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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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  • Bert Adams

    Have you read Andy Grove’s article in Nov 2012 Wired Magazine ” Peeling away health care’s sticker shock”.  It’s about how there is no transparency to medical costs. Peeling Away Health Care’s Sticker Shock | Wired Business | Wired.com

    • rj_oregon

       And to take the discussion further, here is a quote from the article about how it’s impossible to discover what things actually cost: [A.Grove]

           “…Though the procedures were largely identical, the charges varied more than 100-fold—from $1,529 at the cheapest to $182,955 at the most expensive.
      What accounted for this bizarre spread? Good question—but efforts to discover the answer turned out to be futile. Although the research highlighted how large the bills for these hospitalizations were, various costs were declared to be trade secrets. The providers (i.e., the hospitals) and insurers involved in the study would not share how much the insurers actually paid for the visits, only what the providers charged. To me, understanding the logic here requires a chain of reasoning that could appear only in Alice in Wonderland. We don’t just need an MSRP sticker—we need a medical Freedom of Information Act!”

      Indeed!  Price information is trade secret?  MFOIA!

  • Judy92809

    I have been a heavy user of the medical system due to a kidney transplant 3 years ago.  When I get explanations of benefits, I see what the usual & customary charges are, what the doctors charge and then what the insurance companies will cover. (never the same)  Why are the doctors charging more than what they know will be covered?  It all looks like a financial game to me – costing more in admin costs, etc.
    How can this be stopped?

    • BHA_in_Vermont

      Because that is what the doctor charges people who do not have insurance or whose insurance company didn’t “swing” as good a deal as “your” insurance company.

    • Chicagotexan

      I’m glad you bring this up. These inflated prices are a game. Unfortunately, in order to be paid even close to want they hope, hospitals and/or providers will often charge an inflated price, expecting the customary 20% or so rate, if they’re lucky. In addition, these collections are often used to offset losses elsewhere, stemming from un- or under- reimbursed claims.

  • Behnam74

    I’d love to see this professor with 90% LAD lesion (the widow maker) and see if he choses to have angio or not! The argument that malpractice does not make us physicians to order more tests is ludicrous. Bundle payments will make the hospital give you aspirin and a pad on a back. Good luck!

    • http://www.facebook.com/profile.php?id=100003000884786 Navin R Johnson

       I agree with your malpractice statement.  We are constantly presented with “studies” that show malpractice has little impact of increased cost of healthcare, but I find the evidence lacking.  Fear of malpractice definitely increases the costs of healthcare, I see evidence of it daily.

    • DrWil

      Dr. Chandra suggests that liability concerns are a wash because physicians will do less (fewer tests, not do surgery, etc.) for difficult patients.  Having practiced for 30 years (now retired), I can assure you that this is not so.  If you refuse to do something the patient is likely to simply find someone else who will, so there is no net savings to the system. 

      Furthermore, in a busy practice, it is usually easier to simply order that extra (probably unnecessary) test than to argue with … excuse me, educate the patient for 20 or 30 minutes.  Same thing happens in other industries – a restaurant will simply comp someone a meal rather than argue about whether something was actually wrong or not.

      Secondly, I am skeptical of studies attempting to track unnecessary costs resulting from fear of malpractice.  Many of these tests or procedures make some minimal sort of sense and so seem “justified” from an insurance standpoint.  As practitioners, though, we know that they are a waste, but provide some insulation from liability. 

      Any physician will tell you that to some degree they over-prescribe and over-test for protection.  Nobody complains when their test comes back “normal,” but if you miss some obscure, extremely unlikely diagnosis you are in the headlights of some lawyer.  The logical thing to do is look for common things first and then pursue other, more remote possibilities, if necessary.  As they say, when you hear hoofbeats, think first of horses, not zebras. 

      Finally, when asked whether they think that some expensive test, procedure or treatment with marginal benefits should be done, everyone’s answer is “No … for your family.  However, for MY family I want every possible thing done.”  It’s a no-win situation.

  • http://www.facebook.com/profile.php?id=100003000884786 Navin R Johnson

    “Chandra insists that administrators do add value to the care that patients are receiving.”

    How?  And how much value?  I doubt this value is anywhere near the costs.

  • Jen Miller

    A few years back, I had to have a minor surgery. I asked up front how much it would cost. “Just your deductible,” the administrator in the doc office said.

    Imagine my surprise when I got a $2,500 lab testing bill. I called and asked. “It’s not my responsibility to tell you those costs.” 

    The insurer said it wasn’t covered because the testing was done outside of the hospital. But it was done in the hospital complex. Still, they said since it wasn’t in the building, they wouldn’t cover it.

    I don’t know who to blame here. The doc’s office for not telling me about the lab test cost? The insurance company? I thought I did everything in my power to figure out  how much it would cost me beforehand.

    • Martha

       I had a similar experience with an endoscopic test.  I was paying the full bill out of pocket because I have a high-deductible plan.  The only cost I knew up front was the facility fee which I had to pay that day.  I received various lab bills up to 6 months after the procedure. The explanation I was given was that until the test is underway, there is no way to estimate the type of lab work that has to be done. 

  • Martha

    The idea that people with health insurance are insulated from the cost of medical care  is not accurate. Individuals with high deductible plans are well aware of what things cost.  If a person has a plan with $2500 or $5000 deductible, they will be paying $80 out-of-pocket for that $7 sling.

    • Louie in Calif

       That is me, also.  I rarely go to a Dr, and have a $5k deductible.  The average office visit to my Dr is charged at $70, so even though I pay over $400/month for insurance, I pay the $70.
      Two mos. ago, I visited the UCSD(Univ of Calif) Urgent care dept to have an insect bite looked at –about 15 minutes.  They copied my insur card, took $100 and sent me on my way with a prescription.  Now I get a bill for $586.  Upon inquiry, it turns out cash payers would get a bill for $412.  They say I can’t pay the cash price, only the insurance price (of course my insurance pays nothing). 
      While my head is still spinning, I got another bill from the Dr who saw me for approx 3 minutes –  $336.
      I now am dealing with 2 different third party billing services, far removed from anyone in authority to explain/negotiate/take responsibility.
      I don’t think WASTE is the correct word for these made-up prices, it is similar to the pricing we see in the Auto Body Repair Industry.

      • Chicagotexan

        Prices are interesting. How do they determine the cost an iPod? The parts cost little compared to the list price, right? There is expertise, the costs of development and then a little margin worked into it, of course (to make the whole endeavor worthwhile). Personally, if given the raw materials, I could not build an iPod for the cost of its parts. If I want an iPod, I suppose I’ll have to pay the asking price.

        If we don’t want to pay the Dr. $336 for his or her expertise, would we rather pay your neighbor $10 to say the same thing? There’s clearly a difference, right? We we paying for the years of sacrifice, of delayed gratification, not partying when their college classmates did, so that person could acquire the knowledge, experience and expertise to evaluate your insect bite. Plus, lets not forget the patients seen who don’t have the means to pay. Your $336 may be paying for their visit, too.

        • Chicagotexan

          I forgot to mention: depending on the physician’s practice, that $336 may also be going to help cover office overhead, malpractice insurance and the other costs of “doing business.”

        • Louie in Calif

          My main complaint is the 2 or 3-tier pricing.
          My urgent care facility visit bill has pricing at:
          Total Bill $750.
          Blue Cross rate $586.50
          No-insurance/cash rate: $412.50

          The Dr. bill was separate, I believe there is a cash price for that too.

          Actually, this is a great example of a bare bones visit –no one touched me or opened any instruments.

          • Chicagotexan


  • Jcamp8044

    What about the skyrocketing costs of Pharmaceuticals. Since television ads were allowed, sales have grown exponentially. Did we get exponentially sicker as a nation or is it the power of suggestion. I read recently in Scientific American that in clinical tests many drugs perform no better then placebos.  Also, that drug testing methods are highly suspect. Independent labs find it hard to find test subjects, so they pay many of the same people over and over to test drugs that may not apply to them.   

  • Jon

    My wife is on the opposite end of the “wasteful spending” spectrum. She is 27 and has worn the cartilage out of her knee, but because of her age, insurance will not support a replacement (under the reasoning they will have to pay for it again in the future).

    However, she is unable to exercise and has a family history of diabetes and heart disease, both of which are at increased risk (and more long-term cost) because of it. It’s frustrating that the insurance company encourages lower rates by healthy living, but won’t pay for medical procedures that are necessary to maintain that healthy lifestyle.

    • boomer

      And it’s because of the waste and abuse by other less health concious Americans that the insurance company won’t pay for it.

  • BHA_in_Vermont

    We have one of those slings. We got it when my daughter had emergency surgery 6 years ago after breaking her arm just below the shoulder. It has been sitting, unused, for almost 6 years.

    Why are these things not “rented” by the hospital pharmacy? It isn’t like we could plan ahead and comparison shop. It isn’t something that can’t be cleaned and re-used. I’ll bet there are hundreds of thousands of these fancy slings sitting in people’s drawers. Talk about waste.

    Different paper work for different insurers causing administrative costs/waste?

    Hey, I have a novel idea:


  • Raoul Ornelas

    Medical Spending: $750 Billion Wasted Annually

    I’ve heard most of this topic before, in fact about ten thousand times, yet when the question if doctors are paid to much or are part of the problem, the answer seems like sort of dancing lesson or the reply is moot. Mr. Amitabh Chandra’s concerning said subject, and his answer is dead wrong I don’t care how many studies he produces to prove the opposite – one never knows who is paying Mr. Chandra these days. Doctors are way over paid, this is part if not the major problems of health care. Proof: The prices for almost all entertainment activities in just about any endeavor is now out of the reach of the average person in America except for Doctors, CEO of medical professions and of course attorneys. About the only thing an average American can afford to do with his or her extra crumb money is to afford a pelota (soccer ball). 
    I am a bit miffed concerning a comment addressing healthy lifestyles that insurance companies won’t pay for medical procedures that allows one to maintain a healthy life style? So how does one prove to an insurance company that he or she is maintaining a healthy life style. Go to any Walmart in America and one will observe people (mostly women) hugely over weight riding a Walmart electric carts to make accessing a bargain box of potato chips on sale or of obtaining the last of the late Twinkies, along with a couple cases of diet coke, as easy as possible to access.  I suppose we could have medical insurance personnel posted at Walmart check registers. Sometimes I beliver there is a symbiotic relationship between the medical profession and fast food franchises. The public still has the hammer to most of the high cost of health care and that is stay away from fast food franchises, stay away from junk food, don’t smoke any item of any sort even if it is legal to do so, stay away from drugs which for the most part cause many mental health issues and last, exercise, exercise! If one performs these five simple items daily, the cost of seeing a doctor will drop profoundly, in fact, doctors along with medical insurance CEOs will be knocking on one’s door to drag one into their offices to sell them something they don’t need. But the good news is this, you won’t need their help. I know I have been practicing this sort lifestyles for 69 years and I do not need the help of these expensive elitist medical groups.

  • Debra k Mckinnon

    I’m an ED doctor in a small college town…It is VERY difficult to get patients to do the wait and watch..even when their symptoms are mild…..Esp. with abdominal pain they all WANT the CT scan…even if they just had one for the  same mild chronic symptoms….The bundle idea is great BUT  do you really think that patient with coronary artery disease treated medically won’t progress an eventually NEED the costly intervention…How do we make the patient responsible for their health  as most of the disease I see is self inflicted by obesity , smoking , diet and sedentary life style…Thanks 

    • N.E.Williams

      I completely agree with Dr. McKinnon.  I am a gynecologist in Chicago, and I have had a very similar experience in my practice of 7 years.  If I do not prescribe the antibiotic, test, etc. that the patient believes she should have, I will either never see her again (she found another Gyne to do what she wants) or when I do see her she will have had her primary MD  do it.  Patients are bred to believe more care is better.  Sometimes the treatment really is keeping the patient occupied while the body heals the illness (aka NOTHING).  How can we change this mentality?

  • DrWil

    Unfortunately (from the standpoint of finding a simple solution to these issues), it is a complex problem.  New, expensive pharmaceuticals boost costs.  New technologies (which hospitals need to pay for by utilization) may not make much difference in outcomes, but make providers seem shiny and modern.  Our health care “system” is a tangled web of separate interests and silos, often contradictory and usually unnecessarily expensive.  Patient information does not move smoothly between providers, so tests get repeated unnecessarily.  48% of hospital care in Massachusetts is delivered by tertiary hospitals as opposed to an average of 19% elsewhere in the country.  These are just a few of the contributors to expensive health care – there are more.

    And then there is end-of-life care.  30 percent of Medicare dollars are spent in the last few months of recipients’ lives — often contravening the wishes of the recipients’ themselves.  Yet, any attempt to deal with this or even discuss it rationally incites charges of “death panels” from manipulative, poorly informed politicians whose primary interest is self-promotion and whipping their most fanatic supporters into a frenzy - the same techniques used by the Taliban and Al Qaida.

    Simplistic solutions won’t make things better.  Addressing the issues on multiple fronts is the only way to make a difference.  The Affordable Care Act includes many different approaches to the problem and tests a variety of solutions to specific aspects.  ACOs (accountable care organizations) are one effort among many.  IMHO, Barack Obama should be canonized for his efforts to try to address a cricital national problem in a serious and responsible manner.

  • rj_oregon

    For most health care services and products, there is no way for anyone to compare prices or shop, and in our unregulated environment this creates a ripe environment for businesses to commit price gouging and overt fraud. How else does medical spending balloon to 20% of GDP?

    Ask your guest about how other countries control cost. For instance: after reading T.R.Reid’s “Healing America” four years ago, I learned that some nations (I think France among others) regulate cost, payments to doctors, etc, under single-payor and other others system including private enterprise medical care. The regulator maintains an annual price book that publishes the amount to be paid for every item in the medical care field, from splints to medications to procedures.

    While this is price regulation, it is also “price discovery,” something that US consumers, for the most part, are being denied.  (“Do you have insurance? then why do you care what it costs?”) There is no entity that will reign in costs. Many vendors will be there to get a piece of this expanding pie, and this is not capitalism, it is legislatively-enabled thievery.

  • LH

    A couple of words about expensive medical care in the U.S…
    I am slightly disappointed although not surprised that there has been no mention about childbirth and prenatal care during this program. I am a former cardiovascular RN who worked in a acute care setting and I now work in a hospital labor and delivery unit. I am also getting a masters degree in nursing specializing in Nurse-Midwifery. Our prenatal care and birthing system is costly and has documented poor outcomes. There is a serious need for a paradigm shift with regards to how we spend money on birthing babies. 

    I would like to encourage the radio station to start a dialogue about this matter so that more people can become aware of this flawed system. 

  • Jg10172003

    As a medical social worker for a national hospice provider, I see a prevasive disregard by the medical community to be ethical in offering a patient a range of options & a descriptions of the outcomes/ consequences of those options (which should include doing palliative comfort memedicine for life limiting illnesses). Doctors are great @ telling patients, “We’re going to ….” illudding to a collabrative partnership with the medical team that usually doesn’t exist. Patients need to educate themselves & have an advocate attend appts with them. They have to live with their bodies & conditions, not the MD/ DO’s!
    Julie~ Inland Empire, Ca.

  • boomer

    Nothing about our healthcare system will change until the consumers (patients) start taking responsibility for themselves.  I work in the cath lab.  Mr. Chandra stated angioplasty as being a significantly overused procedure.  I take care of patients that come in every few months and get a stent, some totalling 17.  They have a little chest pain, a little shortness of breath, their cardiologist happens to be an interventionalist and bang, there they are receiving another diagnostic cath/angioplasty.   Does this encourage patients to quit smoking, change their diet or manage their diabetes like they are supposed to?   For some one single procedure makes them change everything, but those are few and far between.  I see the same type of patients month after month, most of them have no insurance.   These high risk patients do nothing to help themselves.  They know if they come to the hospital something will be done to “fix” them so they can continue to live the lifestyle they are accoustomed to and take NO responsibilty for their own health! 

    I work at a very prestgious medical center and it’s all about patient perception.  Healthcare has become a commodity, marketed like  used cars.  It’s sad  when government agencies distrubute  money based on patient satisfaction surveys.  When you finally have to tell them the damage is beyond repair and they can’t be fixed, they aren’t very satisfied.

    • Chicagotexan

      Excellent assessment.  Readmissions and complications have been clearly linked to co-morbidities, such as smoking and obesity, two conditions that are arguably behavior driven or at least modifiable risk factors.  Yet, hospitals (and providers) will be “dinged” for taking care of those patients.  Interesting…

  • Elliot

    I am an unskilled factory worker in Chicago.  The middle class in the USA gets screwed over on health care in so many ways, we get screwed over by the employer, by the doctors, the nurses, the insurance companies, the pharmacies…  All of these parties have every financial incentive to screw over the patient, and the system is such a mess that there are endless ways in which they can legally subvert our access to healthcare.  Like Ellison’s _Invisible Man_ who constructs a secret underground room filled with light bulbs in order to sap away the resources of the power company, I too do my best to screw over the powers that be every chance I get.  Doctors are so trigger happy on prescriptions and unneeded tests.  About all you can do is smile and say “yes doctor” when he hands you an oral anti-biotic prescription for a stubbed toenail, or a prescription for two or even three different anti-inflamatories for a sore shoulder… I smile and say “thank you,” knowing that I will never take these pills.  But I go and get the prescriptions filled anyway, and I go and I get the specialist testing done that he orders, because every ounce of strength that I can sap away from the Insurance cartels brings us that much closer to finally going over the edge and landing in a time and place where we say enough is enough and we fight back, literally.  Sure you could say that I sound a little bit passive aggressive for making my insurance pay for pills and testing that I know I don’t need, and maybe I should even see a therapist to help ensure the integrity of my sanity, but be careful what you ask for…  When a system is this insane, there is certainly an argument to be made that armed intervention is actually the sane course of action.  Sure, gunning down a bunch of insurance execs at a board meeting would be a largely symbolic act, but symbolism is sometimes as important as anything… these bastards threaten our freedom and our very lives as much as if not more than any King in England ever did.  It’s too bad that Adam Lanza had to go and take out an elementary school.  If he would have taken out a few of the insurance company executives who are at the root of why people like him often don’t get appropriate behavioral health care in the USA, he would have been a god damned hero to more than a few Americans.

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