Lawful Prey

When my father passed away in January, my siblings and I had to make the necessary arrangements for his funeral.  We turned to a trusted funeral director and began making decisions.

What casket should we select?  We saw a variety of caskets with prices attached.  We were not experts on “value” with regard to caskets and the prices were almost meaningless to us in a time of emotional turmoil.  We ended up selecting one similar to what we had chosen for our mother nine years previously.

We then had to choose from an array of other services, each with a price attached.  We did our best but we were not in a position to “shop” each item to see if we could get a better price.  In the end it was trust in the funeral director which guided our decisions.

I thought about trust and prices this week when President Trump announced an effort to make healthcare prices more “transparent’.  He was joined by both Democrats and Republicans in favor of such an effort.

It is all political sleight of hand.  For the purpose of this entry I am going to narrow the focus to hospital pricing, something I know a bit about.

At least in California, hospital prices are readily available at https://oshpd.ca.gov/data-and-reports/cost-transparency/hospital-chargemasters/ .  As the site explains:

“A hospital charge description master, also known as a chargemaster or CDM, contains the prices of all services, goods, and procedures for which a separate charge exists. It is used to generate a patient’s bill. As required by the Payers’ Bill of Rights, each hospital is required to submit a copy of its chargemaster, a list of average charges for 25 common outpatient procedures, and the estimated percentage change in gross revenue due to price changes each July 1.”

There are thousands and thousands of individual hospital prices in each chargemaster.  You cannot get more transparent than that.   Hospitals are required to maintain such detailed lists of prices by Medicare even though Medicare does not pay hospitals on the basis of its prices.

Medicare is a price fixer.  If you need to take care of Medicare patients, you have to accept their reimbursement which is driven by the vagaries of the federal budget.  The same is true for Medicaid (MediCal in my state).

The shortfalls from the poor reimbursement by these government programs results in cost shifting, i.e., charging patients with private insurance or no insurance more than would otherwise be necessary.  Here is a rule of thumb–the greater the number of Medicare and Medicaid patients served by a hospital, the higher will be its prices.

Selecting a provider though is more than just a matter of pricing.  If we have insurance or Medicare or Medicaid, we are for the most part unconcerned about prices. There are pundits who say that for  price transparency to work patients need to bear more of the cost of care they receive.  While I think that is true, it is not a viable position politically.

From my experience as a patient and as a healthcare manager now retired, trust in my physician’s judgement and in the hospitals where I have had a good experience has always been more important than pricing.  I don’t want the cheapest surgeon or hospital; I want the surgeon and hospital I have reason to trust.  That is what the worthies in Washington and Sacramento don’t understand.

So big deal.  We have transparency, at least in California, for hospital prices.  There is no indication that access to that information makes a significant difference in patient decision making.  Until patients have much more skin in the game, which is unlikely, that will remain the situation.

What is going on now is pure political posturing by both parties.  Here is a bit of advice I give to the poseurs in D.C. and Sacramento.  For all the years I was active in healthcare I had a quotation hanging in my office by John Ruskin, a 19th century critic and, ironically, a socialist.  It was the first sentence of the first paragraph of Ruskin’s “The Common Law of Business Balance” which follows:

“There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

I hope people keep this “law” in mind as healthcare undergoes a necessary review of costs and benefits. What would be real “price transparency” would be to show side by side with real prices what Medicare pays for the same service. Then citizens would see the hidden healthcare taxes they are paying as the lawful prey of political hawks.