Monday, July 08, 2013

The Cost of Prenatal Care

The New York Times has a lengthy article concerning the lack of price transparency in prenatal care and the apparent price gouging that occurs. This follows the theme of other news items covering the crisis is health care economics.

Like many reports on this topic, the NYT fails to differentiate adequately between costs and charges. The comments typically devolve into hand-wringing about the lack of “price” transparency and a flurry of opinions about how the system should be reformed.

Fine. But let’s define terms. “Charge” is the nominal amount on the price list by the hospital or doctor. This figure has almost no meaning since every insurance company and government entity negotiates a lower price for their members and risk pool. This refers to the upfront, non-discounted fee on the list.

“Cost” is the bottom line bare-bones amount of money needed to provide a service or supply, before profit. “Profit” is the net between what a good or service costs and the actual amount collected by the provider. I have no idea what "price" refers to.

The table shows the “amount paid” for prenatal care in the US versus other nations, but this is not completely accurate or at least only partially defined in the article. The table has a line below stating “amounts paid are the actual payments agreed to by insurance companies or other payers of services, and are lower than billed charges.” So far so good, but this still leaves out a clarification of how much disparity exists between payers, for example private insurance versus Medicaid. Who pays what amount?  Medicaid typically pays 50% of what private insurance would pay, so the $9775 figure is meaningless because the range might be $3000 to $15,000. And the actual cost, not addressed in this article or this chart, to the hospital/doctor might be $600 or $16,000. Who knows?

Another example of incomplete reporting is the discussion of obstetricians’ charges and collection. The NYT article says “[obstetricians] often charge a flat fee for their nine months of care, no matter how many visits are needed,... That fee can range from a high of more than $8,000 for a vaginal delivery in Manhattan to under $4,000 in Denver, according to Fair Health, which collects health care data.”

Useless reportage. They are referring to a charged fee and not the actual collected amount as negotiated by insurance companies and Medicaid (Medicare provides relatively little prenatal care since older and disabled women are less likely to get pregnant). How much is actually collected? Answer: it depends and varies A LOT. In my experience, our practice in Michigan charged $3600 global fee but then it would be discounted 40-75% with Medicaid paying less than $1000. Nobody ever paid $3600 because even the 1 or 2 cash paying patients every year got a steep discount negotiated upfront.

A “charge” is completely without pertinence. Administrators and bean counters know the bare-bones “cost” of particular services and supplies down to the penny but they are loathe to make that information known.  

The other poorly kept secret is that privately insured patients subsidize Medicaid patients who are receiving steeply discounted prenatal care. As an aside, I always wonder why any young couple bother to get married and pay for benefits. Being frank, from a finance standpoint they’d be better off having their kids out of wedlock while the woman can qualify for Medicaid. The father could make a 5 or 6-figure income, let the state pay for the prenatal care, and pocket more money. Why the hell not? Actually I’m sure some do make that conscious decision...but that's a digression.

The most important figure is not the “price” or the “charge” but the actual “cost”. The supplies, IV bags, gloves, gown, the epidural, 8 hours in a labor room, nurses’ salaries, etc, all have known costs. From there we can determine how much profit can be reasonably tacked on: 2%, 5%, 50%? Let’s get the numbers.  Then they can be extrapolated over a population, knowing that c-section rates are 25% and NICU admissions occur at a certain rate, etc.

To put a table that says “amount paid” is useless and to talk about “charges” is less than useless.

How much this cost disclosure would help individual consumers of health care is debateable. Given all the asymmetric information  I doubt it would help much at all. The value to knowing the cost is for payers-- Medicaid, Medicare and insurers-- to negotiate pricing from a more meaningful vantage point. Like most medical services, prenatal care is not a product that can reasonably be purchased by an individual looking at a line item price list. The costs should be borne by the entire society as a risk pool. I don’t care how much cost disclosure is available, no individual would be able to anticipate all the possible outcomes in labor and pay out of pocket for a complicated hospital course and, say, 12 weeks of neonatal intensive care.

This topic of charges and cost and profit is pertinent to the entire health care debate, but the thought of healthcare as a free market that would benefit from individuals knowing “prices” is wishful thinking. There is no free market in health care. If the ER doctor says your chest pain warrants a cardiac catheterization you don’t shop around for the best price. It might seem like we are empowered if we use our HSA debit card to pay a hospital or doctor’s bill, but it’s all a ruse; the real costs, the big ticket items, cannot be negotiated by a single person with an HSA account.

The kicker is that there is an organization that really does know the costs and uses that information in the real world: Medicare. They have the largest database of costs and Medicare negotiates fees based on this vast knowledge, called the resource-based relative value scale, or RBRVS. This is why Medicare is so damn efficient compared to private payers and state-run Medicaid, but that's another topic for another day.