Cost-Conscious Patients: Why Is That a Bad Thing?
An article in Modern Healthcare discusses the uneasy feeling doctors experience when patients ask awkward questions about the medical care recommended for them. Among the uncomfortable questions doctors are expected to answer: “How much is that going to cost?” “Do I really need that MRI?” “Why do I have to get that?” “Can it wait?”
Imagine how any other profession would respond when the purveyors of goods and services are expected to suffer the indignity of customers quizzing them about the merits, demerits and costs of their products. Oh, I forgot, every other profession does suffer the indignity of having to convince buyers that their services are valuable.
The article, Reform Update: Patients’ cost sensitivity worries some doctors, describes a world where patients face cost-sharing and want information before they open their wallets. However, the article admits that not all physicians are bothered by it:
Some physicians say they welcome conversations with patients prompted by high-deductible plans about efforts to prevent illness, minimize complications and avoid unnecessary care. Frank discussion of cost also can help patients avoid the stress and financial damage of large medical bills.
But then the caveat begins:
But doctors also warn that too much cost sensitivity among patients can compromise their ability to do their job, with potential harmful consequences if patients delay or skip necessary treatment. And these conversations sometimes can raise uncomfortable financial issues for doctors about whether they are providing care in the most cost-effective way for their patients.
Oooohhhh, the horror of it all!
Physicians report treating patients who ask if they can wait to see whether a condition resolves by itself before spending possibly hundreds on a diagnostic image. One of the more frustrating questions doctors face is about the cost of a service. Often the doctor doesn’t know because each health plan has different negotiated reimbursement rates. Sometime it’s hard to estimate a cost because of various cost-sharing arrangements, and due to hospitals’ lack of bundled pricing. It could also be argued that sometimes doctors don’t know simply because they don’t want to know. Most are in practice arrangements where they’ve never had to compete on price. It was mentioned that health plans also bear some responsibility for making costs transparent.
Then buried near the end of the article is a prophetic passage:
Patients’ increasingly vocal concerns about their out-of-pocket medical costs suggests that these high-deductible/high coinsurance plans have started to achieve policymakers’ goal of making healthcare consumers more cost-conscious and potentially slowing the nation’s medical spending growth. That’s long been the approach favored by conservative policy analysts.
Hallelujah!
Not specifically mentioned in the article is that price-sensitive patients will in turn have a desirable effect on doctors, clinics and possibly hospitals. When the suppliers of a good or service understand their customers are price-sensitive, the suppliers will respond by competing on price (and quality). Those that don’t will find their waiting rooms empty.
Both doctors and patients are entering uncharted territory, where both have to be concerned about cost and efficiency of medical services. Although this has always been the case in cosmetic medicine, it’s not common in areas of medicine where third-party payment dominates. Oddly enough, many doctors who work in areas of bureaucratic medicine also dabble in cosmetic procedures where they routinely compete on price and quality.
The bottom line: There is a lot of medical care that is of only marginal value. That’s not to say it’s of no value, but maybe a poor value compared to paying rent, paying the mortgage or other uses for consumers’ money. This means that sometimes patients will decline a service their doctor really believes is valuable. That’s to be expected, but there’s nothing wrong with that. The RAND Health Insurance Experiment found medical spending fell by about 30 percent when patients faced significant cost-sharing, and suffered few (if any) ill effects in the process. Under a more competitive environment, some of the services doctors and clinics currently itemize may have to be absorbed into package prices. Some services may have to come down in price. Some services will simply be refused because patients may not want to spend their entire disposable income on medical care that has little effect on their health status.
Price sensitive customers are half the battle of reining in health care spending. The other half of the battle is medical providers who compete on price for patients’ business. This article is evidence the health care system is beginning to respond the way it needs to — and that’s good news!
“Among the uncomfortable questions doctors are expected to answer: ‘How much is that going to cost?'”
As much as I can relate to this, it is a shame that most patients do not bring up cost more often. It is positive when patients are more attentive to their health care and know what they are being charged for.
At the NCPA we have often said that society could (at least in theory) spend its entire GDP on health care in medically beneficial ways. But that would leave few resources left over for other things.
At some point consumers will have to decide between beneficial medical care and other uses for our money. That means there are some prescriptions, some services, some surgeries that patients will decide aren’t worth the money. If consumers refuse to make trade-offs, then government will make decisions for them.
Public health advocates often lament there are patients who don’t bother to fill all the medications prescribed due to costs. Sometimes this possibly harms the patient; sometimes it probably helps society (as when a patient with a sore throat doesn’t fill an antibiotic). There can be good effects, bad effects and marginal effects.
Consider this rather extreme thought experiment; imagine being given a choice where you can either spend $500,000 of your lifetime earnings on bigger homes, newer cars, more frequent vacations, and a higher standard of living, etc. Or you can forgo all that and live an additional year with poor quality of life. Say, the choice is between living until age 90 with a comfortable lifestyle or 91 with a meager standard of living (but with the extra year in a nursing home).
Most people in their 20s would opt for the better lifestyle. Our current system doesn’t really allow us to make that decision.
“There is a lot of medical care that is of only marginal value. That’s not to say it’s of no value, but maybe a poor value compared to paying rent, paying the mortgage or other uses for consumers’ money.”
This is what the consumer needs to know as well. If the MRI won’t contribute to a diagnosis or an outcome, then the consumer should be able to say no and allocate their costs to fit them.
Controlling costs either by the insurer or the participant, is a worthwhile endeavor.
Generally, the insurer who has the lowest cost network, will have lower premiums, all else being equal (and the network offers quality and quantity).
This opinion is acccording to several actuaries at Milliman we have worked with the last 3 years.
To really get a handle on premiums, participants must do two things: have large deductibles and have them fully pre-funded.
At National Prosperity Life and Health, we are offering 35% returns per year on their HSA-type contributions – guaranteed.
A $300 a month contribution, grows to $25,000 in 34 months (assuming no claims).
That is a super-sized HsA with no calories!
Don Levit
Treasurer of NplH
Don, you say (HSA – LIKE)
Also you say, “At National Prosperity Life and Health, we are offering 35% returns per year on their (HSA-type) contributions – guaranteed.”
Also you say, “That is a super-sized HsA with no calories!”
Also, I find that National Prosperity Life and Health Inc became active 11/15/2013
I work for America’s oldest health insurance company and you have the youngest. If what you have is true we had better be scared because you will take over the market coast to coast.
I did talk to Elliot for some time and he seems like a nice young man. He said that it’s Blue Cross that is the problem in this country. I thought wow, this young man is smart.
Since the begging of the tax-free MSA in 1997 we have had a terrible problem with people saying MSA MSA MSA – then switching clients to other products with higher commissions.
Your product [isn’t] an tax-free HSA is it?
Our product is not an HSA.
We call it HMI – Health Matching Insurance
It differs from an HSA in that:
1. No cash is available upon surrender or to use for non-medical expenses.
Only a medical benefit value is provided for each account holder, including dependents.
As I said, this value grows 35% a year-guaranteed.
We are able to provide such returns for every dollar not claimed for a medical expense stays in our reserves. We are simply providing part of our reserves to the lower claimants.
When a lower claimant has a large claim, it is deducted from his account balance, thus providing opportunities for our reserve to increase.
Of course, over time, if the high claimant has lower claims, his account balance can grow again.
2. Discounts are provided for dependents – 30% for spouses and 50% for children.
That means if an employee pays $300 a month, his children get the same accumulation for $150 a month.
3. No limit on deductibles. No longer can a person have more in his HSA than he has in a corresponding deductible.
Deductibles are matched to the corresponding HMI account balance at the beginning of each month for each employee and dependent.
HMI premiums are paid for; no further premiums due for that account balance, so it works similar to that of cash.
Don Levit
An offer of a guaranteed 35 percent rate of return goes by a different name than tax-free HSA, I am pretty sure.
Please don’t make us have to start deleting comments.
He needs to go John, All he does is pitch his money making scheme.
And I don’t even get a commission!
That is the way it is with the tax-free HSA too. I can honestly say to this very day I have never made a penny on an HSA. I call it salesman abuse.
Interesting how the patient’s persepective changes when they have to lay out the cash themselves for the test. Part of the reason we have had runaway medical costs is that physicians can recommend a test and patients will be more than happy to have it done as long as they are not paying for it. This should help to reign in costs as well as expectations.
Because of Obamacare, I suspect that consumers will be increasingly more cost conscious in the care they receive. But stronger patient power will only be a benefit for health care costs.
good work Devon
Press on!
Thanks for the kind words, Ron!
The one concept I wanted blog readers to consider is that there is such a thing as beneficial care that is not worth the money. Public health experts tend to classify medical care as either: 1) wasteful (e.g. redundant MRIs) or 2) medically necessary. In their minds, item 1) is bad; item 2) should be available regardless of ability to pay — or regardless of the cost to provide.
As an economist, I know it’s not that simple. What you deem as wasteful, I may think is necessary. What you view as necessary, I may think is wasteful. As you pointed out, people don’t travel to India to save their employee health plan money. But I’ve considered flying to Costa Rica to save $5,000 on a dental implant — especially if I need more than one.
I think we need several systemic changes here.
First, doctors need to view knowing and caring about the cost of care they recommend as part of their job. To do that, though, they need robust, user friendly price and quality transparency tools. The confidentiality agreements between insurers and providers that currently preclude the disclosure of actual contract reimbursement rates have to be eliminated.
Second, we need sensible tort reform. I define this as safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines and protocols where they exist. We also need to get medical dispute resolution out of the hands of juries in favor of specialized health courts that have the power to hire neutral experts who can sort through conflicting scientific claims.
Third, we need more reasonable patient expectations. Too many patients equate lots of testing with “thorough” care. Doctors, for their part, perceive that they’re not allowed to miss anything in our litigious society. They also get paid more for doing more under a fee for service payment model. As a patient, what I really want is for my doctor to project himself into my shoes. If he or a member of his family were the patient and he were paying the bill out of his own pocket, would he want the care he is recommending for me? If the answer is yes, that’s good enough for me. If it’s no, I don’t want the care either nor do I want to pay for it.
Devon, I like your points about the Rand study and marginal care.
Let me add two items:
a. i believe that the Rand study capped the coinsurance at about 10% of income.
You did not have people making $32,000 a year wandering around with $8000 caps.
One small part of the ACA does in fact cap coinsurance for lower income people.
b. When the Rand study was done, I believe that many of today’s superb diagnostic tests had not been invented.
Whereas today, someone in a high deductible plan is sooner or later going to refuse a diagnostic test that would have caught a cancer when it could still be treated.
Maybe this is a big problem, maybe not. I am not sure.
The French health plan waives deductibles for serious illnesses. I remember a post by Dr Goodman concerning ideal health insurance where he suggested something in this vein also.
Bob,
As I recall, lower-income people were the only demographic in the Rand Health Insurance Experiment that made decisions viewed as detrimental to their health. Ideal health insurance should have different cost-sharing based on income.
But one caveat; what upper-income people view as reasonable priorities are often not viewed as priorities by lower-income people. A physician with an annual income of $200,000 may think it perfectly reasonable to order a $700 MRI to rule out a serious condition. Yet, to someone with only $100 in disposable income after expenses each month, $700 to “rule out” an unlikely, worst-case scenario may not be viewed as a prudent financial decision.
There is always a chance that someone will decide to forgo the one test that (at least in theory) could have saved their life. But I would argue that most decisions are of marginal importance. For every one person who decides against an MRI that may have caught cancer early, there are probably 1000 people who increased their likelihood of getting cancer with poor lifestyle behaviors. The refusal of the MRI due to cost-sharing is seen as a catastrophic failure of consumer-driven health care. But the failure to get the MRI is possible a failure of priorities in a long list of bad priorities. By that I mean we worry about that last failure as though it was what killed the patient. Yet maybe it was a combination of multiple bad decisions that resulted in premature death.
And yes, John and I have written about (what is now called) value-based health insurance design. For example, MSAs in South Africa had different cost-sharing arrangements for different conditions. Some conditions warrant more discretion than others. I’ve always thought it should be the health plan that decides which drugs or services hold value. Drug plans do this with tiered formularies. I wonder why more health plans don’t do this with other services. For instance, if you get your MRI at Acme Radiology, your cost-sharing is $100. If you get your MRI at Big Hospital in North Dallas, your cost-sharing is $700. This only works well if patients know cost-sharing varies with the procedure, and how to find out what the cost-sharing is.
We plan to write more on this topic, because it is very important. Cost-sharing should be based on diagnosis and condition, not an annual cycle.
How can the amount of time it takes the Earth to revolve around the sun have anything to do with consumer-driven health care?
I think it is hard to achieve optimally without health-status insurance, but the steps Devon Herrick describes are in the right direction.
“Imagine how any other profession would respond when the purveyors of goods and services are expected to suffer the indignity of customers quizzing them about the merits, demerits and costs of their products”
MRI/CT/US/X-Ray: Not my product
Chem Panel/CBC/PFT/EKG: Not my product
Hospital Stay, Nursing Home, Rehab: Not my product
Splint/Nebulizer/wheelchair: Not my product
Office Visit: now that’s my product, and I can tell you exactly what it costs (although not in public like this as that is potentially illegal)
You make a good point. Those services are not your services, so you have little idea what they cost. Neither do you know whether the anesthesiologist you bring in to assist with an outpatient surgery is “in-network.” Yet, these choices often have a huge impact on cost-sharing.
The problem is: You’re the doctor with the authority to order those services. Consumers cannot go on their own and just buy them. Doctors who routinely order these services could (maybe should) provide more assistance.
What can a doctor (who doesn’t know the price of an MRI) do? Provide the patient with a piece of paper explaining the service and the CPT code. Possibly include a list of local vendors the doctor has worked with. My fiancé asked her doctor about places to get an MRI and her doctor willingly provided several names that did good work and had reasonable prices. That was very much appreciated!
On the other hand, for an earlier lab test the doctor’s business office staff merely gave my fiancé a hospital address that was conveniently close to her home. My fiancé discovered much to her surprise that she had been sent to a location for convenience that was about $500 more expensive than she could have gotten the service for elsewhere (i.e. $700 vs. $200). That was not appreciated.
This may be the major problem with Accountable Care Organizations. The patient is assigned retrospectively to a primary-care practitioner. However, the ACO is not am HMO, so the primary-care practitioner is not in control of the high-cost spending.
Sounds like a great idea but remember, there are no “oops” moments in healthcare; “oops” I guess that MRI might have caught the breast cancer in its early stages; or “oops” maybe that CT scan could have caught the lung cancer before it spread – but at least i saved a months rent.
That’s Monday morning quarter-backing thinking Big Joe. Central planners could say, “She would still be alive right NOW if it wasn’t for that darn tax-free HSA.”
Monday morning quarter-backs are always right, at least in their mind.
Devon, thanks for your comment on the issue of skipped MRI’s that may fail to detect a disease.
I am reminded of Arnold Kling’s discussions a few years ago on the American preference for ‘premium health care’ — which detects and cures all potential diseases. (backed up by trial lawyers, natch.)
Another way to look at this is to ask, humbly, whether the goal of health care is to prevent death.
If that is so, then all MRI’s should be covered for everyone.
But if the goal of health care is to relieve pain, that is a more modest measurement.