Friday, October 7, 2011

Hospitals, Insurers and Pricing: What It Can Mean For Patients

The Disease Management Care Blog remembers Emily (name changed). She had a rare and lethal cancer that had spread to her liver.  When her oncologist had nothing more to offer, she wanted to go to a large academic medical center for a second opinion.  Because it was outside her health insurance company's network, her out-of-pocket expenses promised to be unaffordable.  The DMCB's case manager couldn't get her insurer to change its mind and cover the referral.

How can we help patients like Emily?  To many amateur politicians and regulators, the answer is to force health insurers to pay for every visit with "any willing provider."  However, as noted in this just published New England Journal Perspective, that approach often leads to unsustainable cost increases.  Unable to negotiate on price, health insurers are forced to charge everyone higher premiums because of too many Emilys seeking too much care at too many large expensive medical centers.

Thankfully, the article's author, Dr. Paul Ginsburg, doesn't condemn health insurers as the Evil Devil Incarnate.  Instead, he discusses two realistic options:

1) regulate hospital prices (a topic that the DMCB examined here) so that Emily and her insurer can better afford the treatments, or

2) use out-of-pocket expense "tiering," with insurance benefit plans that pay proportionately more for physicians and hospitals that are willing to negotiate on price.

Dr. Ginsburg points out that increasing provider consolidation, the hiring of physicians by hospitals and the formation of accountable organizations has complicated option 2 above.  Thanks to increased market power, they don't have to negotiate.  What's more, they're less willing to come to terms because of the real threat of unilateral Medicare and Medicaid rate cuts.

Savvy DMCB readers may wonder if hospital and provider tiering should be based on quality.  Excellent thought, but in the DMCB's experience, 1) its difficult to find quality metrics that are big or meaningful enough to translate into pricing differences and 2) if the quality is truly high, shouldn't that ultimately translate into lower hospital costs?  Fewer readmissions and complications should enable hospitals to charge less and still have a high margin, right?  The DMCB has found the answer is generally "no."

Unfortunately, Emily never made it to the academic medical center.  Not only did the insurer refuse to cover it, but the medical center refused to make an exception and give Emily a discount.  She was offered a referral to another large institution for evaluation and treatment, which she accepted.  She passed away approximately 9 months later.

1 comment:

Anonymous said...

Wouldn’t another market based solution be to allow insurance providers to offer better differentiated products (so-called Cadillac plans)? Patients who want to choose second opinions at large academic medical centers would be able to pool with other patients that seek too much care at large expensive medical centers.
Health insurance companies should have no objection to charging patients with higher actuarial costs higher premiums (and lowering premiums for other patients), although both right and left wing politicians seem to loathe the idea. Likewise, free-riding patients (either due to high expense or high risk) object to finer definition of the actuarial cost curve.