FE730 article

Mark Beaumont MD

January 12, 2022

 

 

Mark Beaumont

FE730-Summer 2019

Final Reading packet

Reference Information

Scott W. Atlas. Shop Till Medical Costs Drop-Disclosing Price Isn’t Enough. Patients don’t care as long as ‘it’s all covered by insurance’. The Wall Street Journal. June 6, 2019. https://www.wsj.com/articles/shop-till-medical-costs-drop-11559861122?mod=searchresults&page=1&pos=3

When you go to the hospital and see a health care professional for an examination and tests, do you ask the question, “How much do these services cost?” The answer is not likely because since there is a mandate that we have health insurance, we assume that the entire cost of care is covered by insurance and therefore price is less of a concern. The economic concepts of cost, price, quantity, and demand are covered in this article.

In an effort to lower health care costs in the U.S, the Trump administration wants to make the prices of health care services more visible to all patients with the rationale that as consumers if we are aware of the prices, we may shop around for a better deal, opt for the lower-cost services which will then decrease overall health care costs. For example, gag clauses are being removed allowing pharmacists to disclose if there are cheaper alternatives to medications that patients are prescribed.

Newly passed executive orders will require that medical providers, who are reimbursed by Medicare, to post prices for a range of procedures and plans to provide electronic tools to doctors about the cost of prescriptions so that at the time a prescription is written, the provider can discuss the potential out of pocket expenses to the patient.

Is open disclosure about the cost of our health care enough to lower prices? Some medical economists believe it is a good start but not enough. The true question is whose responsibility is it to encourage disclosure of the prices of services? Does the burden fall on the providers of health care? Perhaps it is the payer of health care services? Many agree that it is the consumers of health care services who really drive the discussion of receiving the most value and return for the dollars spent per capita on health care costs.  This is the reason why there is a greater push for health care consumers to become more empowered and aware of the economics of medicine, health insurance, and reimbursement algorithms.

When patients have little to no motivation to consider the value of health care, healthcare providers don’t need to compete on price. The consequences are high prices, the overuse of health care, and out-of-control spending. To bring prices down, patients must have stronger incentives to consider the price. That means health care consumers must personally gain from paying less and also be in a position to pay directly for more of their own care. Even for prescription drugs, patients could exert a tremendous downward influence on prices. As long as health insurance minimizes the patient’s share of the cost, the patient won’t see the need to price shop. Cheaper insurance policies with higher deductibles, coupled with large, permanently owned health savings accounts, are also important factors to motivate the consideration of price. 

Another important factor that will lower the price of health care is the supply of health care providers. More medical providers (increase quantity) means more competition for patients. An increase in supply shifts the supply curve to the right and an overall drop in price. To achieve that end, the regulatory agencies should eliminate barriers to competition. Private clinics staffed by nurse practitioners, physician assistants, and other mid-levels provide cheaper primary care services, including physical exams, vaccinations, blood pressure monitoring, and dispensing common drugs. 

Reducing the cost of healthcare is possible itself by incentivizing and creating programs to empower healthcare consumers and by increasing the overall supply of medical care to stimulate competition among providers.

Given the cost equation which represents total health expenditures in the U.S, C=555 + 525Q + 30Q2, what did the U.S spend on total national health care expenditures in 2016 given a U.S population of 323 million? Also, calculate the per capita cost and marginal cost. What percentage of the total U.S GDP was spent on health care spending? The U.S GDP in 2016 was $18.6 trillion dollars.

  1. Total national health care expenditures=3.3T

        C=555+ 525(323 M) + 30 (323M)2=3.3T

  1. Average cost of care per person=3.3T/323M=$10,217
  2. Marginal cost=525+60Q=$19,380,000,525
  3. What percentage of the total U.S GDP was spent on health care spending? = 17.7%

Shop Till Medical Costs Drop 

Disclosing prices isn’t enough. Patients don’t care as long as ‘it’s all covered by insurance.’

By 

Scott W. Atlas 

June 6, 2019 6:45 pm ET 

Illustration: Barbara Kelley 

In an effort to bring down the costs of medical care, the Trump administration wants to make prices visible to patients, and it’s moving aggressively to make that happen.

Last year President Trump signed a legal requirement barring pharmacy gag clauses under Medicare Part D plans. Those clauses prohibited pharmacists from volunteering that a medication may be less expensive than an insurance copay if purchased for cash—as was the case more than 20% of the time. 

A new executive order will require providers paid by Medicare to post prices for a range of procedures. Meanwhile, the Centers for Medicare and Medicaid Services recently finalized its mandate requiring pharmaceutical manufacturers to disclose the list price of prescription drugs in direct-to-consumer television advertisements. 

CMS finalized another rule in late May requiring Part D plans to provide electronic tools to doctors that would at least allow the potential for a discussion with patients on out-of-pocket costs for prescription drugs at the time a prescription is written. CMS has also updated its guidelines requiring hospitals to post standard medical-care charges via an online, patient-friendly platform.

Yet these moves won’t be enough to bring down prices. Transparency, though essential, is not sufficient. Nor does it always need to be legislated. Laws aren’t required to force sellers of food, computers or clothing to post prices. That information is driven by consumers who actively seek value for their money. The most compelling motivation for doctors and hospitals to post prices would be the awareness that they’re competing for price-conscious patients.

But patients typically don’t even ask about prices, because they figure “it’s all covered by insurance.” The harmful U.S. model is unfortunately that insurance should minimize any out-of-pocket payment. Health care may be the only good or service in America that is bought and used without knowing its cost. Unfortunately, the Affordable Care Act instilled even broader coverage requirements and added counterproductive subsidies that encouraged more-widespread adoption of bloated insurance, reinforcing a model of coverage that prevents patients from caring about prices. 

When patients have little incentive to consider value, doctors and other providers don’t need to compete on price. The consequences are inflated prices, overuse of health care, and unrestrained spending. To bring prices down, two things have to happen.

First, patients must have stronger incentives to consider the price. That means they must personally gain from paying less and also be in a position to pay directly for more of their own care. Even for prescription drugs, patients could exert tremendous downward pressure on prices. A 2018 study found that the monthly cost of common drugs could vary by more than a factor of 10 in the same city. For the 15 million seniors taking five or more medications daily, the monthly savings from comparison shopping could amount to many hundreds of dollars. But as long as insurance minimizes the patient’s share of cost, the patient won’t bother price shopping. For price transparency to have the most impact, it must increase visibility of the only price relevant to patients—out-of-pocket costs at the time of purchase. 

Cheaper insurance policies with higher deductibles, coupled with large, liberalized-use, permanently owned health savings accounts, are also important to motivate consideration of price. HSAs are poorly understood, especially by Congress. They allow individuals to set aside money tax-free for health expenses. They strongly reward saving, and they position patients to directly buy their own health care. Raising maximum contributions at least to those of individual retirement account limits is one important step. Another is permitting rollovers to surviving family members. Still, another is allowing holders to use them to pay for the medical expenses of their elderly parents. To maximize the demand that providers compete on price, everyone should be allowed to have an HSA. Currently, seniors, the biggest users of health care, are prohibited.

The beneficial effect of HSAs is proven. A 2015 study found that when patients have savings to protect in HSAs, the cost of care comes down without harmful impact on health by at least 15% annually. More than one-third of the savings in such coverage reflected value-based decisions by patients. Prices matter. 

And here’s the critical point: These tools reduce the price of medical care for everyone, including those without HSAs. That means lower insurance premiums and better access for all, even those on government programs, to the excellence of American health care.

Second, the supply of medical-care providers has to increase. More providers mean more competition for patients. To achieve that end, the regulatory agencies should eliminate anti-competitive barriers to competition, such as overly stringent scope-of-practice limits on qualified nurse practitioners and physician assistants. Private clinics staffed by NPs and PAs provide cheaper routine primary care, including vaccinations, blood pressure monitoring, and dispensing common drugs. In a 2011 review, almost 9 in 10 visits to retail clinics involved simple care—30% to 40% cheaper than at physician offices and about 80% cheaper than at emergency departments.

Even though it’s widely known that almost two-thirds of the 2025 projected doctor shortage will be in specialists, medical societies continue to limit specialty training programs severely. Likewise, medical-school graduation numbers have not increased to meet the need for more doctors, stagnating for almost 40 years. These limits are anti-consumer because they artificially restrict competition. And national physician licensing should replace archaic state-by-state licensing to facilitate competition among doctors via interstate telemedicine.

We can make medical care more affordable without moving to a single-payer system. Centralized models uniformly regulate costs by restricting healthcare use, generating lengthy delays for needed care, limiting access to important drugs and technology, and ultimately resulting in worse disease outcomes. The better path will involve reducing the cost of medical care itself by creating the conditions that bring down prices in every other area of the economy: incentivizing empowered consumers and increasing the supply of medical care to stimulate competition among providers.

Dr. Atlas is a senior fellow at Stanford University’s Hoover Institution and author of “Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Cost.” 

Appeared in the June 7, 2019, print edition. 

Health care in the United States is provided by many distinct organizations. Health care facilities are largely owned and operated by private sector businesses. 58% of US community hospitals are non-profit, 21% are government-owned, and 21% are for-profit

Healthcare coverage is provided through a combination of private health insurance and public health coverage (e.g., Medicare, Medicaid). In 2013, 64% of health spending was paid for by the government and funded via programs such as Medicare, Medicaid, the Children’s Health Insurance Program, and the Veterans Health Administration. People aged under 65 acquire insurance via their or a family member’s employer, by purchasing health insurance on their own or are uninsured. Health insurance for public sector employees is primarily provided by the government in its role as employer. Managed care, where payers use various techniques intended to improve quality and limit cost, has become ubiquitous. 

Prohibitively high cost is the primary reason Americans have problems accessing health care. Consulting company Gallup recorded that the uninsured rate among U.S. adults was 11.9% for the first quarter of 2015, continuing the decline of the uninsured rate outset by the Patient Protection and Affordable Care Act (PPACA). At over 27 million, the number of people without health insurance coverage in the United States is one of the primary concerns raised by advocates of health care reform. Lack of health insurance is associated with increased mortality, about sixty thousand preventable deaths per year, depending on the study. 

https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and

Reports/NationalHealthExpendData/index.html