The Market for Medical Care: Why You Don’t Know the Price; Why You Don’t Know about Quality; And What Can Be Done about It.
Table of Contents
- Executive Summary
- Introduction: The Lack of Transparency
- Source of the Problem: Third-Party Payment
- Consequences of the Lack of Competition
- Health Markets without Third-Party Payers
- Transparency over the Internet
- Obstacles to Transparency
- Needed Public Policy Changes
- About the Authors
Health Markets without Third-Party Payers
“Patients with traditional health plans are paying more out of pocket.”
In health care markets where third-party payers do not negotiate the prices or pay the bills, the behavior of providers is radically different. In these markets, entrepreneurs compete for patients' business by offering greater convenience, lower prices and innovative services unavailable in traditional clinical settings. Until recently, such markets were confined to the types of procedures health insurance doesn't cover, such as cosmetic surgery and vision correction surgery. Today, competitive markets are emerging outside the third-party payment system covering services ranging from primary care to major surgery. The reason: Patients are paying for more services out of pocket.
Tax law changes over the past few years have extended to individual self-insurance some of the same tax advantages traditionally enjoyed by third-party health insurance. Specifically, an increasing number of employees have personal accounts from which they pay medical expenses directly rather than rely on third-party insurance. This consumer-driven health care (CHDC) revolution gives individuals the opportunity to benefit financially from consuming health care wisely. 21 A recent Milliman survey of employers found that almost all (98 percent) are considering offering high-deductible health plans, up from less than half in 2003. 22 Many of these plans include personal accounts, such as Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). [See the sidebar "Personal Health Accounts."]
“Prices are kept in check when patients pay for services themselves.”
Even people with traditional health plans are increasingly asked to pay more out of pocket for their health care in the form of higher deductibles and coinsurance rates. 23 Deductibles for the average plan, for example, have nearly doubled over the past decade. 24 [See Figure III.] As a result of these changes, the number of people with a financial stake in the cost of their health care will continue to grow.
Case Study: Cosmetic Surgery. Unlike most other forms of surgery, cosmetic surgery is not covered by insurance. Patients must pay out of pocket. Physicians who perform cosmetic surgery know their patients are price sensitive. Thus, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery and (c) pay a price that is lower in real terms than the price charged 10 years ago for comparable procedures, despite huge increases in demand and considerable innovation.
“The real price of cosmetic surgery has declined over time.”
- According to the American Society of Plastic Surgeons, there were 10.2 million cosmetic procedures in 2005, of which 1.8 million were surgical procedures, nearly six times the number performed in 1992. 25
- From 1992 to 2005, a price index of common cosmetic surgery procedures rose only 22 percent while the average increase for medical services was 77 percent; overall, prices for all goods increased 39 percent. 26 [See Figure IV.]
“Competition and innovation have led to lower-cost cosmetic procedures.”
The low prices, competition and easy access to information about price and quality found in the market for cosmetic surgery depend on several factors. First, when patients pay with their own money, they have an incentive to be savvy consumers. Second, as more people demand the procedures, more surgeons begin to provide them. Since almost any licensed medical doctor may obtain training and perform cosmetic procedures, entry into the field is relatively easy. Third, providers have become more efficient. Many have operating facilities located in their offices, a less-expensive alternative to outpatient surgery at a hospital. Further, absent are the gatekeepers, prior authorization and large billing staffs needed when third-party insurance pays the fees. Fourth, competition has led to lower prices and innovative substitute products. Take facelifts, for example: 27
- Surgical fees for facelifts increased less than 8 percent between 1992 and 2005 (which in real terms is a price reduction), according to data from the American Society of Plastic Surgeons.
- Cheaper, nonsurgical procedures designed to reduce the appearance of aging, such as laser resurfacing ($1,977), can replace or delay surgical facelifts in some patients.
- Retin-A treatments ($124), botox injections ($363), collagen injections ($390), hyaluronic acid ($557), chemical peels ($628), dermabrasion ($872) and fat injections ($1,174) are other, less-invasive alternatives that compare attractively to a facelift that costs $4,484 in surgeon's fees alone.
Case Study: LASIK Surgery . Competition and innovation are holding prices in check for vision correction surgery, which also is not usually covered by insurance. The cost per eye of conventional vision correction laser surgery (LASIK) averaged about $2,100 between 1999 and 2005. By 2005 the price had fallen to just over $1,600. 28 Competition from the newer, more-advanced Wavefront-guided LASIK helped drive down the price of conventional LASIK even further. Now conventional LASIK generally costs $200 to $300 less per eye than Wavefront LASIK. 29
Case Study: Retail Walk-In Clinics. Walk-in clinics are small health care centers located inside big-box retailers, or storefront operations in strip shopping centers. They are staffed by nurse practitioners and offer a limited scope of services but added convenience. 30 The pioneer of clinics operating within larger retailers, MinuteClinic, allows shoppers in Cub Foods, CVS pharmacies and Target stores to get routine medical services such as immunizations and strep tests. No appointment is necessary and most office visits take only 15 minutes. Most treatments cost from $49 to $59. 31 MinuteClinics clearly list prices, which are often only half as much as a traditional medical practice.
MinuteClinic uses proprietary software to guide practitioners through diagnosis and treatment protocols based on evidence-based medicine. In contrast to standard physician practice, medical records are stored electronically and prescriptions can also be ordered that way.
“Retail walk-in clinics give convenient, high-quality health care for half the price.”
While retail walk-in clinics are becoming more popular among consumers, some doctors oppose them. 32 They argue that physicians in traditional practices can spot potentially serious problems early and provide a level of comprehensive care not available in small clinics staffed by lesser-skilled nurse practitioners. 33
Yet there is evidence that the quality of routine care in walk-in clinics is comparable to treatment in traditional physicians' practices. MinuteClinics received high marks for quality of care in the recent Minnesota Community Measurement Health Care Quality Report. 34 The report measured appropriateness and quality of care for two common ailments among children: colds and sore throats. For example, in treating sore throats, each medical practice was evaluated on the basis of whether they administered a strep test and only prescribed antibiotics when test results were positive. 35 For appropriate care: 36
- MinuteClinics scored 100 percent.
- Mayo Clinics scored 74 percent.
- The average provider rating was 83 percent.
- The lowest provider score reported was 30 percent.
On care of children with colds: 37
- Mayo Clinics scored 93 percent.
- MinuteClinics scored 86 percent.
- The average provider rating was 86 percent.
- The lowest provider score reported was 24 percent.
MinuteClinics scored at least as well as the average and there was far less variation.
Many other entrepreneurs are launching similar limited-service clinics. Wal-Mart leases space for walk-in clinics to MinuteClinic and RediClinic (among others) in a number of stores and has begun to expand these operations nationwide. 38 RediClinic also allows patients to order numerous lab tests for fees that are nearly 50 percent less than tests ordered by physician offices. 39 Solantic is a small Florida-based chain of free-standing, walk-in urgent care clinics staffed by physicians who can provide a higher level of care than a clinic staffed by nurse practitioners. 40 Patients can register online and fill out their medical history prior to arriving at the clinic. Those who want X-rays or lab tests without a doctor's office visit can also sign up online. Initially, retail walk-in clinics did not accept insurance and many insurers were reluctant to cover the services. Today, a growing number of insurers cover the services, and more clinics accept insurance.
“Innovative health care services emphasize quality and convenience.”
Competition from these new clinics may lead traditional physician practices to offer more convenient weekend and extended hours. 41 Primary care would be more efficient if retail clinics could be integrated with traditional practices, so that patients could be treated in the lowest-cost setting. However, the federal "Stark laws" make it illegal for a clinic in which the physician has a financial interest to refer patients to that physician (a practice called "self-referral"). 42 It is also illegal for a physician to pay walk-in clinics to refer patients to him or to a hospital in which he has a financial interest.
Case Study: Telephone Consultations. TelaDoc Medical Services, located in Dallas, is a phone-based medical consultation service that works with physicians across the country. This service is designed for patients who urgently need a consultation but are unable to contact their primary care physician. Consultations are available around the clock, but patients must sign up in advance so their medical histories can be placed online.
When a patient calls TelaDoc, several nearby participating physicians are paged. The first physician to respond is paid for the consultation. TelaDoc guarantees a return call within 3 hours, or the consultation is free - but most calls are usually returned within 30 to 40 minutes. 43 Further, unlike most primary care practices, TelaDoc stores patient records electronically. The physician can access the patient's medical history online, e-mail a prescription to a pharmacy and add information to the patient's EMR. The use of these technologies improves care coordination and prevents adverse drug interactions.
Doctor On Call is a health information service that provides individual subscribers and health plan members with immediate telephone access to board-certified physicians. 44 According to Doctor On Call, patients often find it difficult to contact their regular physician by phone after hours. 45 With few options, people searching for peace of mind or reassurance (such as mothers of sick children) often turn to emergency rooms. In many cases, a phone call avoids an unnecessary ER visit.
Cash-Friendly Practices. Healthy Americans tend to visit the doctor a few times per year for short visits related to noncatastrophic conditions. As a result, they often over-pay for health plans that have first-dollar coverage for physician visits. An alternative is to self-insure for incidental medical needs, saving major medical insurance for catastrophic claims. A growing number of medical practices offer discounts for cash-paying customers or only accept direct (no third-party) payment. These providers are able to offer much lower prices because third-party payment imposes substantial overhead costs for billing, record keeping and claim filing.
SimpleCare, for example, is a physician association that requires patients to pay in full at time of service, but because their doctors do not need insurance billing departments, SimpleCare offers much lower prices. CashDoctor is a loosely structured network for physicians, dentists, chiropractors, pharmacies, laboratories, hospitals and out-patient facilities across the country that are "cash-friendly." CashDoctor is not affiliated with any insurance company or provider network. Practice styles and fee schedules are available online.
PATMOS EmergiClinic, in Greenville, Tenn., represents a growing trend toward cash-only practices. Founded by physician Robert S. Berry, it is a walk-in clinic for routine minor illnesses and injuries, open mornings Monday through Saturday and some afternoons by appointment. Established patients are occasionally treated via phone consultation. PATMOS EmergiClinic also uses electronic medical records and its physicians prescribe drugs electronically.
“Retail clinic patients know the prices they pay for services in advance.”
Prices for common medical treatments are posted for all to see. A poison ivy treatment costs $25. The price to treat sore throats is $35. Simple lacerations can be treated for $95. Fees are about half the price of what Medicare would pay. Most EmergiClinic patients do not have insurance; and physicians in traditional medical practice often don't want to see people who are not insured. 46
Medical Tourism. Increasingly, cash-paying patients are traveling outside the United States for surgery. Facilities that cater to such medical tourists typically offer: 1) package prices that cover all the costs of treatment, including physician and hospital fees, and sometimes airfare and lodging as well; 2) electronic medical records; 3) low prices that are often one-fifth to one-third the cost in the United States; and 4) high-quality care in facilities, and by physicians, that meet American standards.
Prices are so much lower that patients save money even with the added cost of travel. Most of the patients traveling abroad for surgery are uninsured or come from countries with long waiting lines for treatment. Insurers may make medical travel part of their provider networks in the future. 47 At least 40 company-sponsored health plans will begin offering overseas options through United Group Programs, a health insurer in Boca Raton, Fla. 48
While low-cost havens for plastic surgery have been popular for years, entrepreneurs in India and Thailand have recently built high-tech facilities to perform major surgeries, such as hip and knee replacements or cardiac surgery, specifically to attract medical tourists. 49 In addition to low prices, quality of care is emphasized.
PlanetHospital.com is a Web site that connects patients with high-quality medical facilities abroad. PlanetHospital's medical staff carefully screens potential clients to assess whether they are well enough to travel. Staff members then help clients choose appropriate physicians and destinations for care. Each patient's medical records are digitized and placed online to allow physicians in the destination country to easily review their medical history. PlanetHospital then arranges conference calls between potential physicians and the patient to discuss the procedure. Satisfaction is high - PlanetHosptial claims none of its clients have returned with a complaint about the quality of care or the surgery.
“Patients can travel abroad for surgery and pay a bundled price (including travel) that is one-third the cost in the United States.”
MedRetreat.com is another agency that arranges medical trips. Patients are assigned a U.S. program manager who helps them find appropriate destinations, procedures, hospitals and doctors. The package price typically includes airfare, lodging, hospital and physician fees. Once providers and services are selected, the patient's medical history is digitized and viewed by the physician. After a patient arrives in the country, a destination manager meets them and coordinates the medical service. After patients recuperate, the doctors release them to go home or to stay and see the sights. 50
The savings are significant. The price of an MRI in Brazil, Costa Rica, India, Mexico, Singapore or Thailand is $200 to $300 compared to $1,500 or more in the United States. A hip replacement can be performed in Argentina, Belgium, India, Singapore or Thailand for $8,000 to $12,000. 51 A herniated disc repair that would cost up to $90,000 in the United States is available for less than $10,000 in India - including airfare, hotel and meals. 52
"Millions of consumers have accounts that allow them to control some of their own health care dollars."