Dr. Andy

Reflections on medicine and biology among other things

Thursday, January 19, 2006

Paying for healthcare - II

The January issue of Health Affairs has a number of articles about pricing of healthcare. I don't normally read the journal, but the articles are fairly brief, understandable and interesting.

My favorite is this one, by note health economist Uwe Reinhardt about how hospitals price services. The answer is that pricing is a joke. There is a giant price list called a "charge master" that covers every concievable service. It is updated each year by a process that can generously be described as capricious. Don't believe me. California is now requiring hospitals to publish their charge masters. Here is how the "list" price of a chest x-ray compares between different hospitals:


I don't think there are any gas stations in California that charge 10 times more than others (and a chest x-ray is the same from one institution to another; it's not like you are paying for the best surgeon).

Of course almost nobody pays the list price (the sad exception being the uninsured) as the government pays a flat fee by diagnosis for most patients and private insurers have negotiated large discounts. Another article in the series points out, the ration of revenue collected to charges (full price) is 1:2.6!

Read the whole thing as it is interesting and Reinhardt discusses more sensible pricing schemes, including requiring that hospitals post prices and charge every patient and payor the list price (like, say, McDonalds does). This would certainly encourage real competition on price and quality.

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