Sunday, November 17, 2013

Senseless Health Care Pricing or Efficiency?

This is an old subject, see Steve Brill's Steve Brill's Time article.

But having just received a bill from a physician's group practice and thought about it, I have come to think there might be more going on than meets the eye.

Take a look at this bill.  The "amount billed" is $986.06.  These are just lab tests ordered by the doctor and done at that facility, and these are the list prices.  Cigna, my employer's health care administrator (not insurer!) has negotiated with this facility for a discount from those list prices.  In this case the discount is a whopping $713.55, or 72%!!

My first reaction was that this is either stupid or greedy.  It would seem stupid if nobody actually pays those list prices, in which case they are meaningless and a waste of ink.  Come on, let's stop the charade and admit that real prices bear no resemblance to what is listed.

It would seem greedy if someone is actually paying those prices, because my first thought is that the only people paying the list prices would be the uninsured, and as Brill and others have pointed out, it is really sad to be making the uninsured pay the highest prices.

Stupidity and greed are still two good candidates to explain these billing practices but I think there is a third.

It is not only the uninsured who pay the list prices.  Suppose I am a Cigna customer and suppose this physician's group I went to see was not in Cigna's network.  I will still give them my Cigna card and they will bill Cigna first.  Cigna will get the bill and tell me that they will consider those services to be worth only $272.51.  In my case, since I had not yet met my yearly deductible, they would credit that amount toward my deductible.  But I would be responsible for paying this provider the full list price!

My point is that as cruel as this seems, it serves a purpose, which of course is to keep me within the Cigna network.  The higher those list prices, the more control Cigna has over its network.  That can be very efficient, letting Cigna work with a smaller set of providers to improve quality and value of care given to its customers.  Under this view, Cigna actually cares not only about the price they pay -- the discounted price -- but also the list price that they never will pay!

So maybe the high list prices are not stupid and not based on greed but are really to let the insurers use networks efficiently.

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