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.
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.