Reply #18: Patient Power - A Bad Idea

[dr.strangelove]

This idea sounds a lot like the Cato Institute's proposal called "Patient Power." http://www.cato.org/pubs/briefs/bp019.html
It is a libertarian idea in which the market sets the price for medical services.

The central idea behind Patient Power is that middle men, called Third Party Administrators or Third Party Payers, get in the way and increase costs.

I do not believe this is true. The middle men are HMOs. HMOs get a very bad rap, mainly from the AMA and doctors. The reason, they cut into the profits of doctors and hospitals. HMOs are really just the most popular type of MCO (Managed Care Organization). MCOs were developed was because the market for medical services was left unchecked and grew to unaffordable levels. MCOs do what their name implies, manage care.

I was recently in the hospital for a minor procedure and I'll use my bill as an example. The hospital normally charges a flat rate of $1200 per day for hospital services, however my MCO has negotiated with this hospital, put it on its approved list, and I went there. The hospital charged my MCO $720 for the day. A savings of almost 50%. I am sure the hospital did this because they get an increase in volume by being on the approved list.

Patient power calls for me to call around to local hospitals and negotiate the best rate on my own. I can also join a group that bargains on my behalf. However, since I cannot (at least I hope not to) provide the same volume of business on a personal level that my MCO can provide, I can not negotiate the rate that my MCO can get. Therefore, my care was cheaper and the MCO did its job by controlling the costs.

Although you did not directly refer to Patient Power, I thought I would address my problem with this system of health care first. On to your example.

Dr. Berry sounds like a great man. I wish there were more physicians willing to take a tremendous pay cut to see to the needs of their patients. However, since medical school costs now average over $150,000 and since the first 2-8 years of a medical career are spent earning something near minimum wage while paying loans, most physicians could not afford to take that level of pay cut.

The costs for the average office visit exceed $35. I don't know if Dr. Kerry charges additional amounts for the medical testing such as blood work, EKGs, pap smears, mammograms and x-rays that are routine parts of annual adult visits. If he does not, he can not possibly be staying in the black. If he charges for these services, the rational that the costs are the same as co-payments is lost since these services are often required to be included in the MCO office co-payment.

I also disagree with the idea that catastrophic indemnity insurance is available for little cost. I was uncovered while I attended law school and bought a catastrophic plan which would pay for $25,000 in medical bills per year for a $1,000 premium with a $1,000 deductible. This means I had to pay $2,000 (1 in premium and 1 in cash before the insurance kicked in) annually before I got any benefit from the policy. $2,000 is $166 per month. The average MCO premium nationally is $270 for an individual plan. The difference is price was not affordable to me in law school, if you can afford the extra $100 per month, the increase in benefits is massive.

I agree that their is tremendous interference from MCOs in medical decision making that makes healthcare difficult and I believe Ted Kennedy will eventually pass his Patients Bill of Rights which will allow direct lawsuits against MCOs for bad medical decisions.

I also disagree with your contention that HMOs make huge profits. HMOs are considered one of the riskiest business ventures with a failure rate significantly higher then most businesses. In NYC, over 50 MCOs have gone out of business since 1995. They were unable to make money. The big players, US Healthcare, Oxford, HIP and Kaiser, stay in business, but hardly report huge profits. I have no problem paying them to get deals for me the same way I paid my buyer's agent to get a better deal for me on my house and the same way Alex Rodriguez pays Scott Boras to make him the most money. An HMO is an agent that gets care cheaper.

I think the solution for healthcare for low income individuals in to increase the tax rate on persons earning over $1 million per year, and use the surplus to increase state Medicaid funding, among other things. Kerry proposes an increase in Medicaid funding to undue to cuts Bush has made. I would also suggest more states try the Oregon Health Plan which has increased the total availability of care.

I also do not think opening up the pharmaceutical industry to competition from imports would aid in price control since the drugs you would import are also made by the same domestic companies, however foreign states have significant cost controls on those companies, so the same drugs cost less. Instead of targeting HMOs as huge profit makers, I think you should look at the books of pharmaceuticals.

I agree that the current system is clearly not working. I do not thing that socialized health care in Canada and Western Europe has resulted in poor quality health care. There are longer waits for scheduled operations, however emergency medicine is of a high quality. Taxes are higher, but that is the cost of socialized medicine.

Anyway, my thoughts are that medicine needs an overhaul, but Patient Power is not the solution.