Price Controls: GUBBMINT SMASH!!!, Healthcare Utopia, or Meh?

Home Forums Off Topic Price Controls: GUBBMINT SMASH!!!, Healthcare Utopia, or Meh?

This topic contains 11 replies, has 5 voices, and was last updated by  WX Wall 1 year ago.

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  • #4204

    Ryan Ashfyre

    It’s an old, inconsequential story in countries like Germany and Japan that managed to tackle their healthcare problems a long time ago – government steps in via various means to control healthcare prices, and as long as they’re not consumed by political day trading or just have self-interested, shameless assholes in charge of their country (maybe both!), the results have spoken well for such efforts. And prior to the Reagan Administration and Deregulation Nation, the US took its fair crack at controlling prices too. Welp, out in Cali, Democrats are aiming to try to bring the ol’ practice back.

    Supposing that all goes comparatively well, particularly depending on how well Dems do in November, we can likely expect similar efforts in states like Washington, Hawaii, Oregon, and others; though just as a curiosity of mine, one has to wonder if this is just an outgrowth of Dems’ renewed healthcare vigor or if it might be part of a more coordinated strategy in anticipation of a Democratic trifecta post-’20?

    With respect to price controls themselves though, my optimism has me hoping they’re successful. Our ridiculous disparities in what things cost here is capitalism gone amuck, and corrections have to be made. We’ll see how things go.

    With all that said, are there any other ideas besides controls for how we might reasonably bring healthcare back into affordability, and what do you all think of Cali’s efforts on the merits?

  • #4205

    Creigh Gordon

    Get rid of insurance companies, or at least sideline them (public single payer option). People keep talking about “having skin in the game” to address costs. Please explain how for-profit insurance companies aren’t motivated to allow costs to rise, seeing that what they skim increases with rising base costs.

    Figure out how to control drug costs. Price controls might actually work here, but beyond that reforms of patent laws and public funding of drug development could help.

  • #4230

    mary guercio

    The Houston Chronicle Business Editor, Chris Tomlinson, had an excellent piece today that looks at return on investment in health care. The problem, per Tomlinson’s research, (and I agree), is that in America, we spend only 3% on public health, with the remaining 97% on health “care”. Our system is designed for profit which loads all services on the back end rather than focusing on those changes that reduce health care. The economic model feeds upon sickness, not health. In other nations, there is much more focus on the “health” as opposed to “health care”. Here’s the article.

    The current administration is doing all it can to upend health”care”. The new HHS Secretary, Alex Azar, (plus CMS Director Seema Vermer) are tag-teaming changes that further penalize poor people. Other countries do not understand how healthcare can be such a contentious, parsimonious area in the U.S. It’s because it is profit driven. Here’s the latest from Sec. Azar as to changes he’s developing:

    And Vermer is upending Medicaid through the 1115 waivers allowing states to bypass the essential health benefits and impose work requirements and other onerous measures.

    Flatly, we have got to elect new leadership in America and health needs should be at the top of our priorities.

  • #4235

    Daniel Farina

    Normally I don’t like price controls. But I think the California proposal is not unreasonable, particularly in matters of urgent care. When it comes to urgent care, one shows up at their closest hospital (I had to do this near Memphis, TN) and then the local hospital charges you or your insurance company whatever they can. This is not a recipe to provide funds slanted to efficient, streamlined players.

    As compared to, say, choosing whether to buy berries in season or some oranges at your supermarket, this is not a market transaction.

    I may be more sympathetic to a floating price distribution for protracted care, e.g. a scheduled hip replacement, where one can engage in some amount of market choice.

    Secondly, I live in a major metro with multiple health care providers: many Californians do not. It just doesn’t make sense to build multiple hospitals and have multiple MRI machines, and there are studies suggesting that areas with fewer providers wind up paying more. Hospitals are big capital investments: it often just doesn’t make sense to build several in an area for the sake of competition, and once one is built, it can serve as a near-monopoly. In this case, I think price-setting informed by competitive markets are also reasonable.

  • #4240

    WX Wall

    NB: I’m a physician, so take my biases into consideration.

    I think this is an awful bill, because all it does is control what insurance pays doctors and hospitals. It doesn’t control what insurance companies are allowed to charge for their premiums. There is no guarantee that whatever savings comes out of provider’s pockets will actually end up going back to patients.

    I fully agree with this quote:
    “We have a system where the price of health care is unrelated to the cost of providing it, or outcomes, but rather to the relative power of hospitals and medical groups in the region,” said Anthony Wright, executive director of Health Access, a consumer advocacy organization that is one of the bill’s major supporters.

    But I ask, why doesn’t that same understanding apply to the insurance market? That is, that premiums charged to people is also unrelated to the cost of paying for care, but based on their relative power in the insurance marketplace?

    The main reason hospitals have consolidated is because insurance companies have consolidated: as insurance companies consolidated to gain pricing power against hospitals, hospitals did the same to fight back. That’s called capitalism. It’s very unfair to regulate the market just because insurance companies now find themselves on the receiving end of capitalism’s red tooth-and-claw.

    I would only support price controls on hospital and doctor payments if there are also price controls on insurance premiums to ensure that whatever savings are squeezed from providers actually travel back to the patients themselves instead of being pocketed by insurance company executives.

    At that point, if you regulate what providers charge, regulate what insurance companies charge, and ban insurance companies from denying coverage to anyone (pre-existing conditions), then you might as well go whole hog and eliminate the insurance companies all together. Otherwise, what function do they provide for the 50% of the healthcare budget that they consume?

    PS. The dirty secret of most socialized medical systems is that they don’t really ration care (number of hospital days per capita, prescriptions per capita, doctor visits per capita, etc. are equal and sometimes higher than they are in the US). And their costs are growing at about the same rate as in the US. By far their largest savings are by eliminating the administrative inefficiencies that private insurance impose, which in the U.S. is ~50% i.e. $1.5trillion of the total healthcare budget. The second, relatively minor part of their savings comes from price controls, especially on prescription drugs. And actually in many socialized systems, the percentage of the healthcare budget that goes to physician salaries is actually *higher* than it is in the U.S., where prescription drugs consume a higher portion of the healthcare budget than all physician services combined.

    So if the California bill is primarily concerned with regulating physician and hospital charges, doing nothing to control drug prices, and nothing to curb administrative overhead, then you can see why I think this is a crappy bill. And add to it that whatever meagre savings they might get, will likely go to insurance company profits since premiums are not regulated, means this is a huge giveaway to insurance companies and nothing more.

  • #4244

    Daniel Farina

    This appeal to price control symmetry on insurance companies does not cut ice with me. When I go to and plonk in a backwater zip code and have three providers with four levels of service, networks, and different pricing structures. In San Francisco, I have five vendors and nearly thirty pricing structures. That is a market, as familiar as any e-commerce vendor. What goes on on the fee-taking and price-setting side is…not that.

  • #4262

    WX Wall


    I ask, if there was such great competition, why did Obama feel the need to put in minimum loss ratio requirements in Obamacare (something I support)? That is, insurance companies are required to pay out at least 70% of their premium revenue for patient care. If this was truly a commodity business, economic theory holds that a 30% administrative overhead (i.e. rent-seeking) would be whittled down due to competition. The fact that it takes regulations to even get it to 30% (which is far higher than almost any other industry, and much higher than medicare) shows that the insurance market is fundamentally not a competitive industry.

    The fact that there are nominally 3, 4, or 5 insurance companies doesn’t say anything about monopoly power, which depends on marketshare breakdowns. Check out this link:

    According to their analysis, there are 11 companies offering plans on the exchange, but 3 control 80% of the market. That includes Kaiser, the biggest, and which, IMHO doesn’t count (they’re an integrated health delivery organization, not really an insurance company, and would be excluded from the proposed regulations anyway), which means California is essentially a duopoly.

    If you want to disregard marketshare analysis, then SF easily has far more than five “vendors” of medical services (i.e. hospital networks). Yes, they’re dominated by UCSF, Stanford, PAMF / SutterHealth, and Kaiser, but there are plenty of smaller hospitals, far more than the 5 insurance companies offering plans. This is even more pronounced when you get down to physician services, where there are tons of competing medical groups and independent practitioners in almost every area except the smallest rural towns.

    If you want to argue against consolidation of hospital networks, I fully support you: as a physician, I have no love lost for large consolidated hospital networks that end up more focused on the bottomline than local community needs. But I stand by my assertion that this legislation will do nothing to reduce costs to the end-user i.e. patients and companies who buy insurance for their workers, because that is set by the market structure of the insurance industry which this legislation completely ignores.

    If you want to dismiss my arguments as just a greedy doctor’s bellyaching, so be it. Understand, however, that I strongly support Medicare-for-all (ever since before I became a doctor, to be honest), which means I’m happy to accept medicare reimbursement for my services. So why am I so dead-set against legislation to cap my fees at 125% of Medicare? Because with Medicare, I know that the reduction in my income will actually be for a greater good: lower cost to taxpayers, and guaranteed coverage for all Americans. I’ll take a salary reduction for those goals any day. OTOH, IMHO, this legislation will do nothing to lower costs for patients, or strengthen their coverage, etc. Which is why even though I’d make more with this than with Medicare-for-all, I’m dead set against it.

    (Incidentally, also why I’m against Obamacare: for all the massive subsidies the government provides to insurance companies, thanks to the high deductibles, medical bankruptcies haven’t gone down. And 75% of the coverage expansion was from the medicaid expansion. Very little of the decrease in uninsured rates was from the private insurance industry. What’s more, even among those 25%, lots of people have a piece of paper that says they “have insurance” but are no less financially vulnerable than if they didn’t have insurance, despite the trillions in additional subsidies we gave insurance companies.)

    The fact that despite the billions in subsidies we’ve already given insurance companies, they’re still whining about needing more help (while eating 30% of each premium dollar they collect) is quite galling. And I guarantee you it won’t stop with this legislation. Just like they are currently trying to get more subsidy money, threatening to drop out of exchanges if they don’t get it.

    At any rate, this legislation has passed committee and will likely pass the assembly as well. I guess we’ll have to revisit this question in a year or two and see which one of us was right…

  • #4263

    Daniel Farina

    Number of participants is important, but so is market structure: the act of choice and shopping in what makes a market. If someone takes a fall, they are ending up at the closest or only trauma room near them (that’s SF General, for example: there are not many trauma rooms in San Francisco). Where’s the market?

    With elective procedures, I don’t think price controls are useful, if, and only if, we have fee transparency, i.e. the choice to drive several towns over for a hip replacement, and understand the cost and statistical quality of what they are getting. Do we have that level of transparency, and is it effective? I proffer that coveredca was not so useful a market until quality scores were added sometime later.

    • This reply was modified 1 year, 1 month ago by  Daniel Farina.
  • #4303

    WX Wall

    Hi Daniel (sorry for the delayed response!),

    Regarding strictly trauma care: the market is in the contracts signed with SF General *before* the patient gets injured and gets taken to the ER. Recall, this bill is not about capping the rates charged to *uninsured* patients, who can legitimately claim that they can’t be expected to pre-negotiate with every trauma center in SF on the slim chance they might need one one day. So for uninsured patients, I fully support limiting out-of-network costs (and indeed, most hospitals, once they realize you’re uninsured, will work with you to reduce their charges to something you can pay, since something is better than nothing).

    But this is about insurance companies. Why shouldn’t a large insurance company be expected to have already negotiated payment rates with SF General? If you have 1 million covered lives in the Bay Area, it’s reasonable to expect some number of them will be seen each year at the SF General ER. Which means trauma is an entirely predictable expense (at the insurance pool level) that insurance companies *should* plan for with market-based negotiations. If the insurance company is too incompetent to negotiate supplier contracts for entirely predictable expenses like every other business is expected to do, why do they get a government mandated cheap price to rescue them?

  • #4304

    Daniel Farina

    What pricing power does an insurance company have over SF General? What about a small insurance company? Who is going to knowingly buy insurance that doesn’t cover SF General? Who is going to knowingly buy insurance that may exempt random urgent care that they cannot come to an agreement with on fee structure? Do we need a cartel of insurance companies to achieve that, and if so, will that result in collusion of large insurance companies alone? (Yes, of course)

    One of the first things that the nurses did at SF General for my father was to ask if he had Kaiser, because sometimes they repatriate their patients to get them out of SF General ASAP for some conditions. Is that how an insurance company is supposed to get some pricing power? Still, SF General will get to bill. and where’s their pricing pressure to be efficient and low-cost? Only the capacity of their customers to pay and the capital cost of another similarly located trauma center.

    We have statistical sense of how much money is going to profit and the rough efficiency of various insurance companies and HMOs. It’s not nearly enough to make up for the fee side of the equation.

  • #4318

    WX Wall

    To talk about pricing power for SF General is a little specious because this whole situation arises because SF General has no power to limit its *care* to begin with. This whole issue of paying for trauma care arises because health care providers take care of trauma patients *regardless of their ability to pay*, and then seek compensation later. In a true market, you set the price first, then provide the service. In an emergency, there’s no time for that, so you provide the service first, and then hope to get paid later. Until now, people appreciated that providers were *already* acting in the patient’s interests, and weakening their negotiating power, by taking care of them first with only some good faith hope of being paid sometime later. This puts them in a weak position since the service is already delivered, the patient has gone home, and now the hospital has to try to get the insurance company to pay. That’s actually why current laws mandate that insurance companies, if they don’t already have a contract, must pay the hospital’s “usual and customary rate” for care that’s deemed emergent. Without such laws, you bet insurance companies would stiff hospitals (more than they already do). Insurance companies love the fact that even if they can’t reach a deal with a hospital, their patients won’t die because we’ll take care of them regardless. They just hate the fact that we make them pay for it.

    But if you wish to talk solely about pricing power without acknowledging that that pricing power was put in place to compensate for the supply power that we willingly forego, fine: what pricing power does an insurance company have over SF General? Plenty, at least as much as SF General has over the insurance company. We already have a cartel of insurance companies, that’s my point. Believe it or not, health care pricing is subject to the market distortions not of monopoly (single supplier), but monopsony (single buyer). That single buyer is Medicare. Medicare sets their rate without any sort of negotiation (unless you call lobbying Congress a form of market negotiation; even then Medicare prices for decades, until the ACA, was determined by what was called the SGR which was based on GDP growth, growth in medicare beneficiaries, and inflation. Nothing else. Congress was only allowed to do “temporary” fixes that would be compensated for in future years), and every insurance company pegs their payments to the Medicare rate (negotiation is usually limited to what percentage of Medicare an insurance company will pay). It doesn’t matter if you’re the world expert for a condition, or someone who can barely keep his license active. Medicare pays you the same. And both will take it, because Medicare is such a huge part of the market.

    Given that Medicare has every incentive to reduce their payments thanks to their massive budgetary pressure (we need more fighter jets, after all) and monopsony powers (many surgical procedures are literally paid 10% of what they were in the 1980s, without inflation correction; regardless of whether you think today’s prices are fairer than the 80s prices, or vice versa, you have to agree that’s pretty impressive pricing power), insurance companies get a free ride on their negotiating powers already.

    Plenty of people buy insurance without coverage from SF General. Many of them don’t have a choice since their employer is the one who decides which insurance policies to buy. So much for patient choice. Kaiser patients are a great example. As you mention, if you’re a Kaiser patient, and you end up in SF General, as soon as you’re stable, SF General will ship you to Kaiser. This is at the request of *Kaiser*. IOW, Kaiser pulls you into their system. It’s not SF General pushing you out. At least Kaiser is open about this: most people who buy Kaiser insurance understand that they can’t go outside of it. Many people don’t understand that about e.g. Anthem, Cigna, etc. (who absolutely don’t want you to know either) until you get sick and realize the best doctors for your condition happen to be out-of-network.

    Believe it or not, this is at the behest *of insurance companies*. When insurance co’s started making closed networks in the 90s, lots of doctors pushed for what were known as “any willing provider” laws: laws that stated that insurance companies had to publish the rate they paid their in-network providers, and any provider willing to offer services at that rate *must* be allowed into the network. Sounds great, right? Insurance companies hated it and lobbied heavily against this, because they felt it impeded their ability to negotiate volume discounts with providers. That is, if you have 2 hospitals, you can drive a harder bargain by guaranteeing that all of your volume will go to only one of the hospitals. This carries both the carrot of guaranteeing more volume, and the stick that if you’re not selected, you lose *all* of their volume. But if you have to allow the other hospital into your network at whatever rate you negotiate with the other one, then you lose that volume pricing power. Overall, though, it would have vastly increased patient’s in-network choices, while, at worst, slightly increasing costs (debatable because in a market where there are multiple hospitals and multiple insurance companies, volume exclusivity doesn’t mean that much, and rates tend to converge to commodity pricing regardless) but then insurance companies competitive advantage on their networks would disappear (since almost every provider would be on almost every insurance company’s network) and they would become a commodity business. And commodity businesses don’t get to eat 30% of their revenue as administrative overhead.

    This narrative that insurance companies are trying to peddle that they are the poor victims of this negotiating process is false: there are plenty of times when hospitals *want* to be on an insurance network and are rebuffed. Yes, it happens the other way around too. My point is, that’s what regular negotiations look like everywhere else, and it’s a far more balanced process than the insurance companies are letting on.

    I’ll ask you this to crystallize why I think this measure is so unfair: insurance companies complain about being raked over the coals on emergency care and essentially want an “any willing insurance company” rate set by the govt at 125% (not even the hospital’s usual contracted rate — which is typically higher — as providers were willing to do). That is, essentially every hospital must accept any out-of-network patient whose insurance company is willing to pay 125% of medicare. How about we set a similar standard the other way around for *non-emergent* care? That is, insurance companies must allow any provider willing to accept 125% of medicare rate to be considered in-network for their beneficiaries, who must be allowed to see them for routine, non-emergent care as part of their in-network coverage? Sure, they can promote their “preferred providers”, etc. and try to steer their patients there, but if a patient chooses to go to one of these “any willing providers” they must be covered under in-network co-pay / out-of-pocket maximums, etc. rules and not under out-of-network rules. If this is all about how monopoly / monopsony powers are harmful for patient care, increasing their costs while reducing their choice, why not force insurance companies to open their networks for routine care as well instead of making patients liable for 100% of such costs (which is what out-of-network care in most ACA plans looks like)? Why so much hand-wringing about trauma care (a small portion of healthcare), while ignoring the much larger problem of narrow networks for non-trauma care?

    That’s simple: non-trauma care might represent 95% of healthcare, but insurance companies have a massive advantage negotiating for those services, so screw patient rights, equal negotiating power, etc. etc. But in the 5% of healthcare where insurance companies have slightly less negotiating advantage than their opponents, the providers, they whine like babies about how expensive the costs can be for them.

    This is what I mean by this bill is being argued in bad faith. Painting doctors and hospitals as the greedy ones, boils my blood: I don’t know a single hospital that maintains a 30% margin, even vilified “fat cats” like Stanford and PAMF. And I don’t know a single insurance company that takes on a patient with a “good faith expectation of payment” the way we take on emergency cases regardless of their insurance status. For all the national news coverage we get when Aetna threatens to drop out of the exchange networks because apparently their CEO’s $40 mil salary just wasn’t enough last year, no one covers the dozens of rural hospitals that close every year because they can’t survive on the current reimbursement rates. Last I checked, we were supposed to have a *shortage* of ER / trauma care in this country, with overflowing ERs and trauma diversions costing critical minutes and hours. And yet the real problem is that we’re paying too *much* for this care?

    Between SF General, a county hospital and vital community resource that’s perennially at risk of closing because it doesn’t have enough money, and Anthem/Cigna/Aetna/Healthnet who each make hundreds of millions of dollars a year and don’t give a sh*t about our state, you really want me to take the side that it’s the insurance companies that deserve more money?

  • #4319

    WX Wall

    Sorry, one more point I forgot to make above. When you say:

    “We have statistical sense of how much money is going to profit and the rough efficiency of various insurance companies and HMOs. It’s not nearly enough to make up for the fee side of the equation.”

    I disagree. We may have an idea, but it’s nowhere close to how low it can be. Plenty of economic studies have shown that if insurance companies operated at the same level of efficiency as Medicare (to say nothing of how much better Medicare could be run if it was a private enterprise), then we could cover every single American with guaranteed, first-dollar, no-limit health insurance while *saving* money. This before any rationing, reduction of waste, price controls, etc. (which would all be icing on the cake).

    Why do we keep ignoring this elephant in the room while focusing on tiny factors like out-of-network trauma care? When people say “Do you know we spend $10bil (say) on cardiac care we don’t need?” I want to ask “Do you know we spend $1 tril on administrative overhead we don’t need?” When people say “We spend 50% more per capita than Europe for similar health outcomes” I want to say “We spend 50,000% more per capita than Europe on healthcare administration for worse administrative / bureaucratic systems”. I’m not trying to say we shouldn’t go after inefficiencies, waste, even outright fraud on the provider side. We should. But not if it makes us lose focus on where the truly gargantuan inefficiencies, waste, and fraud are occurring, which is on the insurance side.

    When we bring the minimum loss ratios for private insurance companies in line with Medicare (currently running about 5-6% overhead), and we’re still having trouble paying for everything, then I’ll agree that we have to do something on the fee side. Until then, it sounds like you’re saying that you think SF General can get more efficient if we would just cut their revenue, while insurance companies are already facing limits to their efficiency. This despite the fact that SF General is perennially at risk of folding, their CEO gets far less a salary than any insurance exec, and this is the case for most of its peer trauma hospitals with a high medicare and medicaid burden. Meanwhile insurance companies can’t even be as efficient as Medicare. Is there a county trauma hospital somewhere that is thriving with 25% less revenue than SF General (the equivalent of insurance companies with their 30% overhead vis-a-vis Medicare’s 5%)?

    For that matter, you could have argued that we had “a statistical sense” of the rough efficiency of insurance companies before Obamacare. Then Obamacare came in and mandated a minimum loss ratio of 70% (i.e. max overhead ratio of 30%). Some insurance companies were even forced to write checks to their beneficiaries reimbursing them at the end of the year for going below that loss ratio. Surprise! No insurance company folded from those regulations. Perhaps cutting revenue might work on insurance companies as well?

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