3 Things Holding Us Back from Market-Driven Healthcare

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

3 Things Holding Us Back from Market-Driven Healthcare

For years now, politicians have argued, legislated, and argued some more about all matters related to how we BUY healthcare. How we buy it for the poor, for the elderly, for employees, for people with pre-existing conditions, and the list goes on.

The new conversation needs to shift toward how healthcare is being sold. Currently there are a number of economic principles at play that, if they occurred anywhere other than healthcare, wouldn’t be tolerated by American consumers. Here are 3 of what I consider to be the biggest barriers to a more market-driven healthcare model.

Imperfect Competition

Imagine you check into a 5-star hotel on your annual vacation. The valet parks your car. A bell hop carries your luggage up to your room. Upon entering the room you order room service and decide to settle in and watch a movie which you order on pay-per view.

A couple of days later you go to check out and instead of one bill to sign, you have 5 separate bills:

  1. One from the hotel for allowing you to use their room
  2. One from the valet service that parked your car
  3. One from the bell hop who delivered your luggage
  4. One from the person who delivered your room service
  5. And one from the satellite service that allowed you to access their pay per view system

You discover none of the services packaged as part of your stay were delivered by employees of the hotel. Instead, each was its own separate entity contracting services to the hotel.

If hotels sold their services as an unbundled mess like that, without obtaining permission to charge us ahead of time, we wouldn’t tolerate it. Our demand for something more efficient and logical would lead us to a cost-competitive alternative. Yet we tolerate these convoluted billing practices from America’s hospitals every day. Why? Because we have no alternative.

People go into hospital with the understanding they have, for example, a $5,000 deductible to satisfy and everything else is covered. In the mind of the consumer – that’s the equivalent of a hotel room that’s advertised at $300 a night. Yet upon discharge hospital patients will receive additional bills for months from various service providers such as radiologists, anesthesiologists, pathologists, emergency room physicians, etc. who were involved in the patient’s care but who are not employees of the hospital – rather they operate as outside contractors. It can be a convoluted nightmare for the consumer.

Monopolistic Pricing

The other problem is that of monopoly pricing. Monopoly pricing is a pricing strategy followed by a seller whereby the seller prices a product to maximize his or her profits under the assumption that he or she does not need to worry about competition.

Consumers have no idea what a bypass surgery costs from one hospital to another, much less are they able to choose a hospital on that basis.

Here’s a real example of a hospital bill from a recent hospital stay in Maricopa County (view original bill here).

Diagnosis: Pneumonia
Duration: 4 Days In Hospital

Total Charges: The hospital billed the
insurance company $59,427.80.

$10,233.70 of that was for pharmacy charges
(medications administered during patient stay).

Prescription medication “Fluconazole/200MG”,
administered twice during the patient’s stay:

Dec 31, 2016: Two tablets for $1,675.00 ($837.50 per tablet)

Jan 1, 2017: Two tablets for $1,809.00 ($904.50 per tablet)

When you shop online for the same drug and dosage, the cost is shown below:

Yes . . . you are reading that correctly.

A 200mg tablet of Fluconazole retails for $4.67 a tablet at a Kroger Pharmacy (Fry’s) but in the hospital, the cost charged to the insurance company may run as high as $904.50 for one tablet or more. If that is the cost today in 2017 what will hospitals be charging in 2027?

Market Domination

Hospitals are constantly seeking ways to cast a wider net when it comes to capturing billing revenue. Around the Valley you will notice that large hospital groups like Dignity Health and Honor Health are buying up independent medical clinics and urgent care centers.

Remember, as soon as a hospital is involved in your care, even if they simply own the facility where you received a Band-Aid or an x-ray, they are billing the insurance company at a significantly higher rate because now your care is being delivered by a “hospital facility”.

Recently this story aired on a local Arizona news station illustrating this growing trend.

Back to Basics

Instead of arguing back and forth in Washington about the right way to BUY health insurance for everyone, we all need to sit up and pay attention to what’s happening right under our noses. The hospital groups and pharmaceutical industry are ramming their ridiculous pricing down our throats, lobbying that any suggestions to the alternatives threaten the free market principles we all value. Others argue that when it comes to healthcare the free market system has been rapidly eroding toward a monopolistic environment for years and it’s driving insurance rates to the breaking point.

The good news is that political and legal activity aimed at protecting healthcare consumers continues to ramp up across the country. Arizona Republican Senator Debbie Lesko recently sponsored Senate Bill 1441 which will protect consumers from surprise medical bills following a hospital stay.

On Monday August 7th, 2017, a class action lawsuit was filed against CVS Pharmacy accusing the retail pharmacy giant of over-billing insured consumers who used insurance to pay for certain generic drugs, when paying the cash price would have been significantly cheaper. CVS then “clawed-back” the difference.

The initial intent of provider networks was to deliver deep discounts on health care for insured customers. Services were supposed to cost less in the presence of insurance, not more. Instead, we are upside down in that model. Consumers are actually paying more for insured services than they do for uninsured services.

The only way we are going to hold healthcare sellers accountable is if we abolish the insurer’s network system. If the network no longer offers value then get rid of it! Let’s go back to letting the market dictate the cost of care based on what is reasonable and customary for a particular service versus the over-inflated pricing negotiated between insurers and providers. If it were truly a free market then consumer demand for a lower priced alternative would drive competition. The only time we get lower pricing in healthcare these days is when we negotiate to purchase it WITHOUT insurance.

Let’s stop talking about how we afford insurance for everyone and start demanding to know the true cost of care, refusing to accept that it is the same as the cost billed to insurance companies. They are two different things altogether. Competitive pricing is determined based on what it costs to produce a good or service. Until we demand to know what it costs to produce healthcare services we will never have true competition.

Ready for a New Discussion About Health Insurance and Employee Benefits?

Contact me at 602-903-4047, or jmorrow@employerbenefitsandadvice.com.

Next Week’s Conclusion: – Who values healthcare? Who uses healthcare? Which group should pay for it?