When my brother bought a car, I helped him research different makes and models. We were able to compare the performance, safety, and pricing of his top choices before stepping into any dealerships. He was able to test drive the cars before making a final decision. I stood by as he haggled with the salesperson to get to a price that worked for both of them. It was a little higher than my brother could cover on his own, but the dealership was prepared with different lending options.
Throughout the process, my brother knew what his options were, how much they would cost, and how he would pay for his car.
A month later, our mother was suddenly diagnosed with cancer. She was immediately admitted to the hospital to undergo emergency surgery, the start of what ended up being a yearlong battle with the disease.
My father had no idea how much my mother’s treatment would cost, how much of it would be covered by insurance, if there were alternative treatments that would be covered, or how we would pay for treatments that weren’t covered. Forget about negotiating — how could he negotiate about something whose price he didn’t know? No one explained the options for payment. My mother and father had zero control over, or even understanding of, the costs involved. For months following my mother’s diagnosis, they randomly received bills, including one for $20,000 attributed to the initial hospital stay that didn’t include the cost of three specialist visits and the emergency procedure.
The stark contrast between these two experiences could not be more different. How could health care — far more personal and important than buying a car — be so much worse?
As we wait for details on what, if anything, will replace the Affordable Care Act, it’s likely that high-deductible health plans will play a significant role in health insurance. These offer lower monthly premiums for a higher deductible, the amount of money people must pay toward their care before their insurance starts covering the costs. Such plans will force a large number of consumers to take greater responsibility for their health care costs and pay out of pocket for health care expenses, almost always without knowing the cost of the care they receive.
This will increasingly strain consumers. Providers will also feel the pain — they are pretty good about collecting initial copays from patients, but often have trouble collecting any costs not covered by insurance. Given the current administration’s wavering health care agenda and lingering uncertainty around reform, payers will respond by transferring more financial risk onto patients and consumers.
An asymmetric market
It is almost impossible for patients and their caregivers to be savvy health care shoppers because health care, especially in the acute or emergency setting, is an asymmetric market. Information asymmetry occurs when consumers are at a severe disadvantage because they know far less about the services and goods than does the seller. This concept, introduced by economist Kenneth Arrow in the early 1960s, laid the groundwork for his pioneering study on health care economics. In practice, it means that patients have no idea what a test, procedure, medication, or stay in a particular hospital will cost before receiving these services.
This is quite different from traditional consumer marketplaces, like the automobile industry, in which buyer and seller have equal access to information and bargaining power. Health care is generally reactive by nature — treating a broken arm, for example — so preliminary research, and even the ability to choose when and where care will take place, is often out of the question. And there’s no Kelley Blue Book for health care. Pricing varies widely between facilities and providers, and has little to do with the actual quality or value of the services received.
Information asymmetry isn’t the only problem. Many patients fall victim to the invisible boundaries that exist between in-network and out-of-network coverage. Patients are blindsided by separate — and often expensive — bills from an unforeseen out-of-network provider who happened to be the one assigned to deliver care. It’s far too easy for patients to become confused with how much they owe, why they owe it, and who they owe it to. Many ultimately feel ill-equipped to handle payments due to health care’s confusing bureaucratic structure.
Even though the expectation for high-deductible health plans is for patients to have “skin in the game,” the system is designed to weaken patients’ bargaining power and practically eliminates any opportunity for them to be fiscally responsible or meaningfully involved in their care decisions.
Hospitals and providers, in turn, are grappling with what to do when patients default on payments. A shift in coverage requirements to high-deductible health plans will mean more of that happening in the future.
Health care providers, hospitals, pharmacies, and the like must make it easier for patients to navigate the payment process and make it more informationally symmetrical. To do this, the industry must shift toward a more traditional buyer and seller dynamic, and provide patients with the information needed to be knowledgeable consumers. The more that transparency becomes a standard of care, the more pressure industry leaders will face to provide it as part of their services. Restructuring the payment model would transform how and when patient payments are introduced, discussed, administered, and collected.
Several digital health companies are working to solve certain aspects of the consumer payment problem. Companies like PatientPay, iVinci Health, and InstaMed make it easier for patients to understand, manage, and pay their bills, but otherwise do not change how and when the patient is introduced to the payment process. PokitDok (which my company, McKesson Ventures, has invested in), Recondo, and Parasail are giving patients price information and cost estimates to help them choose the best treatment option or prepare for scheduled care.
By using tools like these, patients can become more informed consumers and work with providers to realistically understand what they can afford.
Instead of having dozens of disparate solutions, though, what we really need is a handful of platforms that consolidate the available tools to offer health information search, comparison shopping for provider services based on quality and price, online scheduling, online payment that leverages available discounts, prescription delivery, and the like.
Right now that’s a tall order. It would require integrating cost- and information-transparency tools to coincide with existing online scheduling and online payment tools to allow for a more seamless consumer experience — which doesn’t currently exist today. Such a virtual consumer health care marketplace is beginning to emerge, but likely won’t be a reality for another several years.
As new transparency models and platforms become available, health care providers and organizations that do not take advantage of them face big risks by continuing to sacrifice the patient experience at every possible level, from scheduling to receiving care and paying for it. This will likely drive frustrated patients to seek care from competitors who take the full patient experience into account.
Trying to drive down costs is a great goal. But the health care industry must also make consumers’ welfare a priority by becoming a more symmetrical marketplace, like the automobile industry. The patient payment system is a good place to start. Restructuring it so transparency becomes a standard, as done in car buying and other consumer industries, will empower consumers to be active, not passive, in their care decisions. Strengthened consumer bargaining power will gradually force more transparent — and fairer — market competition over the prices of drugs and medical services.
Anahita Nakhjiri is the strategy and portfolio development associate for McKesson Ventures.
Consumer and Provider Costs
The Patient Protection and Affordable Care Act (ACA) has transformed access to health care in the United States by making affordable health insurance available to more consumers. Through the ACA, consumers receive subsidies that lower costs for households with incomes between 100% and 400% of the federal poverty level. In addition, the ACA expanded the Medicaid program to cover all adults with income below 138% of the federal poverty level and supported innovative medical care delivery methods designed to lower the costs of health care generally (Centers for Medicare & Medicaid Services). In this article, it will identify and evaluate the impact that federal or state health care policies of the ACA are having on consumer costs by exploring positive and negative effects.
Positive and Negative Effects
To identify and evaluate the impact of ACA policies, it is importance to explore the positive and the negative effects on consumer costs. According to Furman, “The ACA is helping to improve the quality and efficiency of care for all Americans, contributing to better health outcomes while reducing costs” (Para. 12, 2014). The positive effects on consumer costs include the introduction of subsidies, free preventative care, no surprise cancellations or pre-existing denials, Medicaid is more inclusive for many, dependents stay under parents’ plan longer, and no more unreasonable limits (Health Markets, 2020). According to Physicians for a National Health Program (PNHP), “Although access to health insurance has expanded significantly in recent years, those who gained insurance through ACA health insurance exchanges are being offered plans that make them bear an increasing portion of their healthcare costs since the law was implemented” (Para. 1, 2018). The negative effects on consumer costs include the cost has not decreased for everyone, loss of company-sponsored health plans, tax penalties, shrinking networks, shopping for coverage can be complicated, and marketplace uncertainty can raise costs (Health Markets, 2020).
In conclusion, the impact of ACA policies consists of some negatives and some positives effects on consumer costs. The ACA provides many benefits to consumers, especially for low and middle-income families and small businesses. However, the ACA creates some obstacles for high earners, those who had been healthy and paid low rates in the past, larger firms that didn’t insure their employees before, and certain sectors of the healthcare industry (Obama Care Facts, 2019). Therefore, the negative and the positive effects of the impact on consumer costs are dependent on the type of consumer and any changes made to the ACA policies.
Centers for Medicare & Medicaid Services. (2020). Affordable Care Act. Retrieved from https://www.cms.gov/Outreach-and-Education/American-Indian-Alaska-Native/AIAN/Affordable_Care_Act
Furman, J. (2014). Six economic benefits of the Affordable Care Act. Retrieved from https://obamawhitehouse.archives.gov/blog/2014/02/06/six-economic-benefits-affordable-care-act
Health Markets. (2020). The Pros and Cons of the Affordable Care Act. Retrieved from https://www.healthmarkets.com/resources/health-insurance/affordable-care-act-pros-and-cons/
Obama Care Facts. (2019). Obama Care: Pros and cons of Obama Care. Retrieved from https://obamacarefacts.com/obamacare-pros-and-cons/
Physicians for a National Health Program. (2018). The high cost of healthcare: Patients see greater cost-shifting and reduced coverage in exchange markets 2014-2018. Retrieved from https://pnhp.org/news/higher-premiums-higher-deductibles-and-narrower-networks-in-exchange-markets/
“Information asymmetry” assumes that I as a treating provider have some kind of advantage in the information department. But, I can assure you that I do not. I have NO IDEA how much the diagnosis and treatment will cost, how much the patient’s insurance will pay, how much I will need the patient to pay, or whether the patient will EVER pay what they owe. And, to compound the issue–I can virtually NEVER end the relationship. The patient can fire me, but I am stuck with the patient forever (with very few exceptions), whether they ever pay a penny or not. Further, patients can research me on the internet and review what myriad other patients think about me, then write an opinion that may or may not represent the truth, and I can never respond or research them. I go into every single encounter essentially blind, which is akin to car dealers having no way to grade the credit-worthiness of the customer (FICO score). Yes, the relationship is asymmetric–patients can shop, but I cannot.
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