Why do different insurers pay different amounts for the same service? While Medicaid and Medicare are notorious for their take-it-or-leave-it fee schedules, competing commercial insurers' payment rates for vary considerably across providers, even within the same region.Uwe Reinhardt tackles this mystery in a just-published article in Health Affairs. Not only is this “price discrimination” untidy, says he, it’s also been unfairly credited as being evidence of “cost shifting.”
It turns out that there are some credible studies that show that as public payer fee schedules get squeezed, commercial insurers seem to pay more. Yet, in order for a cause and effect to be present, that would mean that providers are not acting in their own economic self interest and are waiting on Medicare and Medicaid before bargaining with their local managed care plans. To Dr. Uwe, that seems suspect. That would mean commercial insurers have little negotiating leverage which would also mean that the U.S. cannot rely on them to control costs. Yikes.
Compounding this untidiness are the big swings in the costs of goods and services in an opaque market that seems better suited to upside price gouging and not downside discounting. This is not only hurting the uninsured, the dysfunction is now reaching into the pocketbooks of the middle class. No wonder Americans are grumpy about the cost of health care.
Dr. Uwe’s suggestion? An “all payer” system. Not to be confused with a “single payer” system involving some sort of Obamaesque Price Czar, all payers would negotiate prices with all providers in regional blocks across counties, regions or even states.
Some of the European countries use this approach and so, by the way, does the state of Maryland. The role of government would presumably be limited to brokering a yearly Big Meeting between representatives of both camps; in fact, government could make sure all parties agree to prices that are indexed to the GDP. The result? Patients would benefit from an average price applied equally to all, insurers would know they’re paying their fair share and best of all, hospitals would get a fair price for their services.
The DMCB likes the approach but suspects that politicians would be tempted to meddle by showing favoritism. It would prefer to see it implemented at the state level while the Feds are kept at arms length. It should be limited to hospitals at first. Depending on how things work out, it could be tested on a trial basis involving physicians, such as the Patient Centered Medical Home.
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The myth is the 'managed care plans', managed anything. Truth be known they discounted, and where it was a percentage basis deal, the units where merely increased, Where it was an RBRVS based conversion factor, the units where likewise increased. That began to shift in the full, partial or specialty carveout practices, though public push back, i.e., the 'as good as it gets' moment, began the unraveling of the capitated delivery system.
Further, even in the most aggressive delegated full risk scenarios where large IPAs or multispecialty medical grougs (you know the ones who had the leverage, not some tepid health plan with one or a few medical directors) could play hardball, the UM denial rates rarely rose to 1% of total volume.
Managed care was/is discounted care. They didn't manage the risks inherent in the population for who, they assumed responsibility.
Mature IDNs, e.g., KP, Mayo, ? Geisenger, were somewhat of a different story. They could more effectively 'manage care' via captive physician organizations and an integrated care culture, but they shadow priced in the market ergo premiums rose in tandem with their less mature breatheren IPAs layered on top of fee for services solo physicians for whom managed care was business as usual plus a withhold - pretty tame, and a formula guaranteed to fail.
So, bottom-line, these insights are right on but not new, nor necessarily ground breaking.
Thanks for piece Jaan.
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