Friday, January 27

More Competition = Higher Prices !?!?!?

Apparently, the health care industry doesn't follow the same market realities as the rest of us.

Take a look at this article. More competition will increase prices.

It may be true. The Clinic's surgery center may well take some of the more profitable work from the hospital. However, the hospital could try to keep some of that work by LOWERING PRICES. Isn't that how markets work?

I admit it. I may be too simple to understand how more competition will increase prices. We will see ...


Dave Budge said...

Aaron, the most curious thing to me in the article is the statement made by Benefis that they charged off $100 million last year. This shows how really out of whack the system is on a couple of fronts.

First, why is there any significant charge-offs for Medicare and Medicaid? If those two systems are not covering the costs of services how does that bode for the health care system overall? Secondly, if Benefis practices the usual formula that charges uninsured patients 2 to 3 times the rate that it charges the insured (this practice is wide spread in the industry) then the charge-off amount is exaggerated as a percentage of actual cost per service. Third, I assume that Benefis is a non-profit entity. If so, they already have about a 44% cost advantage over for profit competitors in the tax differential alone.

I think your general understanding that competition should reduce prices is true. Under the current system, however, I doubt that the non-profit sector understands their own profitability model since they are not held to account for any profit.

My father, a Ph.D. in accounting, was on the advisory board for Missoula Community Hospital and has told me on many occasions that the Hospital never considers return on investment in the decision to add infrastructure. In fact they don't, as a matter of course, even build ROI models. The only concern they have is whether or not the hospital can cover the costs in total. This lack of cost accounting makes for significant overcapacity in the industry (to many MRI's. lab facilities, etc.) and drives up the cost of service by virtue of the gross inefficiencies.

It's complicated, but Baucus' proposed bill is anything but "fair competition" and serves to protect the very model that drives up prices.

Justin said...

This is just the beginning of the incongruencies (sp?) of all things medical when compared with the rest of the world. One that I've always found particularily egregious is the fact that if a doctor can even remotely be construed as providing a service, as in if he/she's on the same continent when you show up for your appointment, they are perfectly legitimate in charging a fee for said service and there is no recourse whatsoever to challenge the legitimacy of said claim. Even if the doctor's "services" are of no benefit whatsoever, even if said services are detrimental in some way not worthy of a law suit, the "customer" is still obligated to pay. If any other business in the country tried to operate this way there'd be indictments.

For example: You take your car to a shop because it's making "a funny noise". The receptionist at the desk tells you that the mechanic is gone fishing for the afternoon but the lube tech (kid that changes oil) is in and would be happy to take a look at it. You pull your car into the shop, the lube tech looks at it, shrugs his shoulders and says "I dunno, you'll have to bring it back next week and have the mechanic look at it". You bring your car in on Monday morning, the mechanic looks at it, hooks it up to the computer and says "I dunno, it's something in the transmission, you'll have to take it to the transmission shop". So you take your car to the transmission shop, they tell you it's no big deal and to come back and get it tomorrow. You go back and get it and it still makes the same noise, actually the noise is worse than it was before and now there's a terrible vibration besides. A week or two later you get a bill from the lube tech for a $100 office visit, a $200 bill from the mechanic for another office visit and diagnostic tests, and a $700 bill from the transmission shop for repairs which you're now obligated to pay even though your car is still making the same funny noise and more. Yeah right, that'd go over like a fart in church, but doctors get away with it every day.

Sorry it was such a long story, I was having fun telling it, deal with it. ;)

GeeGuy said...

Thanks for posting that Aaron. I was going to try to make the same point, but I had to leave this weekend (to spend the weekend in Big Sky!)

Where else does monopoly = lower prices, competition = higher prices?

The Raving Norseman said...

The Postal Service?