I think what all of these countries have in common is that they have a strong entity negotiating prices on behalf of the patients, drastically lowering the price, and to a varying degrees also dictating what treatment is appropriate.
It'd be really nice if health care could work like a regular market, but evidence and intuition suggest it simply doesn't. As others have commented, people don't comparison shop even if they could. It's a bit like having no idea how a car works or what could be wrong with it, and then being asked to pick the best mechanic and strategy to fix it. Except of course, that it's not a car but your life or somebody else's depending on the right choice. I think it's unrealistic to expect a working market economy to develop under such circumstances.
One or multiple big entities negotiating prices and dictating treatment comes at the cost of less freedom for the providers and also less freedom for the consumers. Whether it gives better or worse care I wouldn't be too sure - on the one hand, special cases won't get specialised treatment, on the other hand trusting the decision of what needs to be done effectively to the provider sounds like it will cause over-treatment.
The freedom aspect probably drives the USA to the current system, but given the measurable effects, it just seems like bad policy.
I think what all of these countries have in common is that they have a strong entity negotiating prices on behalf of the patients, drastically lowering the price, and to a varying degrees also dictating what treatment is appropriate.
The US has these entities too - they are called "insurance companies".
As others have commented, people don't comparison shop even if they could.
This is simply false. People with low deductible insurance don't comparison shop because they have no incentive to do so. I have no insurance (my startup is minimally funded), and I do comparison shop.
It's a bit like having no idea how a car works or what could be wrong with it, and then being asked to pick the best mechanic and strategy to fix it.
Here is what I did a few weeks back. I went to a doctor who ordered an MRI. I called around, discovered the price of MRI's varied from 5-7k (INR, not USD), and then picked the closest one to my home (the price difference was small enough that I didn't care).
When it came time to get treatment, I did research on the internet, as well as asking three separate doctors. They all independently had the same recommendation - microlumbar discectomy on L5-S1. This was fairly apparent based also on the pattern of pain I was suffering, and just by looking at the MRI. I ruled out one hospital because it seemed dirty, chose a doctor/hospital to have it done (not the cheapest, but not the priciest), downgraded from a deluxe room to a private one [1], and got myself fixed up.
This doesn't work for emergency medicine, but most medicine is not emergencies.
[1] The default over here is to give white guys the gold-plated options.
Do you have evidence that you are normative in terms of comparison shopping for healthcare? It seems to me that costs won't vary much between providers and that comparison shopping would be a mostly useless thing to do in the U.S. Indeed, your own experience in comparison shopping is that the price differential was not that great.
Health insurers in the U.S. have a captive audience. Most people before the age of 60 who have insurance get it through their employer. What the employer pays for insurance comes out of money that would be paid in salary. It seems to me that the insurance companies don't have a great incentive to lower cost of healthcare. On the surface the evidence suggests that they haven't since procedures cost so much more here than elsewhere.
I don't live in the US, but India does have a health care system fairly similar to the US. The biggest difference is it has less red tape than the US, and insurance companies play a minor role. Most people pay out of pocket and comparison shop.
Costs here did vary significantly for the surgery - the dirty hospital was 0.9-1.5lac (depending on general ward vs private room, etc), the place where I had it done was about 85k. It was the MRI for which the price differential was minor.
I was actually pretty surprised that the price gap was so big - I wouldn't have expected the city hospital to be almost 2x as much as the private hospital.
It seems to me that the insurance companies don't have a great incentive to lower cost of healthcare.
Insurance companies don't have a great incentive to lower the cost of their biggest expense? Um, ok.
On the surface the evidence suggests that they haven't since procedures cost so much more here than elsewhere.
The relevant counterfactual is what procedures would cost absent insurance company negotiation, not what they would cost if US patients had as few MRI's as French patients and US health care workers were paid as little as their French counterparts.
I'm not so much glossing it over as emphasizing it. The Indian healthcare system is like the US healthcare system, except people are not insulated from the price. As a result, people shop around.
I.e., Nitramp is wrong, people are capable of shopping around, all they need is incentive to do so.
And then ignoring most of the others, like the truly colossal difference in money spent per capita and the fact that the public health system, while so chronically underfunded that it is unable to do it's job, is at least nominally charged with trying to provide a free universal service paid for by taxation.
Insurance companies don't have a great incentive to lower the cost of their biggest expense? Um, ok.
They only have such incentive if it increases their profit margins. There are a number of scenarios where this wouldn't be the case. They aren't interested in lowering cost just for the sake of lowering cost. I don't have data either way and so my belief in this is easily shaken.
I'm confused, could you name a situation in which this wouldn't be the case? The profits that an insurance company makes are the amount it charges for its services minus the amount that it pays out, it seems that reducing the amount they pay out would necessarily increase profits.
I'm not aware of any insurance companies that charge on a cost-plus basis, and the insurance companies can't just charge companies as much as they want (or else they'd charge an infinite amount).
One situation: if they believe that their competitors will follow suit. Unless an insurance company concocts a way to lower costs that isn't easily replicable, they have little incentive to do so. Otherwise, they're just triggering a race to the bottom.
By this logic, no company in any industry should attempt to reduce costs in an easily replicable way. Since the world doesn't behave that way, there must be something wrong with your logic.
Or maybe there's nothing wrong with my logic. Maybe there are other forces at play that, when all mixed together, result in companies sometimes seeking cost reductions, and sometimes not seeking cost reductions.
Parent was looking for an example to explain a possible situation, not a dynamic that the entire world must obey at all times.
> The US has these entities too - they are called "insurance companies".
As mentioned in the article, American insurance companies appear not to be very good at negotiating prices, partly because the providers are permitted to negotiate different prices with different companies, and to treat these negotiated prices as trade secrets. This is a highly unusual state of affairs.
So you are saying that US insurance companies are dramatically lowering the prices.
If so, then compared to what exactly?
The US has some of the highest costs per treatment of just about anywhere in the world, so if the insurance companies are dramatically lowering prices, then the only conclusion I can draw is that the US healthcare providers must be powering all their equipment by burning money for fuel or something.
The premiums set by American insurance companies will be largely driven by the cost of the services they provide. If they get providers to lower costs, then insurance premiums will decrease across the board, both for that company and their competitors. They can negotiate small discounts in their own individual favor, but large measures that truly cut costs and not just prices will impact everyone. As such, there's no real reason for insurance companies to negotiate for lower costs, since competition will ensure that their premiums decrease by a similar amount and they don't make any more money. Since demand for health care is pretty inelastic, they won't gain substantially more custom by lowering prices, thus they have no reason to try to substantially cut costs..
They are certainly lowering the prices, hence the constant back and forth (literally for 30 years straight) of local market consolidation between the buyers (health insurers) and the suppliers (hospitals/physicians). There are legal fights going on all over the country because of all the pricing issues; Pittsburgh is a great example of how the dominant insurer (Highmark) simply refused to pay the dominant provider's (UPMC) price increase. Highmark's solution? Vertical integration and just buy the other local health system.
In terms of MRIs, you have some odd effects with pricing, particularly when the MRI is seated inside of a massive tertiary care center instead of a standalone facility. If you look at the pricing discrepancies, it is almost always related to getting the MRI done at an academic medical center versus one of the ambulatory care centers. The problem is actually pretty simple: hospitals are terrible at cost accounting and totally game it. Instead of taking the leasing costs over the expected uses of the machine, adding in time for the technician and a bit of a real estate or facility charge, they allocate hospital costs (from all departments/overhead) to services based on their expectations on what they can charge. Michael Porter and his staff at HBS are looking at this right now.
Further complicating MRIs (I'm not sure if this is included in the study's cost estimate) is that radiologists essentially operate in a cartel fashion. They are rarely, if ever, employed by the hospital (like most doctors), but band together and set outrageous prices for reading images. Radiology, despite being non-patient facing and limited liability (they render opinions to other doctors, not patients), is one of the most lucrative medical trades. Eventually, traditional radiology should give way - either through disruption (overseas or computers) or by other doctors simply saying why the heck should a radiologist get money for reading an image I can read myself and will then have to intervene on anyways?
Startups have emerged in price/transparency space (e.g. Castlight Health) and will hopefully start to put pressure on hospitals/physicians to actually compete with one another and bring down costs. Since they have so much local market power, there is only so far an insurer can go without owning an entire market.
>The problem is actually pretty simple: hospitals are terrible at cost accounting and totally game it.
It's not that they're terrible at cost accounting. The problem is the hospitals are required to provide care to people who can't pay, particularly in the ER and obstetrics. So costs are shifted from other departments to pay for these services.
That's why people who are trying to hold down costs by zeroing in on this test or that procedure are destined to fail. Somehow the service the hospital is required to provide without reimbursement will have to be paid for, either explicitly or through the sort of sleight-of-hand accounting we see today.
This is very true. It was actually the argument that convinced me that a public provided healthcare system (at least for preventative treatment) is an awesome idea.
So if they have been lowering prices for 30 years, why do the prices keep going up?
I know there are increased costs due to medical advances, but this only accounts for half the increase in costs according to studies, so the rise from 5% of GDP in the 60's to 16% of GDP today, especially seeing the massive increase in GDP during that period, does not chime at all with the idea that the insurance industry is lowering prices in any meaningful way.
In fact, any rational observer might well assume exactly the opposite.
My comment should have said that absent insurers over that time period, prices would be higher than they are currently. The effect they have is on controlling the level of price increases, not on lowering price absolutely (which I doubt is possible if people wish to keep extending their lives).
I am not saying that insurers are the most effective option or advocating for them; I am only saying that without them, prices would be significantly higher.
If you need evidence, simply compare the total price of any health care service (i.e. total cash outlay by all parties) between a person who carries health insurance and a person who does not. Universally, the price of the service is higher for the uninsured as they lack negotiating power.
We have had such comparisons for MRIs posted on this thread already, given as examples of prices being much less at facilities that do not deal with insurers at all.
While I would agree that having buying power should bring down prices, this can be completely outweighed by the middleman trying to maximise profits. If prices are kept high, for instance, then you can make more money per person, so therefore having less administrative overhead per dollar made and so more profit margin.
For a non-medical example of this, just have a look at Apple, who make tons more money than their competitors, despite shifting less product, by simply ignoring the bottom end of the market.
It'd be really nice if health care could work like a regular market, but evidence and intuition suggest it simply doesn't. As others have commented, people don't comparison shop even if they could. It's a bit like having no idea how a car works or what could be wrong with it, and then being asked to pick the best mechanic and strategy to fix it. Except of course, that it's not a car but your life or somebody else's depending on the right choice. I think it's unrealistic to expect a working market economy to develop under such circumstances.
One or multiple big entities negotiating prices and dictating treatment comes at the cost of less freedom for the providers and also less freedom for the consumers. Whether it gives better or worse care I wouldn't be too sure - on the one hand, special cases won't get specialised treatment, on the other hand trusting the decision of what needs to be done effectively to the provider sounds like it will cause over-treatment.
The freedom aspect probably drives the USA to the current system, but given the measurable effects, it just seems like bad policy.