Single Price Health Care

I often talk about the need to make “value of care” rather than “volume of care” the best rewarded virtue in health care. I want to elaborate on what I mean in using the word value.

A couple of days ago, I listened to a consumer report on CNN evaluating hybrid cars. The reporter was discussing an independent evaluation someone had conducted to determine the relative merits of several models. They had created criteria to hold each car against as a means of measurement. Then the price of each one was compared. The car that scored the best quality at the lowest cost was determined to be the best buy, or best value.

Given the proper information, consumers should be able to make similar comparisons on health care. Until recently, little information has been available for use by consumers. That is changing. Great effort is now being made to evaluate the quality of services a patient gets in different settings.

It takes both quality and price information to determine value. The problem in determining price is that the billing system is simply insane.

I’ve tried to imagine using the way we bill health care in any other part of the economy. To continue the automobile analogy, let’s just speculate on what would happen if we transformed the automobile industry to adopt the health care pricing structure?

The dealer would say to a customer, “We don’t really know the price and we haven’t got a way for you to compare this car for quality but we know you need it, so come in and we'll give you the car.”

Then about three weeks later, the customer would start getting bills. There would be a bill from the people who made the car’s body. Another bill would arrive from the transmission people. Everyday more bills would arrive from seat makers, the paint people, and the folks making the sound system.

Then when the bill from the dealer comes, there would be a charge for time spent in the show room, a separate charge for the salesman’s office with a $27.90 cent item for the coffee you drank while there.

Gratefully, they don’t sell cars that way. All those costs are packaged and managed by a car company. Consumers get one price they can understand.

Some of my friends in the practice of Medicine will find my analogy troubling, pointing out that health care and a car purchase have significant differences. Okay, the analogy isn’t perfect, but let’s not miss the point.

The way we price health care cannot be understood by a human being of average intelligence and limited patience. And I think it’s also time we began to challenge the assumption that health care is all that different from other things consumers buy.

For many common procedures and conditions, consumers should be able to ask for and receive a firm, single price, and expect providers to stand behind it. Such a system would promote coordination and accountability and allow apples–to-apples comparison.

It can be done. Last year, Medicare paid for 255,000 knee operations. Incidentally, we paid for 95,000 heart bi-pass operations and 95,000 lung cancer treatments. Believe me. When you pay for 255,000 of anything, you know what medical supplies, services, procedures and facilities somebody getting a knee operation is going to use; and so do the medical providers who perform them.

I believe HHS has a responsibility to push the envelope on this. We will soon publish information on top Medicare procedures by cost and volume as part of an efficiency measurement roadmap for the department. Medicare is also developing a demonstration that would establish bundled payments for hospital-based episodes of care.

Participating hospitals would be able to competitively bid for episodes, then savings would be shared with beneficiaries who choose hospitals providing services at below the per episode rate.

This not only holds the potential to improve quality and reduce costs by encouraging physicians and hospitals to work together, but also encourages more informed consumer decision-making.

Comments

Well, I'm not in medicine, but I really liked your analogy.

Posted by: Emily | May 08, 2008 at 11:13 AM

Mr. Leavitt,
I enjoy your blog and think you often have excellent insight into the health care "big picture." However, I do think your analogy between buying cars and using health care services requires further analysis that perhaps patients/public will not appreciate. First, I agree that health care consumers should have the attitude of a car-purchaser: like car insurance, purchasing health insurance should be legally required (mandated, if you will). Both types of insurance provide coverage for the unexpected accident or illness. If one is careless about caring and maintaining your car, as most American do with their health, then one's premiums increase. Perhaps the continually increasing premiums for all the preventable illnesses (uncontrolled diabetes, blood pressure, obesity, etc.) will actually spur people to take better care of their health. Moreover, like car insurance, reducing the types of services covered would probably go a long way to decreasing Medicare costs and avoiding the "bankruptcy" of the Medicare program you recently reported. After all, do drivers expect car insurance to pay for gasoline or oil changes? No way. Then why should Americans expect Medicare/ Medicaid/ health plans to pay for every little thing related to their health?

Posted by: Ada Chiu | May 08, 2008 at 11:18 AM

Dear Secretary Leavitt,

I appreciate today’s blog, but am still waiting to see you talk about Chiropractic.
Although MD’s are often really important to health, to ignore chiropractic care is like: Instead of doing a minor adjustment to the carburetor lets just give you a fuel additive. Then when you get tired of the additive only slightly working, we will do an irreversible operation where you get a new carburetor that will give you less power and mileage than the original and for some unknown reason left turns are harder to make. Consider the comparative cost and customer satisfaction.

Posted by: Burdoc Nisson | May 08, 2008 at 11:53 AM

Amen. I am working with an associate of mine from the Utah State Department of Health putting together a health care reform proposal that ties directly with what you are speaking about. We are polishing a proposal to have the State generate funds through a split employer/employee tax of no more than 2.5% respectively, and becoming a large-scale purchaser of basic health care and preventative services for all citizens of Utah. The services provided would be clearly defined and be structured in a way that easily allows private health insurance carriers to build on top of that foundation and maintain their ability to manage risk. This proposal would result in a savings in health insurance premium to the employer far greater than the 2% they invested. Preliminary studies on wellness indicate that we can realize a $3 savings for every $1 of prevention we spend. The proposed plan would cover services like immunizations, physical exams and other basic services.

In tying in with your comments, this proposal would allow local health care providers to bid on these services, and Utah to be able to demand a certain level of transparency, quality and value derived from it. This proposal would generate about $1.2 billion annually.

Please let me know what you think, as well as anyone reading this comment please let me know. The State's appointed task force has limited time to act and I'd love to hear thoughts on this matter.

Thanks for your bog entries - I really enjoy reading them.

Matt Spencer
(Please post comments at our web site www.ahplans.org so I don't place my e-mail on the web - thanks!)

Posted by: Matt Spencer | May 08, 2008 at 01:13 PM

The problem with the government publishing information on cost is that cost is not the price paid by the consumer. Some hospitals publish their chargemasters thinking they have somehow answered the call for transparency. Yet as you well know foreign hospitals do package their prices in an easy to understand, all inclusive manner. With more and more hospitals owning their physician practices, they could be moving in this direction as well. The other problem is that most consumers don't pay attention to price as long as they have insurance. People in CDHP plans and the uninsured might and even that is debatable. Applying the same transparency to quality and shopping is not as easy. I would maintain that the public does not understand these metrics or know what to to do with them. Maybe their doctor does or should. For the consumer it is about not just clinical outcome but the total experience. Thanks Mike.

Anthony Cirillo, FACHE

Posted by: Anthony Cirillo | May 09, 2008 at 08:28 AM

Dear Secretary Leavitt, Mr Nisson and Mr. Cirillo,

Great comments. Instead of a car, think of an electrician or plumber who has never seen the hidden wires or pipes in my house but can, yes can quote and stick to a price for a given job.

Chiropractic is but one solution that suprised me but of course "Your milage may vary"

As for transparency some doctors have a published rate of $100 but give insurance companies a discount of $80 or $70 depending on the company.

One problem with the analogy is that hospitals treat people for free and can be held accountable for not helping, unlike other business.

Yet I've never heard of a way for people to work off their hospital bill.

One problem is keeping the professional level of service - that is they fly in the ointment. People may be able to work around that problem as well.

Having people pay instead of the government sits better with me. I also do not like the idea of paying a good doctor the same amount as a bad one.

One good part of Mr. Cirillo's idea is the bulk discount. That I can not argue with.

As always the parting question is "how would this play out, who would pay, during the pandemic?"

Regards,
Kobie

Posted by: | May 09, 2008 at 10:38 AM

Thanks for the post in the current political scenario it seems to be a hot topic and these kind of informative blogs and post helps me make a educated decision on what i should be doing to make it better as far as voting ... thank you again

Posted by: Debanjan Ghosh | May 09, 2008 at 04:20 PM

I feel that the Health Care System in this country is totally out of control economically, and needs to be nationalized. If we can nationalize a semi-essential service such as the passenger rail service, then it is an absolute necessity to nationalize an extremely critical and totally essential service such as is health care. It would simply be criminal not to do so. Accordingly, for some time, I mulled over how the conversion from a third party payer system to a single party payer system could be accomplished.

I am currently paying $14,000.00 plus per year for private sector provided health care insurance. This does not cover the cost of dental work, vision or Vet bills. The cost of a simple root canal provided by a local dentist is currently $900.00. The costs of health care in this country have gone completely out of all reason, sense, justifiability and control. The sheer extent of coordinated greed throughout the entire supply side of the American Health Care System is simply beyond belief. This is the very same system that the so called free market touting private sector has chosen for us on a take it and go bankrupt trying to pay for it, or leave it basis. So, it is well past high time that we all begin to realize that in the case of essential services the private sector simply can't be trusted to do anything other than to economically bleed the demand side of the marketplace just as dry of cash as is it possibly can. Such is why the most essential system in the best interests of the average American, the American Health Care System, needs to be reigned-in by the a new National Health Care System. My Health Care System would function as follows:

1) The Federal Government would become a not for profit medical insurance company in essence, and would be the sole not for profit medical insurance company in the country. The existing Medical Insurance Companies could continue to exist, but would be in competition with the Federal Government's Medical Insurance program. That, or they could simply move into other fields of insurance such as Medical Malpractice Insurance. Medicare and Medicaid would be folded into my new Health Care System.

2) The Federal Government would operate in exactly the same manner as would be the case with any private sector insurance corporation. It would take-in monthly premium payments, and would pay out claims to the medical providers.
As is the case with Social Security, participation in the National Health Care System would be mandatory for both employers (Large and small) and employees.

3) The existing private sector medical community would be responsible for providing the delivery of all medical services and products...medical, vision and dental The Federal Government would NEVER BE INVOLVED in the actual providing of medical services and products directly by itself.

4) By their combined payment of a mandatory monthly premium, employees and their employers would share the yearly cost of the system on a 50/50 basis, as is currently the case with Social Security. There would be no cap on the salary levels of those involved on the demand side of the system. The monthly premiums paid would be for both family and individual medical health coverage. People who are self employed would only pay the employee's share of the monthly premium. Long term unemployed people would be carried by the system overall until they could obtain new employment. All extremely poor people, senior citizens, and people who have been outsourced out of work for less than 6 months would be covered by the system at a rate of $25.00 per month for individuals and $35.00 per month for family coverage.

5) Employers would be allowed and encouraged to drop their current employee Health Insurance Programs, and save an enormous amount of money from their current operating expenses as a result.

6) No US citizen could be denied coverage for any reason. Any illegal alien could be treated on an emergency basis, but would be deported following their return to health. Their return to health status would be determined at the sole judgment of their attending physician(s).

7) ALL Medical procedures would be covered, and no medical procedure could be denied...including elective or experimental surgery.

8) As is the case with the VA, the Federal Government would negoticiate all costs involved with representatives from all service and product providers involved, such as individual pharmaceutical and medical device manufacturers, the AMA, the AHA, the ADA, etc. Any provider who did not wish to participate, would not be forced to participate, but would then have to base their practices or product marketing efforts on those potential patients who had decided to continue to pay into the system, but to also pay on their own whatever prices that would be charged by the non-system providers.

9) All administrative costs of the program would be funded by the employers and employees who are covered by the National Health Care System. Therefore, such administrative costs would not come out of the Federal Government's General Revenue Budget. As a result, there would be no increase in income taxes required to fund the system, and it should cost the average American and his or her employer much less than he or she or they are presently paying for their for profit health care insurance and copay and uncovered medical care costs.

10) For their own budgetary purposes, the Federal Government would never be allowed to touch one red cent of the funds paid into the system. The proper use of the funds would be overseen by the Executive and Congressional Branches of the government, on a balance of powers basis. Severe monetary fines and/or prison terms would be levied against anyone involved in the system who engages in any form of illegal or fraudulent practices with regards to their participation in the system. A local yearly audit of all providers would be required. The Federal Government would contract with the local auditors directly.

11) As mentioned earlier, and as is the case with the English Health Care System, the exclusively private sector medical delivery system would be allowed to continue, but those taking advantage of it, would still have to pay into the National Health Care System as well.

We have to get back to a system with reasonable costs, reasonable prices, reasonable profits, and a system that is fully available to all who need to make use of its products and services. It is a matter of life and death to a vast number of Americans that the currently greed riddled system of ours be fixed, and fixed for good.

It will never happen, and I mean NEVER HAPPEN, if we even consider trusting our health care fates to the so called free market system. And, for heaven's sake, don't even consider making the health care system in this country into a pure cash on the barrel head type of direct payer system, or you will literally bankrupt every "little person" in this entire country eventually, while the barons of the free market system continue to raise prices by 20% each year, and taunt anyone to do anything about it.

I trust that Secretary Leavitt could run the tab involved in the type of system that I am advocating within a reasonable period of time. I sincerely believe that the result will come-in at no where's near the $14,000.00 per year health insurance premium and medical service and product co-pay costs that I am currently forced to pay. So, now you have on your plate a system that will work, and is affordable for the Average American. All Americans would be insured, and all would be a world of a lot better off than they are under the current health care system in this country. If it could only be implemented, it would for once and all fix a system that is most tragically broken today.

Posted by: Drew Lindhoff | May 11, 2008 at 03:06 PM

In addition to governmental initiatives on single price healthcare, private initiatives like the healthcare blue book (www.healthcarebluebook.com) will assist consumers in learning about fair, upfront healthcare pricing.

No doubt consumers can understand healthcare prices and most of healthcare services could be priced in a consumer friendly manner. Certainly when consumers must pay for a type of healthcare service themselves, providers adopt clear treatment descriptions and upfront, clear pricing.

Thank you for the interesting post.

Posted by: Jeff | May 11, 2008 at 06:24 PM

Dear Sec'y Leavitt;
As always I enjoy reading your opinons on health care and cost containment. You have the big picture, circling at 40,000 feet in your AWAC command plane. However it takes "boots on the ground" to take and control the territory. You have to see "the enemy" and "smell the gun powder" of daily life in the medical trenches.
Although medicare rules due to it's "gorilla" mentality, I have yet to see how CMS helps doctors to contain their costs. Rather CMS and insurers cook up ideas to contain costs at the expense of hospitals and providers.
I would love to see CMS sponsor management courses so that we providers could run out practices with only a 1.5% overhead.s I have always suspected that figure, which was originally quoted by Peter Stark at 2.5 - 3.0% overhead. CMS is unique in that it is probably the only government agency whose costs have diminished, while health care utilization skyrockets...Am I missing something here?

Posted by: Health Train Express | May 11, 2008 at 07:05 PM

Superb analogy with the car, I think this is very clever way of explaining such a complicated issue to the general public. Keep up the good writings...

Posted by: Search Engine Marketing | May 12, 2008 at 05:03 AM

Two problems with your comments, and with all of the proposals to make health care a successful market model system:
1)Your analogy of how hospitals bill is backwards. Try thinking of it this way: If you go to buy a car and want to pay with a VISA, the VISA folks state that they must be billed with the make, model, and color of the car. If you want to pay with MASTERCARD, they don't want the make or model of the car, they want the year and weight. And if you pay with a DISCOVER card, that company will only pay the dealership if you bill for the car on one invoice, but bill for the tires separately. American Express requires the safety ratings for the vehicle be listed on the bill, and ..... you get the idea. Our hospital bills over a thousand different payers a year, and each one gets to dictate their rules. We either spend the manpower and time to follow them, or we don't get paid! It's a dirty little secret that even the folks on the healthcare finance commitees in DC do not understand, and it's responsible for millions spent on healthcare, without providing one bit of patient care.
2) The vast majority of consumer/patients do not have the means to select where they go for healthcare. One's HMO or PPO generally dictates a small range for this (unless you are willing to bear expenses that the average American cannot). If you happen to have Medicaid, you can only go to the dwindling number of physician's offices that accept Medicaid, and to some extent this even applies to Medicare patients.

Posted by: Mary O'Neill | May 12, 2008 at 11:20 AM

Mr.Leavitt, I'm glad to have found your sight. I am a RN with 20+ years of service in varying areas of health care. I thought I was pretty good at my job and am proud to be a RN. Recently, my father fell and broke his hip. I found the healthcare that he received to be OK but if I was not there with him all the time, he would probably not have done so well. I found a lot of discrepencies in his care, many consultants but few answers, many drugs, but no education about them. He is 84 years old and a very active member of society. Yet if someone was not always with him, he was not treated as he SHOULD HAVE BEEN. My point to you is that I am now in nursing education and find that the MOST important thing I teach is EDUCATE YOUR PATIENTS TO CARE FOR THEMSELVES. This is what I feel is the most underestimated thing in health care. Teach the health care population to care for themselves as much as and as long as possible. I feel that this is the one improvement in health care that could/would be the most cost effective and cost-containing measure that we could do. I would really like to hear your feelings on this and if I am able to do anything about this, I will and do it daily. Thanks and keep up the awesome thinking and writing and caring you do.

Posted by: Sue Koos | May 12, 2008 at 03:30 PM

When the HHS Secretary advocates a “single” price for a procedure, he is saying that people should be given one all-inclusive price for the procedure, for example bundling surgery, anesthesia, hospital stay, and follow-up therapy into a single price. Not only would this help consumers comparison shop, but it would introduce incentives for accountability and patient-centered coordination that don’t exist today. He does not advocate the government setting one price that all providers must meet.

Posted by: Andrew Croshaw | May 14, 2008 at 03:06 PM

Dear Secretary Leavitt,

I appreciate your analogy to compare the price of medical services to the price of other goods. I admit that I'm one of the skeptics who sees insurmountable differences between health care and common commodities, but I absolutely see your point regarding the benefits of greater price transparency.

However, I have a question. As consumers, we grow up under the notion that price is correlated to quality -- the more an item costs, the more satisfaction it will bring. For example, a Mercedes will perform better than a Kia. Regarding health care, we all want the absolute best care for ourselves -- choosing an inept provider could result in painful consequences, or even death. If I am having a surgical procedure and I see several providers, each with different prices, I'll naturally assume that the provider with the highest price will result in the best outcome. Therefore, do you anticipate any unintended consequences, or backfires, from providing price transparency?

Posted by: Eddie Phillips | May 14, 2008 at 04:42 PM

Single Price is not just theory. It's live. I represent a company that has Episode of Care pricing. 1 bill 1 payment. Employee receives care from a FocusFactory. Employer saves on average $20,000 per surgery: Knee & hip replacements, bypass grafts/CABG, oncolgy. Employee must travel to the hospital, but for major surgery that is already a common occurence. Deductible and coinsurance are waived. Hospitals are top ranked in terms of outcomes data. This is a program that can simply be added to an Existing plan.

Posted by: Bill Cole | May 27, 2008 at 04:41 PM

I would like to express my thanks for being por-life and working to keep abortion out of the healthcare. I'm very pro-life. Recently I lost a grandchild due to a doctor telling my son's girlfriend she would end up again with guiilian barre if she got pregneant. Well she did get pregneant and I told my son only God has the right of life and death, but they listened to this doctor and now I can only look at my little granddaughter and wonder was the baby a girl or boy, and cry in my heart for what they have done. My son would never ever have done that or gone along with it. He was more in fear of her dying which probabaly would never happened. I think it is a shame that we are more concerned with our pleasure than abstaining from immoral conduct than do the unmentional thing to kill a baby in the womb, and not even go to jail. It should be made a law for the mother and doctor that consent to kill the unborn baby who cannot fight for his own life to be charged with murder. And go to prison like those who do commit murder. That too is murder of the innocent unborn baby. We need to call it what it really is . Slaughtering of an unborn baby, with a scapel!Murder in the First Degree! If more people would realize what it really was they wouldn't do it. They should all see the remains of this little life they murdered, arms , cut from the body, legs ripped apart, shredded in pieces, if all would see those pictures, around the world maybe they would come to their senses. To them it's just a word. In Dallas, Texas. They had a prolife truck drive around with the fetus shown on the sides of the van. Of course people were mad that their children saw it. But what is it going to take, to end this horrible holocaust? I hope everyone who reads this blog will pray for this country to see what they are doing to these innocent babies. And for that matter the whole world. It is the most horrible crime against humanity. Thank you again for what you are doing to help stop this abortion situation. Charlene

Posted by: Charlene Hanna | November 20, 2008 at 02:15 AM

Regulations that Michael Leavitt has promoted for months would bar anyone who receives federal funds from discriminating against pro-life doctors, nurses, or other medical workers because of their beliefs. Pharmacists would also be exempt from dispensing drugs that could end an innocent life, such as the abortifacient RU-486. THANK YOU, Mr.Leavitt, for taking a righteous stand for what is right!

Posted by: Steve Loftin | November 20, 2008 at 10:25 AM

Dear Mr. Leavitt,

You are to be applauded. Thanks for being clear as to your principles and for advocating for life, its sacredness, for insisting on a respect for life in its every form. I am dismayed at the course the Democratic Party has chosen to follow, what is politically correct, but which tramples on principles upon which this country was founded. Despite the voice of the people in several recent State elections that party seems not to have listened to the people.

You have demonstrated courage. Thanks.

Fr. Thomas Juarez

Posted by: Fr. Thomas Juarez | November 20, 2008 at 11:07 AM

Thank you so much for helping to keep it safe for health care providers and pharmacists to be able to follow their conscience and NOT perform abortions or provide abortive drugs to young girls. This makes an inconvenience for some women, but they can always go elsewhere. However, forcing a doctor to do something against the conscience is more than just an inconvenience. Thank you for your hard work to protect pro-lifers in America. Sincerely, Mr. and Mrs. George K.

Posted by: Mr. and Mrs. George K | November 20, 2008 at 11:53 AM

Secretary Leavitt,

I enjoyed your analogy and can't help agreeing with you. I agree with what Mr. Lindhoff stated earlier about there being a problem with our nation's healthcare system, but I respectfully disagree with the need to nationalize it (and I don't even have health insurance because I can't afford it). I think that the government has not yet proved to be the best at taking in extra taxes to "help" us in our times of need (i.e. Social Security).

However, I know of what I think to be a better way to ensure the best value for healthcare at an affordable rate that is similar to what you said about the costs of a car all being combined into a "package" (and perhaps Mr. Lindhoff can find some sense in this, too).

After Barack Obama’s press conference recently, while those of the CNBC staff were commenting on their fears of the government taking over health care, someone made a comment regarding the disparity in the quality of health care for those working for large firms as opposed to those working in small firms. Therein lies the key. LARGE GROUP HEALTH CARE PLANS (those of 10,000 + members) provide the best means to protect both insurers and the insured. They PROTECT THE INSURER because they spread the affects of significant medical expenses incurred by some over the premiums received from a very large number of healthy individuals. They PROTECT THE INSURED because if the insurer wants to raise premiums, they must raise the premiums of all those participating in the plan with similar coverage by the same amount. As they say, “there’s safety in numbers”.

The solution is to take the focal point of the group plan away from our places of employment. Today, in the computer age, the inconveniences of dealing with a greater number of individuals (instead of dealing with a few people in a human resources department, which employer plans afforded) have been significantly reduced.

Legislation can be initiated providing incentives for insurers to offer large group health care plans with certain specified minimum coverage. Once an individual selects a plan, that plan stays with them no matter where he or she was employed. Recent graduates might adopt the same insurer as that of their parents and pay the premiums on their own until they became employed. Once they became employed, they may switch to their new employer’s primary health care insurer’s plan, but if they elect to stay with their current provider, the employer would include payments to that provider with the employer’s periodic payment to its primary health care insurer. The latter would retain the premiums for those employees having elected to use its plan and forward the premiums for those choosing not to do so to those non-electing employees’ providers. In essence, the employer’s primary insurer would function as a clearing agent for those not insured by it, which it would have agreed to do in order to qualify as a group health care insurer.

Funds for health insurance premiums could be withheld from the employee’s pay and matched by the employer, applying some designated percentage similar to the manner in which Social Security and Medicare taxes are currently withheld. In fact, insurers might also provide disability and post retirement health and pension benefits similar to those provided by Social Security and Medicare, eliminating the need for those governmental institutions.

I can elaborate more on this subject. I have many more suggestions regarding health care and answers to many of the “what about…?” questions if anyone is interested. Just contact me at the email I provided to post this comment.

Thank you for your time in reading this.

Posted by: Kevin Dunleavy | December 15, 2008 at 05:08 AM