Health Care Costs can be Brought Down by a Good Amount

We have adapted our minds to thinking of hospitals as givers of charitable care in the business of life saving, without being aware of the price we pay financially for this care.

Steven Brill's cover story in the Time magazine, shows that non-profit hospitals take a 12% profit margin on everything from cardio stress tests to gauze pads.

The health care system in the U.S is known for confused incentives and over treatment. The U.S spends $9000 moreper capita per year on health care. Brill's report exposes the issue very simply - as overcharging.

The charges for the same medical services can vary widely, even within the same area geographically. Brill refers to the hospital price lists as chargemasters.

The hospital administrators don't even try to justify the high prices, their argument being that insurance companies will anyway bargain for lower prices. As a result people with very little or no insurance are also paying these inflated prices. The difference is that a woman is billed $6,500 for a C.T scan for which Medicare pays only $1000.

When Medicare, Medicaid and insurance companies are transparent about the prices they pay - only then would prices fall. Aetna and the State of New Hampshire have started doing this.

This kind of transparency will improve health care system in the U.S, but many hospitals have contracts with insurers that contain gag clauses which ban the public release of their pricing system. These gag clauses should be prohibited.

The State Health Exchanges, which are being set up will also confront price issues by Insurance companies selling their products through online marketplaces. They would need to establish themselves as providers with a record for charging moderate prices for good quality health care.

When a patient is referred for medical tests, it should be ensured that doctors have no financial involvement with the said facility. The American Medical Association's Relative Value Scale Update Committee -- a 31-member group that is led by specialists, has only one seat made available to a primary care worker, Medicare accepts the prices set by this committee in majority cases. In fact the committee should examine the prices paid to physicians.

In fact as Medicare, Medicaid and Insurance companies pay majority of the bills, it would be to their advantage if they could work on uniform pricing.

References:

Hannah Punitha (IRDA Licence Number: 2710062)

Editors Bloomberg View Newsletter, Feb 2013

Source: Medindia