How to Charge $546 for Six Liters of Saltwater

http://www.nytimes.com/2013/08/27/health/exploring-salines-secret-costs.html?pagewanted=all&_r=0

by zdean • 13 years ago

175 183 13 years ago

nytimes.com

kumarski• 13 years ago

I keep getting that feeling that something must be done.

Any suggestions HN readers?

csense• 13 years ago

Turn healthcare into a government bureaucracy. Because that's an effective way to combat waste, inefficiency, and overcharging </sarcasm>

dnautics7• 13 years ago

at least all our patient data will be private. If we keep all of our private information in the hands of the HMOs and other corporations, the NSA might install a backdoor.

tibbon• 13 years ago

Clearly, its a problem a free market will efficiently fix and prices will stay low. </sarcasm>

mapt• 13 years ago

Turns out, it is.

Even if one is willing to accept them into one's general worldview... First principles - like "government is wasteful" - only go so far in the face of conflicting data. And there is a lot of it on the topic of healthcare systems.

chasing• 13 years ago

Whelp, the private sector sure seems to be fuckin' it up, so maybe it's time we give the government a shot.

derleth• 13 years ago

Only fools and ideologues argue against systems which have been demonstrated to work.

noonespecial• 13 years ago

The government is wasteful and inefficient, but it is not the most wasteful and inefficient system possible.

Politics is the art of figuring out when to burn the extra resources on the government method because all of the other available methods are even worse.

chrismealy• 13 years ago

Copy the health care system of any other rich country. They all get about the same results for half the price or less.

dnautics7• 13 years ago

We could kill about 9/10 of the population and get down to their size and ethnic homogeneity, as part of the copying process.

duaneb2• 13 years ago

Copy the health care system of any other rich country.

This is easier said than done. The link between socialism, still a profane political philosophy, and municipal health care is too strong—the time it would take to switch it over is be on the order of election cycles, not years. Granted, we are already on that road, but it's going to be a long time before any mainstream politician embraces it.

uptown• 13 years ago

I'm nowhere near having an answer, but pricing transparency needs to be a major part of the solution. I realize OPEC isn't exactly a popular entity, but I wonder whether a similar model might have some benefits here. Form a group comprised of representatives from interested parties tasked with establishing pricing for services rendered that is consistent across the entire nation. Perhaps allow regional adjustments based on cost-of-living deviations, or some other relevant metric - but cap how much those deviations can actually influence the price of care.

End the idiotic "billed rate" vs. the "negotiated rate" nonsense.

Include patient transportation in the equation. If singular pricing isn't attainable, a local hospital's care is too expensive, and the patient can receive similar care at an alternate location in a cost-effective way - cover the transportation cost under their insurance.

Tort reform. Liability insurance premiums for health care professionals is as crazy as the price for the care they provide. This is as big a problem as the price of a bag of saline.

I know these aren't the answers - but pricing of services is key to the problem, and the Affordable Care Act did little to get that under control beyond attempting to move more individuals under the umbrella of insurance and outside of emergency care.

lifeformed• 13 years ago

What would happen if a hospital opened up that just had reasonable rates? It wouldn't make any deals with insurance companies other than to take payments. It posts all it's prices online and transparently for everyone to see. You can shop for treatments on their website. Could they make money this way?

fnordfnordfnord3• 13 years ago

Apparently, a bidding war. Fancy that. http://kfor.com/2013/07/08/okc-hospital-posting-surgery-pric...

angersock3• 13 years ago

Start making the negative externalities of this pricing known to the bureaucrats in those hospital systems.

Preferably with a lead pipe.

DanielBMarkham• 13 years ago

It's always in the seller's interest to create a complex and opaque system of pricing, especially when the buyer doesn't even pay for the services. This is why free markets aren't the answer to everything. It's free and open markets that drive efficiency out of any process.

The problem here is one of incentives. If I promise to pay you for mowing your neighbor's lawn, and he rarely reviews what you're doing and I rarely check with him, suddenly mowing the lawn gets really complicated and expensive. If, on the other hand, you walk next door and solicit the neighbor to mow his lawn, suddenly it's a very simple transaction. The difference is one of incentives. If the goal is to provide mowed lawns, the neighbor is the guy responsible. If the goal is to provide a rationale for writing a check? Heck, I got all kinds of easy rationales handy. I can play this game all day.

It should be illegal for anybody to pay a medical bill except for the person receiving treatment. If you want universal coverage, that's fine: pay the patient and have the patient pay the hospital and doctor. Once you begin to incentivize other players besides the patient, you're going to create a mess. I'd also recommend completely unbundling hospital services. Patients should be able to buy materials and services on the open market -- and keep the savings they make doing so. Hospitals should provide clean, sterile rooms for independent specialists to work, not form a pricing cabal controlling anything that happens inside the walls and incentivized to game the system.

dopamean• 13 years ago

This is why free markets aren't the answer to everything.

Perhaps I've misunderstood you here but in my opinion the way healthcare works is sort of the opposite of a free market and if a free marketplace for health services were allowed to exist then things like $500 bags of saline solution wouldn't exist.

thrownaway24242• 13 years ago

It is not possible to have a "free market" in health care because the "customers" are often on the brink of death, or not even conscious.

Fomite2• 13 years ago

The counter to this argument is the following:

- The U.S. is some sort of ungodly hybrid system, a muddling of free market and tightly regulated ideas, and has very bad outcomes for the amount of money we spent.

- Everyone else has gone away from a market system, more toward a regulated system, and experienced better outcomes.

It's possible that also walking away from the other end of the market and relying on the invisible hand to administer your IV will work, but it's not a notion supported by much data - it's a free marketeer leap of faith, and it's in an industry where many of the assumptions needed for a free market (information symmetry comes to mind immediately) don't exist.

shalmanese• 13 years ago

Many enterprise sales markets are as free as can be but you frequently see the exact equivalent of $500 bags of saline. The similarity in both cases is not the freedom of the market, it's that the purchaser and the consumer are not the same person.

refurb2• 13 years ago

This is it in a nutshell.

The US system didn't become this way because the people involved thought it was a great idea, it became that way because of perverse incentives through which services are paid for.

All you need to do is look at how providers act and you can tell what they make money on and what they don't.

Why do you think nearly all hospitals have emergency departments? It's not because they are providing a service to the population, it's because it's a great source of profit. Same thing with cardiac centers.

mahyarm2• 13 years ago

I've noticed convoluted pricing happens in these industries for consumers:

  - Airfare
  - Cell phones
  - Many telecom services
  - Banking & finance
  - Healthcare
  - Lawyers?
  - Accountants?

One common pattern they have is they're prone to monopoly effects either through regulation or network effects.

dantheman• 13 years ago

All of those involve heavy regulation by the state and most were state granted monopolies.

refurb2• 13 years ago

One of the big reasons for this problem is Medicare. The reimbursement that Medicare offers is often far less than it costs the hospital. Why does Medicare not cover the cost of a procedure? Usually because it did cover it in the past (to the point of generosity) and providers reacted by shifting their services to maximize the profits.

A good example is the infusion of drugs. Medicare pays ASP+4% (just cut from +6% due to sequestration). If you're a clinic that doesn't get a discount on their drugs (mostly community based clinics) you're often paying more for the drug than the gov't pays you (it's a net loss every time you prescribe the drug).

However, the gov't does pay a lot to infuse the drug. The result? Providers everywhere were starting their own infusion clinics and making a ton of money on it. The profit from infusion clinics would be used to offset the loss from the purchase of the drug. CMS clamped down on reimbursement for infusion services recently, but it's still a profit center.

This happens all the time in the US healthcare system.

So what do hospitals do? They jack up the price on every item they possibly can. Of course insurance companies know what is up, so they negotiate much better rates for all of the items. However, for those who are uninsured, they pay the charge master rate which is very inflated.

The problem with the US healthcare system is not that's a free market, because it isn't. The problem is that's not a free market and it's not a fully regulated market, it's something in between. So what happens is that some regulations are put in place, some of which cause certain procedures to be unprofitable, so providers simply shift those costs to the un-(or less) regulated prices.

smokinn2• 13 years ago

Sounds like the problem isn't actually medicare, sounds more like it's adding a capitalistic, profit-maximizing middleman into the system.

jes8• 13 years ago

With respect, what does capitalism mean to you? Lassiez-Faire or something different?

yalogin2• 13 years ago

So this is by design isn't it? The fact that insurance covers everything and the hospitals do not have to eat up any costs begs for this to happen. If the majority of customers (patients) pay out of their pocket then the hospitals would be incetivized to make themselves attractive to patients. Else why the hell do they care? In fact they mark up prices multiple times to offset any unforeseen costs of eating up costs as well. There is no incentive in price transparency, no incentive to compete among hospitals. Honestly if you are covered then as an individual you don't care either. I am not sure what the solution is here.

carbocation• 13 years ago

Serious question: why do you think that hospitals don't have to eat costs?

It's a loaded question in the sense that I've been at various hospitals and they always talk about their budget shortfall which is in part due to non-reimbursed care provided to those who cannot pay and/or have no insurance. But it's also not a loaded question in the sense that I want to understand why people would think hospitals don't eat costs.

yalogin2• 13 years ago

Oops, I was thinking something and typed something else entirely. I meant to say that since the insured pay for the uninsured (through marked up prices), the hospitals are incentivized to jack up prices.

dude3• 13 years ago

I think there are 2 big factors that always seem to be missing from these investigations. The high costs offsets individuals who don't pay for their healthcare. Keep in mind that the hospital must treat anybody who walks in the door and they frequently do not get reimbursed by the government. Also keep in mind that the solution must be perfect when it physically cannot be. Because if there is a .0001 percent chance of failure, every doctor that treated the patient gets sued, the hospital gets sued for several million, the manufacturers gets sued, the middle man gets sued, heck the receptionists probably gets sued too. Think of the costs of insurance for every party involved. Obstetricians often pay $85,000 to as much as $200,000 for malpractice insurance. That's just the doctor.

Reduce the malpractice payouts and shield doctors like other countries do. Make the government absorb more of the costs for care. The price could probably be cut by 200 to 300 bucks.

thrownaway24242• 13 years ago

(U.S.) states where malpractice damages are limited do not have lower health care costs.

swalkergibson• 13 years ago

Obstetricians often pay $85,000 to as much as $200,000 for malpractice insurance.

[Citation needed]

elstevo• 13 years ago

Not to defend the costs or the state of the system, but the justification for the prices of medications in hospitals usually includes the time of the nurses, pharmacists, and techs that make the whole administration process happen safely.

Also, hospitals will bill whatever amount they can get reimbursed. Most insurance companies have contracts with hospitals where they only get a fraction of the billed amount. The rest is written off by the hospital. Uninsured patients can usually work out payment plans for lower amounts as well. That said, healthcare in the US is still pretty damn expensive.

coenhyde• 13 years ago

The problem with having healthcare under private enterprise is that these healthcare providers do not operate under the free market conditions we assume they do.

There is no "perfect information" allowing consumers to choose the cheapest price. As the article points out the pricing structure is very opaque. Not to mention the "consumers" want the best product regardless of cost, after all we are talking about their lives here.

Given the lack of free market conditions operating on these healthcare providers it is only logical that they would behave like the extortion rackets they are.

ekianjo• 13 years ago

They dont operate in a free market. Everything is closely regulated and the patient cannot compare costs. Companies which would like to provide lower costs services would not be allowed to advertise them.

rogerbinns2• 13 years ago

It is even worse than that. Lets say you want to open a medical facility that will lower costs. This will end up taking away business from other facilities where patients don't find the higher costs to provide value. In a free market, the new facility goes up, existing facilities have to compete, and consumers benefit.

In 35 states you can't do that. Existing facilities are protected, and you'll need to establish a certificate of need[1] showing that business won't be taken away from existing facilities. The somewhat tortured logic is that they would then have to charge remaining patients more which would raise costs for everyone so this is a cost saving measure.

Like many parts of US business it is good old fashioned protectionism, and not free markets.

[1] http://en.wikipedia.org/wiki/Certificate_of_need

moocowduckquack9• 13 years ago

There is never perfect information in any market. The continual problem with free market economics is that according to the definition, there has never been a free market anywhere in history. It is ideology with a thin veneer of mathematics.

microcolonel• 13 years ago

They don't clarify though, the costs of running a sufficiently-advanced multiple-effect distiller, dealing with the FDA, WHO and whomever else forces them to... these costs could definitely add up, no?

What do you think the bar is for entering the market of providing water for injection? Who's there to make it costlier, maybe the insurance oligopoly can hold some of the blame for this as well...

zdean5• 13 years ago

Apparently the bar isn't too high:

http://www.zorotools.com/g/00107210/k-G4226537?utm_source=go...

icegreentea• 13 years ago

They list the manufacturer sale price right there ($1.07 a liter). The manufacturer is the one who has to go through the certifications, capital costs, and part of the overhead. All the remaining cost (the remaining 89 dollars) is overhead from the hospital, middle distributors (if they exist) and the such.

The the majority of the cost of capital, dealing with regulation, and other "justified" increases is absorbed into the manufacturer sale price.

fnordfnordfnord3• 13 years ago

It couldn't add up to more than the cost of a bottle of cheap vodka.

nikatwork3• 13 years ago

Many in this thread are claiming that price fixing wouldn't occur in a "truly free" market. This is misty-eyed naivety.

In a completely deregulated free market, it is even more in the hospitals' interest to form a price-fixing cartel. Any new player in the market trying to set reasonable market prices could be excluded through market pressure tactics (eg, tell distributors don't sell to them or our cartel will no longer use you).

It seems to me that the parlous state of the US healthcare system is in fact a perfect demonstration of the dangers of a completely free market, and claims that "oh no it's not actually free enough" are merely handwaving.

mattstocum• 13 years ago

Even if there were perfect competition, it doesn't matter much, people don't comparison shop for ERs. If you are having a heart attack, you're not in a position to compare prices at local hospitals.

zdean5• 13 years ago

Well, I think it would have to start somewhere. I'd be happy to be able to comparison shop for routine, non-emergency stuff...let's say dentists to start off with. I have a feeling that once you start chipping away at it, the outlying examples would get taken care of as well.

There was a similar thread a few weeks back:

https://news.ycombinator.com/item?id=6258597

It'd be great if the HN community started throwing out some ideas for disrupting this behemoth.

jes8• 13 years ago

How do you explain other free markets that obviously deliver quality products at low prices? I don't feel gouged when I buy a television, a cell phone or lumber at Home Depot.

gnoway2• 13 years ago

Well presumably you're not suffering from an ailment that requires immediate application of TV, Angry Birds or a 2x4 in those cases.

DanBC3• 13 years ago

Cell phones are a great example of the terrible results from supposedly free markets.

Plans are deliberately priced to be confusing to compare prices; plans are frequently updated to cause people to be stuck in win-optimal contracts; consumers are gouged on some items (see bizarre cost of sms in UK); and companies collude to defeat market mechanisms - see the use of area codes in auction bids as a method of communication when frequencies were auctioned off.

nikatwork3• 13 years ago

Free markets are a problem when there is a resource that can be monopolized (doctors / medical supplies) or when corporate goals are at direct odds to community interest (a deregulated BP despoiling the Gulf of Mexico because safety measures are expensive and fuck you.)

Home Depot would happily gouge you if they could form a cartel and gain enough control of the supply chain.

abalone2• 13 years ago

I don't feel gouged when I buy a television, a cell phone or lumber at Home Depot.

You might if you were carted into a Home Depot unconscious on a gurney, handed a non-returnable light bulb and stuck with a bill for $6,844.

rayiner2• 13 years ago

Do you feel ripped off when you buy a pair of Ralph Lauren jeans for $100+ made in Mexico for $7-8?

andylei• 13 years ago

hammers are really good at pounding nails into walls. hammers are not good for turning screws.

free markets are really good at efficiently allocating resources in certain types of markets, and not so good in other types of markets

ZeroGravitas• 13 years ago

You probably were gouged when you bought that TV.

A record fine for a CRT price-fixing cartel that ran from 1996-2006:

http://www.bbc.co.uk/news/business-20608949

And an LCD price fixing cartel that ran at the same time:

http://www.bbc.co.uk/news/technology-20910299

gnoway2• 13 years ago

Well you can hardly have a free market for healthcare in the first place. A functional market requires that consumers be vigilant and make good choices. That's hard enough without being sick or injured.

I like to think of myself as a free markets guy, but driving healthcare via the market seems like the worst, most cynical application of the concept possible.

jes8• 13 years ago

With respect, what is a functional market, and why does such a market require that consumers be vigilant and make good choices?

If consumers make bad choices, don't they eventually learn to make better choices?

Shivetya• 13 years ago

Regulations usually prevent consumers from making any choice. Regulation can make consumers buy insurance for procedures they do not want, or even physically be able to have. Regulation made impossible to shop across state lines for insurance. Government rules force suppliers to sell services at set rates to one customer and not to another.

Health care stopped being a free market when government stepped in. Then it because burdened by politicians creating a system which favored whomever was giving them money and votes.

CamperBob23• 13 years ago

It seems to me that the parlous state of the US healthcare system is in fact a perfect demonstration of the dangers of a completely free market

I... I just... wow.

jdminhbg4• 13 years ago

the US healthcare system ... a completely free market

I have read a lot of wrong things on HN, ranging from the merely misinformed to the willfully ignorant, but this might take the cake.

delinka• 13 years ago

I wonder if, perhaps, you could provide a counterargument to nikatwork.

nikatwork3• 13 years ago

You are selectively re-arranging my words to create a different meaning. At no point did I say the US healthcare system was completely free.

Steuard• 13 years ago

The sentence you're objecting to isn't claiming that US healthcare is a completely free market (which, as you note, would be an unbelievably ignorant view to hold... literally unbelievably). It's claiming that certain failures of the fairly-free US system already illustrate the sorts of failures that would plague a free(er) system.

You may or may not agree with that conclusion, but it's a far more plausible view for someone to hold than what you seem to have thought the original poster meant.

pash• 13 years ago

Many people think "free markets" when they should think "competitive markets".

moocowduckquack9• 13 years ago

Two of the major things that are said to be features of free markets are deregulation and price transparency. The trouble is that deregulation and price transparency are often opposing forces.

Zigurd2• 13 years ago

Exactly this. All markets are more or less "free" and the question is how to structure markets to deliver the greatest benefit.

Absolutists about free markets are at least being purposefully obtuse if they don't admit that they think vendors should win every advantage from irrationality, inelasticity, and information asymmetry, plus every transitory advantage as markets get dominated for a supposedly temporary interval and for supposedly salutary purposes.

The above, combined with a bias toward investor-owned enterprises over co-ops, customer-owned, and nonprofit enterprises is what brought us to a place where market liberalization only hardens the position of incumbents.

socialized• 13 years ago

After spending six months in the hospital for orthopedic care for my news it became very apparent that unless you had a negotiated rate with your HMO or were on Medicare, pricing was the wild west. If you could discern what the bills were for via the medical codes, you would become outraged by the overhead. The best part is that hospitals get to hide behind HIPAA as they gouge and steal.

newsmaster• 13 years ago

What's the price of water in the desert? Somebody clearly realized this and appplied it to US healthcare system. Way to go capitalism.

hop• 13 years ago

What a baffling industry. Wish great things to any startup that tries to get through the bureaucratic/legal/insurance hurdles to take a crack at some of this.

joseph_cooney• 13 years ago

With centuries of regulatory capture, powerful, politically-connected vested interests with huge war-chests, and a deck full of trump-cards like 'safety' they can play, they might need more than just good wishes.

ucha2• 13 years ago

Health expenditure per country (as a fraction of their GDP). The US spends 50% more than France while in France, health care is free and universal.

https://www.cia.gov/library/publications/the-world-factbook/...

jostmey• 13 years ago

And herein lies the true problem of medicine in America. We have the worst possible healthcare system. It is a privately run industry without any real competition. Almost anything would be better - either public healthcare or real competition. Instead, what we practice in America is an exercise in insanity played out on sick and injured.

sourc3• 13 years ago

I agree. When it comes to your or your family's health you will not go with "cheap" even if it is the same level or better service/outcome. This is why the entire system needs to first create a nice feedback loop. Right now there are no metrics on how well certain hospitals are doing that can drive patient selection.

Usually, the patient just ends up going to the specialist their primary care provider referred them to or the closest one home. Until the quality/outcome data is made public there is no hope in steering people to better hospitals/providers.

There are some attempts lately in freeing up this information but I guess only time will tell how effective they will become.

On the bright side, it will only take one good health insurance company (I am thinking more like the type of disruption that a "Virgin" like company may bring to the table) to start using this data and driving some meaningful change.

angersock3• 13 years ago

There was a really, really good (depressing) article I'd read about a year or two ago talking about how group purchasing organizations worked to influence the costs of devices.

The example case was a guy who'd developed an auto-retracting needle, and was screwed out of business by some major manufacturers pressuring hospitals not to buy it.

Does anyone have a link to that article?

t0dd• 13 years ago

Is this the article you refer to?

"How the medical supply industry blocks device startups from selling to hospitals"

http://www.washingtonmonthly.com/features/2010/1007.blake.ht...

angersock3• 13 years ago

Yep! Good find!

karlkatzke• 13 years ago

OT: It's truly a sad day when I have to check to make sure that I'm reading something in a news section and not the op/ed section of the grey lady.

dr_• 13 years ago

Free market decisions will work when the patient has a choice. For example, when going for an outpatient visit to a doctors office that is scheduled in advance. One could argue that the patient has time to review their choices, call different providers and come to a decision. This is not the case when the patient is being urgently hospitalized. They are typically rushed to the closest medical center and are subject to the prices it charges and it's providers charge. Given that they have no choice, whatever system it is that leads to these high prices is unlikely to change - if you are forced to buy something from me, why wouldn't i charge you as much as i feel like for it? The government could get involved and force hospitals to adhere to a certain fee schedule - but why should for profit institutions have to adhere to this? In a truly capitalistic society they really shouldn't. The best ways to deal with this is to maximize insurance coverage, which is one goal of the affordable care act, and then to really use it as insurance and not to pay for every possible medical service a patient may require. Insurance companies will negotiate reasonable rates for hospitalizations. And if it's really being used as insurance and not to cover regular outpatient services, premiums would remain low as well. So would there still be stories of the $4 Tylenol tablet dispensed in the hospital? Probably - but in the grand scheme of things, it wouldn't matter as much.

Questioneer• 13 years ago

Near the end of my father's life, he needed medical equipment at home. The equipment was provided by a company that has deals worked out with all the local hospitals.

The price for one oxygen condenser is covered after a victim(patient) pays for the device for around half a year.

Looking over some others I know, they are all going through this same company. Referred to them by each of their hospitals.

I cannot fully explain the scheme worked out from the hospitals, but I know it depends on having the often confused patient signing a bundle of documentation while he is being led out the door. I read over the documents and it seemed fair, I just had no time to research all that was needed. My father was in full legal control and he himself just simply followed through with what the hospital asked.

Fuck you, Airway Oxygen.

idiot900• 13 years ago

So if the manufacturer charges a dollar for the bag of saline, and the hospital marks it up a couple orders a magnitude, hospitals must be absolutely swimming in cash, right? Did I miss that part in the article?

prawn• 13 years ago

1. Does the industry need a few Mannings and Snowdens?

2. How much progress in the world is stifled by powerful incumbents blocking competition? Taxi lobbyists tackling Uber, car industry impeding mass transit in LA decades ago, etc?

jonknee• 13 years ago

The industry already got one actually, I coincidentally came across this yesterday:

http://www.bloomberg.com/news/2013-08-13/florida-pharmacists...

The TLDR is that an independent pharmacist treating AIDS patients got run out of business by price fixing competitors. He got the last laugh and sued on the behalf of the government and has so far collected $597M in awards (the government has collected over $3 billion).

The behavior of these (very large) firms was outrageous:

For example, Abbott Laboratories (ABT) sold its antibiotic Vancomycin 1 GM FTV to customers for $4 a dose, according to a joint Justice Department and Ven-A-Care lawsuit. Abbott reported the cost to pricing publishers as $72.48 -- 18 times the actual amount, the lawsuit says.

This is likely going on for other types of drugs and then also in every other segment (medical devices/supplies being a biggy).

ck2• 13 years ago

Basically it comes down to we'd rather let people die instead of telling hospitals they cannot do 10000% markup.

Even limiting them to 1000% markup would be "wrong".

Yay 'murica.

Be sure to donate blood while you are waiting for your loved ones in the hospital so they can sell it for 10000% markup too.

rokhayakebe• 13 years ago

Population control, maybe?

bpm1403• 13 years ago

I have two active kids and am reasonably active myself. We have probably received medical treatment a dozen times in the last year, a combination of walk-in clinics, personal physicians and emergency room visits, depending on the circumstances. During these visits, the staff have used equipment, given procedures and prescribed medication and have rarely, if ever, inquired about my thoughts on treatment.

When my son jumped off the couch and cut the inside of his mouth open, I wasn't asked my opinion on treatment. And if I had been asked, I would have simply said "you're the physician, do what will make him better the fastest." The same would have gone for when I had pneumonia or had to get a tetanus shot after getting fishhooked while surfing. My goal is simple -- recover the best the fastest.

How does one legitimately comparison shop for a baby delivery? Imagine, for instance, Hospital A says their births average $20,000 and Hospital B says their births average $30,000. Which rational prospective parent chooses the $20,000 option?

Hospital care is not like buying a car, where most people can consider themselves educated enough to make a decision based on competing factors -- perhaps I'm willing to give up some handling for a lower price or I'm willing to sacrifice fuel economy for more power.

The average person knows nada about the medical practicalities of giving birth (or treating pneumonia, or even stitching gums) so they cannot make informed decisions about what are reasonable tradeoffs.

As other people have said, medical treatment is an inelastic need. Parents don't say "you know, I'm cool with 50% less effective treatment for my child at 50% of the cost" and people don't say "you know, 90% functionality of my leg will be just fine if you can bring this in at a discount."

So not only do you have a lack of informed customers, you have a lack of choice in outcomes. A free market solution for medicine is a fairy tale spun by people of certain social and political persuasions.

gbhn• 13 years ago

The article focuses on what can hardly be considered a complicated good: salt water. Medical grade saline is highly regulated, and must be one of the most commodity products that exist in the country today. (The article takes pains to establish this.) It takes minimal effort to understand what it is or to compare prices. And yet, as the article says, there is no functioning market for it.

For something like "set this broken bone" sure, it's difficult to talk about the price for this risk vs. that risk. But for the liters of saline used during the procedure? That ought to be trivial to analyze. Yet it is not.

bpm1403• 13 years ago

But the need is still fundamentally inelastic. You're seriously ill from food poisoning and you've lost a lot of fluids. The ER nurse is about to stick an IV into you and wave your hand weakly and say "Wait, how much is that IV fluid you're putting in there?"

The nurse says $500.

Option 1) You say "no way, I can't pay that." The nurse shrugs and says "well, that's what it costs for IV solution here."

Option 2) You say "holy hell that seem expensive for a bag of salt water." The nurse shrugs and says "well, that's what it costs for IV solution here."

Option 3) You say "I'm really not comfortable paying that. What other treatment can I get?" The nurse shrugs and says "sir, this is the standard protocol for treating acute food poisoning. We put a saline solution into your arm via IV to replace your fluids. There is no alternate treatment. We're really busy in the ER, so I need to put this needle in your arm or get to another patient."

Now let's add a functioning market as you allude to:

Option 3, redux) You say "I'm really not comfortable paying that. What other treatment can I get?" The nurse says "well, we also have this other saline solution for a buck." You, reasonably, say "wait, what? Why is this other one 500 times cheaper than the first one?" The nurse shrugs and says "no idea, I don't make them. They both seem fine to me though." You, still being reasonable, say "then why is one so much more expensive than the other? Will the cheaper one do just as good a job as the expensive one?" The nurse shrugs her shoulders and says "look, I can't promise anything one way or the other. We default to the more expensive one but if you want the cheaper one, that's your choice. It's probably fine. Just sign this form that you're opting for the cheaper solution."

What does a rational person with zero context choose?

zdean5• 13 years ago

"How does one legitimately comparison shop for a baby delivery?"

How did you and your spouse decide on an ob/gyn when you were expecting your kids? How did you decide on a pediatrician after they were born? Would you be able to rate your experience with both/either after the fact (ie, did the experience live up to the reasons you chose them?)? Would it be possible to use such ratings along with costs to at least create some measure of efficacy for the specific providers or their hospitals/clinics? The outcome may not be a perfect solution, but it at least gives people some data points if they are interested in comparing doctors/clinics/hospitals for whatever their needs are.

lscharen• 13 years ago

My wife and I did pick the doctor (of 4 pediatricians) that was recommended to us by friends that had a good care and delivery experience.

BUT ... there is only one hospital here and all of the doctors are part of the same system. So, although we could "comparison shop" for our physician, this had no effect on what we would (potentially) pay.

five18pm• 13 years ago

You are equating higher cost with better quality. There usually is a correlation, but with US healthcare's opaqueness with prices, I wouldn't make that correlation.

Leaving aside that, people do in fact make medical decisions based on cost. For example, for angioplasty there are two options - a medicated stent and a non-medicated, regular stent. The medicated stent is more expensive than the normal one. When it came to choosing one for my father, I chose a medicated one only because I was paying through insurance. But many of the patients out here in India don't have insurance. In that case there is a definite probability that a lower cost one will be chosen. Another example is dialysis. The frequency at which people perform dialysis is directly related to cost and affordability.

It is not always a given that patients would go for the absolute best.

aestra3• 13 years ago

Anesthesia during wisdom teeth extraction is another good example. I was given 3 options by the oral surgeon (with prices attached)

1) (Cheapest) local

2) (Middle) nitrous oxide

3) (Most expensive) IV sedation

In my case my oral surgeon basically said I'd be nuts to go with option 1, since my surgery was complicated.

bzbarsky• 13 years ago

A few things, specifically about the US health care system:

1) Unlike medical procedures, for dental procedures it's pretty easy to get price quotes from multiple dentists: they will tell you their sticker price if asked. They will also give you the procedure code so you can ask your dental insurance (if any) to what extent that's covered so you'll know what the actual price to you is. People will in fact comparison-shop for major dental procedures, based on cost, dentist reputation, etc.

2) The situation with emergency or time-sensitive procedures (pneumonia, tetanus shot, cut inside mouth) and scheduled non-emergency ones (hip replacement, say, or laser eye surgery) is a priori quite different. It is in fact possible to sanely price-shop for hip replacements if people are willing to tell you prices and there is reputational data available. Unfortunately the medical establishment works hard to prevent both. Laser eye surgery is a particularly interesting case, because there _is_ freely available price information there; you may want to look at what's happened to its price over time. Learning as much about such a procedure as people tend to know about buying cars is not actually all that hard: people don't know that much about cars and there really isn't that much to know about some of the fairly standardized scheduled procedures.

3) People do in fact do the "90% functionality at much lower cost is just fine" thing all the time, with glasses (e.g. buying reading glasses at CVS instead of getting a prescription pair), dental procedures, and some scheduled medical procedures. You're right that "50% less effective treatment at 50% of the cost" doesn't happen much, though. Instead you get 100% less effective lack of treatment at 0% of the cost....

4) Since you brought up baby deliveries.... Sorry, pet peeve. If a hospital is charging you $20000 for a low-risk birth with no complications (which they definitely do!), that's an excellent indicator of how broken the system is. If you shop around for how much that sort of thing costs with people who specialize in low-risk births (birth centers, midwives), you will discover that the typical price for birth plus prenatal visits with no complications in the US is in the $3-5k range. Of course such a setup will not do the various wholly unnecessary things that will be done in a typical hospital birth setting, nor will it be subject to typical hospital billing practices.

5) A good bit of care in the US is end-of-life care, where it is in fact quite possible to make price/time tradeoffs to some extent, as well as comfort/time ones (e.g. hospice vs aggressive cancer treatment that might prolong life for a few months) and people who are in a position to make that choice can in fact make it in an informed way.

In practice, what we call "medicine" is a bunch of separate services that have totally different economics, often being bundled together with completely opaque pricing put on top. For some of them, there is lack of informed customers and lack of choice in outcomes, as you say. For others one or both are present. And even today some parts of "medicine" (e.g. scheduled dental cleanings) work quite different from other parts (e.g. pediatric well-child checkups; try to get a price quote from a doctor for one of these!) for no particularly good reasons that I can see.

The "right" solution to this problem is unclear to me, unfortunately, because as you point out there is a fair amount of emergency medicine where a free market cannot possibly operate. A good example of such a thing is the total lack of any possibility of a free market in emergency ambulance transport, from the patient's point of view. We should stop our attempts at a fake free market in those areas, but we should also try to create actual free markets in medicine where possible. And for quite a few things I believe it is in fact possible.

ddeck• 13 years ago

I am of the firm belief that healthcare is one of the basic goods that should be provided by a government. Some may cry socialism and argue that free markets are more "efficient", but that assumes people shouldn't have equal right to basic healthcare services. It also ignores the fact that many of the generally accepted principals required for a functioning free market are difficult to achieve in healthcare. In an emergency situation, for example, buyers are likely constrained to the closest hospital, at which point that hospital become a monopoly for that particular buyer. When the the good on offer is survival, it's easy to see where problems might arise.

I live in a country that has been rated the freest economy on earth every year since 1995 [1]. Low taxes, small government, minimal regulation. So what does healthcare look like here for the average person? $13/day. Got a sore finger? $13/day. Intensive care? $13/day.

There is a significant parallel private system that offers all the luxuries and perks that a free market can provide (no waiting times, private rooms, choice of doctor etc.). But it competes with the public hospitals for buyers. In providing a competing alternative, I would speculate that the public system limits the type of monopolistic situations that can arise.

No system is perfect and clearly there are enormous differences between the US and elsewhere, but it's interesting to note that the "freest economy on earth" has universal public healthcare, in addition to a freely competing private system.

[1] http://en.wikipedia.org/wiki/Index_of_Economic_Freedom

[2] http://en.wikipedia.org/wiki/Health_in_Hong_Kong

[3] http://www.news.gov.hk/en/record/html/2013/04/20130409_19040...

_pmf_• 13 years ago

And what about these web sites for thousands of dollars? I mean, if I can throw something together in 30 minutes using MS Paint and Wordpad, how ridiculous is it that a designer charges more than 20 USD per hour?

Ah, I see. It's only en vogue to complain if I don't know anything at all about the constraints of the domain and am pulling stuff out of my ass. My bad.

How to Charge $546 for Six Liters of Saltwater

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