG said...

My two experiences as an uninsured person:

1. I went to see the family physician about groin pain that I was worried could indicate testicular cancer. The receptionist asked me for insurance and said the visit would cost $125. I said I didn't have insurance. She said, 'Oh, in that case it's only $50. We just charge the insurance companies more.'

2. I had to go to an ER for stitches from a sports injury. I got a $500 bill from the doctor and a $1500 bill from the ER. I sat on the bill for about 6 months before applying for aid through the hospital. I'd been unemployed the year before, so I only made about $20K total. The hospital wrote off the entire bill when I showed them tax documentation.

My conclusion: medical care is probably even more negotiable than car prices.

DPG said...

Re: my first post

I think a better analogy than car prices is the price of college. The price of medical care is pure price discrimination designed to get those who are willing to pay higher prices to do exactly that.

Steve Johnson said...

Health care in this country is run for the benefit of three major parties:

1) Insurance companies
2) Hospitals
3) Large employers

Each covers the other two and ensures that there is no price competition.

Insurance companies don't sell individual catastrophic policies - much preferring to cover groups of employees at large employers.

Large employers get to buy health insurance and use that benefit to edge out smaller employers for employees.

Medical care providers never have to worry about competing on price since they have no transparent pricing.

Medical care providers ship out opaque bills to scare everyone into insurance coverage (and to soak a non-insured person with assets every once in a blue moon).

Insurance companies cover for medical care providers by helping them hide costs.

Large employers benefit from the situation because everyone is too afraid to pay for medical treatments with money.