Category: Health Care Costs

Price Transparency: Even Hospitals are Starting to Figure It Out!

credit-card-2Like many, we’ve been frustrated at the lack of price transparency in U.S. health care, especially form hospitals. Good news: They are coming around!

The American Hospital Association (AHA) has published an informative white paper, clearly explaining the state of price transparency for both hospitals and health plans. It surveys what hospitals are doing to ensure patients better understand their expected out-of-pocket costs, what tools health plans are offering beneficiaries to estimate costs, and the legal and regulatory environment. The language used in the white paper is strikingly different from that which we are used to seeing from hospitals:

Price transparency also can lead to improved quality and efficiency as providers benchmark and improve their performance against peers and national averages. To realize these potential benefits, policymakers and the public increasingly are calling for greater access to information.

Health Spending Slowed Because of Recession, Not Obamacare

Health spending has been slow in the U.S. for a number of years. It’s clearly not due to Obamacare. New research by Professor David Dranove and colleagues corroborates that the recession, which started in 2007, is mostly responsible for the reduced rate of growth of health spending:

The source of the recent slowdown in health spending growth remains unclear. We used new and unique data on privately insured people to estimate the effect of the economic slowdown that began in December 2007 on the rate of growth in health spending. By exploiting regional variations in the severity of the slowdown, we determined that the economic slowdown explained approximately 70 percent of the slowdown in health spending growth for the people in our sample. This suggests that the recent decline is not primarily the result of structural changes in the health sector or of components of the Affordable Care Act, and that — absent other changes in the health care system — an economic recovery will result in increased health spending.

Whether there will be significant economic recovery as long as Obamacare reduces incentives for businesses to grow and hire is not discussed in the article.

Who’s Moving to Consumer-Driven Health Plans? Doctors’ Offices!

We have long cheered the rapid growth in consumer-driven health plans. Here’s more good news: Medical groups are increasingly covered by these policies. The American Medical Group Association just released a survey of its members:

The survey revealed that HDHPs along with CDHPs made up more than 1/3 of health plans analyzed and were as prevalent as PPOs. These plan types dwarfed HMOs, which made up only about 10% of analyzed plans.

The survey shows monthly HDHP and CDHP premiums are, on average, 80-85% of the premium of PPO plans. Medical groups also cover a slightly larger percent of the premium of HDHPs. Many groups with HDHPs include healthcare savings accounts with tax incentives or employer-funded reimbursement accounts for routine care. The yearly deductible for HDHPs is, on average, more than 4 times the deductible of PPO and HMO plans, exemplifying coverage focus on catastrophic illness.

“Bitten by an Orca”: The Much Ridiculed ICD-10 Codes are Finally Coming

For quite a few years now, the Centers for Medicare And Medicaid Services (CMS) has  been trying to convert the U.S. healthcare system to a new system of International Diagnostic Codes (ICD), which are used for a number of purposes, including billing. The “upgrade” is from ICD-9 to ICD-10. The conversion has been delayed due to resistance from physicians and administrators who believe ICD-10 will increase bureaucratic costs because there are just too many codes to deal with reasonably.

The codes are easily ridiculed. There is one code for being “bitten by an orca”. If the first encounter did not teach you to keep your distance, there is another code for being “bitten by an orca, subsequent encounter.” Whether a Medicare beneficiary who insists on swimming repeatedly into the jaws of a killer whale deserves unlimited taxpayer-funded health care for the consequences of his choices, I leave for readers to decide in the comment section. We’ve previously written about some of the goofiest sounding codes.

CBO: Medicare’s Part D Program Costs Half What We Thought

The Congressional Budget Office (CBO) has released a report on the remarkable budgetary achievement of the Medicare Part D prescription-drug benefit:

A combination of broader trends in the prescription drug market and lower-than-expected enrollment in Part D has contributed to much lower spending for the program — about 50 percent lower in 2013 — than CBO projected when the MMA became law in 2003.

Medicare Part D, where in private insurers compete to offer seniors prescription coverage, pays significantly higher prices for drugs than state Medicaid programs do. However that is no great achievement by Medicaid: Statute demands that Medicaid get a bigger discount than any other payer. Some politicians believe that if Medicare imposed mandatory discounts on drug-makers, Medicaid prices would prevail in Medicare, too. Not true, according to CBO:

…a substantial portion of those savings would probably erode over time because drug manufacturers would counter the larger rebates by raising the prices for new brand-name drugs. In addition, that policy would reduce the incentive for firms to develop new drugs.

Consumer-Driven Health Plans Reduce Costs by Double Digits

Health Care Service Corporation (HCSC), operator of the Blue Cross and Blue Shield Plans in Illinois, Montana, New Mexico, Oklahoma and Texas, has just released results of five years of data in its consumer-driven health plans.

The study tracked more than 316,000 individual Blue Cross and Blue Shield members and found those migrating to a CDHP plan not only saw cost savings in the first year but continued to experience even lower health costs years later. This study measured and tracked the claims experience of members previously enrolled in traditional plans who switched to a CDHP, not just those members who selected a CDHP over those who did not.

The study found that after switching from a traditional plan to HCSC’s BlueEdge CDHP, members saw a three year average reduction in:

  • Medical expenses — decreased by 11.8 percent
  • Overall spending, combined medical and pharmacy costs — decreased by 10.5 percent
  • Inpatient care costs — decreased by 23.5 percent
  • Outpatient care costs – decreased by 5.1 percent
  • Professional services costs – decreased by 14.0 percent.

What are the Causes of Projected Growth in Spending for Social Security and Major Health Care Programs?

We’ve already noted that the media and many other got overly excited about a trivial delay in the date of the impending bankruptcy of the Medicare “trust fund”, as estimated by the Congressional Budget Office (CBO).

The CBO has followed up with a more sober article on its blog:

Under current law, spending for Social Security would increase from almost 5 percent of gross domestic product (GDP) in 2014 to more than 6 percent in 2039 and beyond (see the figure below). Even more of the anticipated growth is expected to come from the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies offered through health insurance exchanges): CBO projects that, under current law, total outlays for those programs, net of Medicare premiums and certain other offsetting receipts, would grow much faster than the overall economy, increasing from just below 5 percent of GDP now to 8 percent in 2039.

How to Pay for the Next Sovaldi

prescription-bottleImagine a pill that could cure cancer with one course of therapy or reverse an inherited, deadly disease. If it cost $1 million, could you access it?

This was the question asked at a recent panel discussion held by the American Enterprise Institute. The panel discussed a couple of new proposals to finance new medicines that come at a high price. Because these medicines address the needs of only a small number of patients, manufacturers contend that prices need to be high to make the investment worthwhile.

Cost to Treat Cancer Drops 34 Percent When Physicians Package Price

An experiment by UnitedHealth Group tested bundled payments for cancer care. Another name for bundled payments that you might recognize is package pricing — where a vendor offers to group all costs together and lower the total price in an attempt to win a consumer’s patronage. Although common in every other industry where consumers buy services, package prices are quite rare in health care (except cosmetic surgery). Ordinarily, oncology doctors are given a fixed percentage markup on the cancer drugs they administer in their offices. For instance, a doctor administering an expensive drug would earn a proportionately larger fee than a doctor using a cheaper generic. UnitedHealth Group wondered if this perverse incentive translated into doctors using higher-priced medications rather than a cheaper drug that might be more effective.

The study found that over a 3-year period doctors who received bundled payments spent about one-third less treating cancer patients than if they had been paid a percentage of every oncology drug they used. Authors noted that while actual drug spending rose, total treatment costs were lower than expected. In other words, doctors weren’t skimping on drugs; they were choosing the most effective drug regardless of their commission.

This result should not be unexpected. What would be considered common sense or conventional wisdom in any other industry is considered novel in health care. The bottom line: incentives matter!

Family Health Insurance Premiums Rose $18,610 since Obama Became President


America Next, a think tank headed by Louisiana Governor Jindal has toted up the cost of President Obama’s broken — and in hindsight absurd — promise to reduce the average family’s health-insurance premium by $2,500 by the end of his first term. In fact, premiums have risen by $18,610. The total cost to the economy is $1.2 trillion. The worst consequence:

Given annual full-time private sector compensation rates, the amount spent on higher health insurance premiums equals the cost of 3.9 million jobs each year, and nearly 6 million jobs in 2013 alone.