Counterparties: Putting a price on illness

May 8, 2013

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The US government is giving a whole new meaning to the term “price discovery”. Today, the federal Centers for Medicaid and Medicaid Services released a trove of seemingly basic data to the public for the first time: the prices American hospitals charge Medicare for the 100 most common inpatient procedures.

The data, released early by the Obama administration to the NYT, Washington Post and the Huffington Post, have long been guarded by hospitals, who have treated the prices they charge as something like a trade secret. The release was spurred on, in part, by Steve Brill’s massive March Time cover story on how high hospital prices hit Americans. An uninsured patient might pay $199.50 for a blood test for which Medicare would pay $13.90, for example. Chris Kirkham and Jeffrey Young have the clearest take on the new data, and how widely these prices diverge:

Within the nation’s largest metropolitan area, the New York City area, a joint replacement runs anywhere between $15,000 and $155,000. At two hospitals in the Los Angeles area, the cost of the same treatment for pneumonia varies by $100,000, according to the database.

Even though insured Americans pay only a portion of these full charges, these numbers aren’t theoretical. Americans without insurance are often forced to pay the full bill. Brill, in a post today, suggest that situation is even worse than that: inflated hospital “chargemaster” prices can work as a kind of baseline for patient costs.

Los Angeles, Wonkblog notes, tends to have the biggest disparity in prices, but geography has little do with what hospitals charge. What does seem to affect hospital pricing is the type of hospital: for-profit hospitals, for instance, bill Medicare 29% more than government-operated facilities. (Hospitals, however, are reimbursed by Medicare at roughly the same amount, regardless of type or how much they bill the government). To Kevin Drum, the lesson from this is clear: the private sector isn’t acting more efficiently in delivering hospital care. It’s just charging more.

This data might make the American healthcare market a bit more transparent, but it’s still far from rational. In March, Ezra Klein noted that there’s no semblance of coherence among the prices insurers themselves pay for common procedures, devices and pills; each insurer negotiates their own pricing deals for these things with healthcare providers. Sadly, the only constant is that Americans pay far more than other countries for the same basic, relatively routine medical care — with worse outcomes. — Ryan McCarthy

On to today’s links:

New Normal
Higher homeownership rates linked to higher unemployment rates – WSJ

Alpha
Meet your new shadow banking system, increasingly run by hedge funds – Bloomberg
Notes from the 2013 Ira Sohn Conference – Josh Brown

Big Government
The US government employs more low-wage workers than Walmart and McDonald’s combined – WaPo

Pivots
Kleiner Perkins is slowly getting used to this whole humility thing – DealBook

New Normal
America’s colleges are doing a terrible job recruiting low-income students – New America Foundation
America’s education system is leaving no rich child behind – WaPo
US companies’ record overseas earnings are up 70% in 5 years – Reuters

Takedowns
“Niall Ferguson has always been this crass and crassly inaccurate” – Nick Cohen

Alpha
The classic “I heard this at a conference” investment strategy didn’t work out so well this year – FT Alphaville

Wonks
If you get a PhD, get an economics PhD – Noah Smith

Perks
Klout inequality is the new income inequality – Klout

Charts
AOL vs. Netflix: the broadband era summed up – Dan Frommer

And, of course, there are many more links at Counterparties.

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Comments
2 comments so far

Shouldn’t some heads roll over the seemingly arbitrary prices in the health care industry? I assume since it has been going on so long they were just acquiescent to it. Have any hospitals responded to the huge disparities? Have any hospitals modified their prices (at least to the average)? Are their any high-priced outliers that should be targeted to justify their prices?

Posted by nlucr1234 | Report as abusive

I am a firm believer that the govt should use taxation to enforce discipline rather than put a complex regulatory framework.

I propose a 20% tax on all hospital bills which are more than 150% of medicare mean payment. For eg: “292-Heart Shock & Failure” , there were 222038 procedures where hospitals asked for 5.576B and Medicare paid 1.576B. That works to average payment of $7,098. The highest payment was $16,917. In that case, the hospital pays 20% of the difference ($1,963.7) per procedure as a medicare supplemental tax. For the Heart Shock & Failure, I estimated a tax collection of $27M. More than the tax collected, it will start behavioral changes in hospitals.

Posted by InfiniteThought | Report as abusive
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