My Blog List

Tuesday, June 16, 2015

Mystery of Language in Health Care: Prices or Costs?


       Health Care in the United States has a language that is very different from the rest of us. David Goldhill has referred to this as “island speak” in his wonderful book, Catastrophic Care.  Goldhill discusses the use of the word “cost” in place of the word “price” and maintains this choice of language is purposeful: “The distinction isn’t just a linguistic one— with “cost” serving as a polite synonym for “price.” Calling costs “prices” would recognize that they are in fact the industry’s active and calculated responses to incentives created by us.

        So what? Goldhill observes in the same year that gas prices went up 1200 dollars for the average American household, we had a national outcry for action to find out what was wrong. Congress had hearings with the major oil companies summoned before House Committees. Our government wanted answers! However, health care costs increased $1110.00 for the average American household in the same year and there was not a peep of protest; it all seems so inevitable; these “costs.” Prices on the other hand have an evil hand at work. More recently, when oil prices plummeted and gas prices followed, there were no calls to find out what evil was at work behind this scheme. Apparently, the market is only a problem when prices are going up.
 
       The use and misuse of the word costs provides good cover. Many providers and others have no idea of what their costs are in the US health care system. Historically, since the US government took over 40% of the health care system in 1965, this has not been necessary. The large hospital systems have learned to overcharge on their “charge masters,” then the patient surrogates, insurance companies and CMS, tell the providers what they will pay; typically this is a third of the bill being charged. Instead of a market using price to regulate what is produced in terms of health services, we have centralized planners establishing prices. Recently, CMS decided not to reimburse for “readmissions.” A good decision. Now the unintended consequences: the providers, being more of them and certainly more creative than the planners at CMS, have now framed a “readmission” to be an “observation” so they can get paid. CMS is now trying to figure out what to reimburse for an “observation.”
 
       This charade reminds me of the observation from Dr. Thomas Sowell in his book Basic Economics on the role of central planners in the former Soviet Union tasked with setting prices:
 
        “The significance of free market prices in the allocation of resources can be seen more clearly by looking at situations where prices are not allowed to perform this function. During the era of the government-directed economy of the Soviet Union, for example, prices were not set by supply and demand but by central planners who sent resources to their various uses by direct commands, supplemented by prices that the planners raised or lowered as they saw fit. Two Soviet economists, Nikolai Shmelev and Vladimir Popov, described a situation in which their government raised the price it would pay for moleskins, leading hunters to get and sell more of them:
 
       State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen twice to lower purchasing prices, but the “question has not been decided” yet. And this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices.
 
       However overwhelming it might be for a government agency to try to keep track of 24 million prices, a country with more than a hundred million people can far more easily keep track of those prices individually, because no given individual or enterprise has to keep track of more than the relatively few prices that are relevant to their own decision-making. The over-all coordination of these innumerable isolated decisions takes place through the effect of supply and demand on prices and the effect of prices on the behavior of consumers and producers. Money talks— and people listen. Their reactions are usually faster than central planners could get their reports together.”
 
       A simple solution is to post prices for all providers. Why is this never on the agenda? Singapore spends about 4% of their GDP on health care and is one of the wealthiest countries per capita on the planet. The following link will take you to a price table that is impossible to find in the United States: http://polyclinic.singhealth.com.sg/Pages/FeesAndCharges.aspx
 
       This is just the top level of prices for one provider. The Ministry of Health provides transparency on pricing for all providers and typical operations. Patients are free to choose where they spend their health care dollars. Singapore’s 4% compares to our 16%-18%. Countries in Europe spend on average about 8-9%. Singapore’s market approach, putting the patient in charge, outperforms the socialist countries and certainly our crony capitalist approach in the US.
 
        Just post the prices…please! Put the patients in charge of choosing their health care services.
 
References:
Goldhill, David (2013-01-08). Catastrophic Care: How American Health Care Killed My Father--and How We Can Fix It (pp. 22-23). Knopf Doubleday Publishing Group. Kindle Edition.
Sowell, Thomas (2010-12-28). Basic Economics: A Common Sense Guide to the Economy, 4th Edition (pp. 17-18). Basic Books. Kindle Edition.