• *Catastrophic Care*: Chapter 7

    Perhaps the following passage from chapter 7 of Goldhill’s Catastrophic Care is worth a conversation.

    [H]ealth care experts attribute some of the rise in private insurance premiums to cost shifting, by which hospitals require private insurers to bear some of the costs of public patients not fully reimbursed by Medicare and Medicaid.

    It’s an interesting (and endless) discussion, but there’s only one problem: none of this makes any sense. Hospitals lose money on their huge number of Medicare patients? Then why is it that more hospitals have opened than have closed each year for the past decade? Medicaid beneficiaries are unable to find providers? Then how has the number of Medicaid treatments skyrocketed? Private insurance rates have to bear the cost shifting from Medicare and Medicaid patients? Why would private insurers agree to pay for someone else’s patients?

    It may be true that many health care insiders obsess over these phenomena, but that doesn’t mean they really exist across the board. [] [E]xperts assume that the health care industry has responded to the three-price system by merely accepting its objectives, by simply pricing the same service at three different levels. But here’s a more plausible view: the industry has responded to the three prices by offering three different tiers of service, with each one structured to be profitable to the industry.

    At first I thought the hypothesis was that a given practitioner treated Medicare, Medicaid, and privately insured patients differently. Many physicians have told me this isn’t plausible, that they don’t consider (or even know) payment source when treating a patient. But, reading further, what Goldhill really means is that providers sort themselves into those that (mostly) will or won’t care for each type of patient. A Medicaid doctor is not the same as a private pay doctor, etc. They treat patients differently because they have different business models. One can’t do the same for patients at private pay rates as one can at Medicaid rates, for example. That’s both plausible and would lead to different tiers of service for different types of patients.

    It is hard to imagine any system remotely acceptable to Americans that doesn’t lead to stratification like this. After all, my lifestyle is not the same as the poorer family in the next town over or the richer one down the street. I suppose the point is, to what extent does the driver of stratification distort behavior relative to some theoretical ideal (e.g., what might exist under perfect competition)? A follow-up would be to acknowledge that the theoretical ideal cannot exist. (This is always true.) So, a more relevant question would be, to what extent does the driver of stratification distort behavior relative to the best, feasible option?

    My most recent post on cost shifting is here. It links to some of the many prior ones. Other posts in this series are under the Catastrophic Care tag.


    • Austin
      You lost me. By providers, do you mean Part A (hospitals) or Part B (docs).

      States generally pay Part A type rates for Medicaid.

      While the services provided by physicians differ somewhat when providing inpt care (mostly observational trials as you know), the outpatient stratification–public clinics vs Park Ave offices–have more to do with limited referral networks, where to send folks, how to obtain testing, etc.. A good portion of disparity resides here.

      The chicken vs egg question you ask–provider differences or the setting they choose and the constraints within–probably has different answers depending on locale. Maximizing income vs adherence to guidelines (good care–avoiding mis, over or under use) plays a role as well. Good care costs less and makes you less money.


    • America has never had a true National Health Service, or even a reliable network of public hospitals (other than in a few Northeast cities),

      For this reason, our social insurance programs have to try and ‘shoehorn’ all citizens through the same clinics and hospitals that serve the affluent. This leads to ‘chaos beyond a veil of secrecy.’
      (cf. Marjorie Stevens and Paul Starr on all of this)

      America has no association of insurers who could meet behind closed doors with the HCFA and come out with a national fee schedule at least for hospital care.

      The fee schedule would have to be accompanied by a legal limit on balance billing.

      If a rich hospital decided not to accept the fee schedule, they would get no insured patients at all. They would have to subsist on cash customers from Saudi Arabia.

      I dislike Walmart in many ways, but one does notice that they put with absolutely no cost shifting. No manufacturer can come to them and say that we must charge you more because labor and real estate is more expensive in New York. Walmart says, in effect, we will buy from Texas, see you later.

      This kind of negotiation happens every year in Germany and a number of other nations.

    • What matters is not how many tiers there are, but how effective the treatment is at any level. Is the bottom tier good care? I can easily see the top tier has concierge service for your hospital stay and free wi-fi in the room, or any number of unimportant bells and whistles, but what the difference between bottom and middle?

      I have the income to fly business class, but don’t think it is worth the money. Would I be perfectly happy with third class health care? Or is it a Yugo, not a Ford Fiesta?

    • More hospitals have opened because the population has grown by more than 27 million in 10 years, more than the number of new patients who will be covered by the ACA.

      Medicaid beneficiaries rose from 43,000 in 2001 to 63,000 in 2009. That’s why payments have skyrocketed.

    • Physicians will flex access, not quality. A typical hierarchy in $/RVU is commercial>medicare>medicaid>charity. Most practices have a filter that sits somewhere between those categories. In states with high commercial payments, that filter might block Medicare access, more commonly the filter sits between medicare and medicaid. If you can get through the filter (eg even medicaid has a contribution margin, so better than letting an appointment slot go unfilled) the quality of the encounter should be identical. Downstream access problems (therapy, imaging, surgicenter), however, may compromise the overall quality of the health episode.

      Once word gets out that a practice will see medicaid patients, it is easy to get overwhelmed with referrals and risk having the better paying patients crowded out of the schedule. That is why medicaid patients tend to get segregated to the teaching hospital clinics, where the low payments are subsidized by DSH and GME payments.