In early April I offered an analogy to illustrate reference pricing. The post was provocatively titled “Copayments are stupid.” Perhaps for that reason it garnered a considerable number of comments, to which I respond in a new post on the AcademyHealth blog.
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Copayments are stupid, ctd.
05/23/2013
Austin Frakt
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by RC on May 23rd, 2013 at 14:41
It’s peculiar that people think that information asymmetry, opacity, and complexity are insurmountable barriers to a greater consumer role in healthcare decision making. In a free market, a third party can provide individual consumers value by reducing asymmetry and opacity. Personal financial advisors are an example.
One of the biggest flaws of our current system (this is true in virtually all countries) is the failure of the payment system to support innovative agent roles, where an advocate for patients guides and coordinates care for some fee. Not only would it help many pricing systems work, but it could also address the gobs of waste from poor provider integration.
by Weiwen on May 23rd, 2013 at 19:18
It strikes me that drugs would probably be the best place to start if we were to do a trial of reference pricing. There are clearly established brands of drugs. Your insurer should be able to tell you what the total price for each type of drug for a certain condition is – in fact, you can usually get the the price your insurer or your pharmacy benefits manager paid from your insurer’s website. You can often determine if a drug is working for you or not, and you can switch in fairly short order. So, if you establish a reference price, I imagine you could definitely induce a shift away from the less cost-effective branded drugs to the more cost-effective brandeds.
The question is, how is that so different from an insurer establishing various drug tiers? For example, I used to take Alvesco (ciclesonide) to manage asthma caused by seasonal allergies. It had a patient assistance coupon that eliminated my copay. That coupon program has ended, so I’ve switched to QVAR. The drugs are equally efficacious and have similar side effect profiles. But QVAR is on the preferred branded list, and Alvesco is not. I’ve already got an incentive to switch to QVAR. What would reference pricing add here that tiered benefits would not?
by Austin Frakt on May 23rd, 2013 at 20:03
With reference pricing, the consumer pays the FULL marginal cost. With tiers, you’re still paying a fixed copay or coinsurance within each tier.
by SAO on May 24th, 2013 at 00:51
Having lived in England where a key promise of the NHS was that it would be free, I think of co-payments as a way to eliminate nuisance visits. To keep to the car analogy, it’s not going to convince you to buy a Yaris not a Lexus, but it will stop you from asking the mechanic to look at a rattle before you’ve checked to see if the rattle whether or not the cause is mechanical, as opposed so some forgotten junk bumping around under your seat.
by SAO on May 24th, 2013 at 06:24
I’m struck by the extent in America, health policy is focusing on how to get the consumer to deal with the ridiculous prices. Why not government?
There are so many simple steps: requiring hospitals to charge one price to everyone regardless of insurance status; requiring hospitals to provide cost estimates and their breakdown, so people can see if they are being charged $25 for one aspirin. A limit on overhead and profit margin for not-for-profits.
Requiring drug companies to print comparative efficacy data on their inserts, so if they’ve told the FDA that their new expensive, patented drug is substantially the same as something else, they have to state that clearly on all marketing materials.
Calling some of the marketing practices of drug companies and medical device manufacturers kickbacks and prosecuting them.
The medical establishment is awash in dubious business practices and yet policy analysts are busy looking everywhere except at regulation. We’re not going to turn into North Korea if a few sleazy marketing techniques are outlawed.
by RC on May 24th, 2013 at 10:40
“Why not government?” You mean the congressman whose campaign was funded by the industry? Or the captured regulator who has a revolving door to massive wealth?
Who cares what overhead and profit margin are? All you should care about is whether you are getting value. If someone figures out how to do it for half the cost, they deserve to get rich, and their wealth will signal others to mimic them. We want people to become rich from providing value, not from regulatory capture.
You don’t have to add layers of regulation if you address the underlying incentive problems. I’ll use drugs as an example. Eliminate patents on molecular entities. Have the FDA look only at safety, not efficacy. Private groups have better incentives to look at the latter. Eliminate prescription requirements for many types of drugs. Make it cheap to bring drugs to market and make the marketplace fiercely competitive. We created our pharma monsters with patent laws and regulatory costs so high that only giants can compete–and giants can command lawmakers. Stop propping them up and you don’t have to try to kick them back down.
by Floccina on May 24th, 2013 at 15:56
It is intriguing to me to think of a possibility of some sort of system that pays out on diagnosis. The problem would be fraud and it might be huge. Never the less one would think that payment on diagnosis would have a large downward effect on medical spending if fraud could be avoided. Family and friends providing care and medical tourism would just 2 things that might reduce spending
Because the problem with fraud in such a system, it sometimes seems to me that only charity works for medical care. A person might be OK going to Canada or Mexico for surgery to save their church or mutual aid society some money but not their insurance company or government. Now Government in the USA is a huge charity (SS, AFDC, SNAP, Medicare, Medicaid) but is very, very bad at charity and I do not see how to get back to significant mutual aid societies, thus my proposal.
by hipparchia on May 27th, 2013 at 06:18
copayments are stupid, i agree.
equally stupid is the idea that making patients into “smart shoppers” on the piddly stuff is the best way for a community to plan for, and pay for, the complex and expensive medical infrastructure that we all expect to be there if/when we need it.