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Wednesday, January 2, 2013

Health Economist: Problem With Care Is It ‘Insulates Me From Prices’

In this Oct. 11 photo, Alvin Hoover, CEO of King's Daughters Medical Center in Brookhaven, Miss., stands by the hospital's emergency room station. (Rogelio V. Solis/AP)

In this Oct. 11 photo, Alvin Hoover, CEO of King’s Daughters Medical Center in Brookhaven, Miss., stands by the hospital’s emergency room station. (Rogelio V. Solis/AP)

Eighteen percent of the country’s economy is spent on health care and costs continue to rise. Yet by one estimate from the Institute Of Medicine, the amount of excess spending — those dollars that neither produce a cure, a better outcome, nor a more efficient system — total about $750 billion annually. Yet despite the amount Americans spend, outcomes are no better here than in countries that spend far less.

Health economist Amitabh Chandra, of Harvard University, has a new study on physician salaries and areas of medical waste.

The Pros And Cons Of Health Insurance

“It is one unfortunate side effect of having health insurance,” Chandra said. “The wonderful thing about insurance is that it protects us from financial uncertainty. But as part of that protection it also insulates me from prices; I don’t really know the cost of anything I consume as an insured patient. So providers have every incentive to sort of make up the prices.”

Chandra says insured patients don’t care if their bill is $20,000 or $30,000 because they’re not paying for it.

Administrative Costs

Chandra says despite personnel and processing costs, he doesn’t “believe the argument that people are actually losing money by selling things at $120 when they should be going for $20.”

The administrative costs though, Chandra says, are a big reason for waste in the health industry.

“Physician offices hire a lot of people to help that physician get credentialed,” Chandra said. “So if I’m a physician, and I’m dealing with six insurers and I work in three hospitals, I need a staff of people that will help make sure that I’m credentialed. That’s a lot of paperwork.”

Chandra adds that different insurers have different ways of processing claims, and they will deny claims if there’s a minor mistake on the paperwork. So physicians hire a staff to process those claims. But Chandra insists that administrators do add value to the care that patients are receiving.

“Insurers do from time to time deny claims, and sometimes they do deny claims correctly,” Chandra said. “And when they do deny claims, it’s actually a good thing that some administrator looked at the claim and said, ‘This was not a claim that was justified by the condition that the patient presented himself with.’ ”


  • Amitabh Chandra, professor of public policy at Harvard’s Kennedy School of Government

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