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Prices Prices Prices
Doctors Finally Coming Around on Prices

At Vox, Sarah Kliff collects fifteen charts showing that we pay far more for health care than other countries. Click through to see the disparities, many of which are quite striking. For example, arthritis drug Humira costs $881 dollars in Switzerland, but $2,246 in America. Kliff chalks these differences up to America’s insurance system, and the fact that we don’t have one central body that negotiates prices with Big Pharma. Instead in our multi-payer system every insurance company negotiates separately.

By phrasing the problem in this way, Kliff is aiming at a particular solution: rate control and the single payer pivot. But there are a number of more organic reforms closer to home that would alleviate the high prices she highlights. Doctors, for example, often prescribe expensive drugs even though cheaper generic alternatives exist. But according to this NYT piece, that’s changing—and not a moment too soon:

Saying they can no longer ignore the rising prices of health care, some of the most influential medical groups in the nation are recommending that doctors weigh the costs, not just the effectiveness of treatments, as they make decisions about patient care […]

The society of oncologists, alarmed by the escalating prices of cancer medicines, is developing a scorecard to evaluate drugs based on their cost and value, as well as their efficacy and side effects. It is expected to be ready by this fall.

And the American College of Cardiology and the American Heart Association recently announced that they would begin to use cost data to rate the value of treatments in their joint clinical practice guidelines and performance standards.

For our system to really work well, consumers ultimately need to be empowered. We should be working towards a place where price sensitive patients have the information and motivation to demand better cost-quality matchup than what they are currently getting. In the meantime, however, doctors working to minimize the amount they charge patients is a good step.

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  • Jim__L

    We have monopsony in some states of the union already — there are some states with only one insurance provider. That insurance provider is already in a “single payer” position.

    Yet, those states do not have lower prices.

    Monopsony has been tried, and found wanting.

    • Andrew Allison

      You are mistaken on two counts: I’m not aware of a State which has a single insurance provider and, according to “Despite having the least competitive health insurance market in the country, Alabama’s individual premium prices compare favorably with neighboring states and are below average for the nation.” The concentration referred to nationwide is, in part, due to the withdrawal of companies from some markets resulting from the Abominable Care Act.

      • Jim__L

        Looks like it would be useful for at least one of us to do some research on the single-insurance-provider states. I think it was Thomas Sowell (who speaks very sensibly the vast majority of the time) that reported on the monopsony situation in various states, but sadly I can’t remember the details.

        • Andrew Allison

          Kaiser did, and there are none.

          • Jim__L

            You mean the article, “New Health Exchanges Unlikely to End Insurance Monopolies in Some States”?

            “The lack of competition in nearly a dozen states could present problems
            when the insurance exchanges that are part of the Affordable Care Act
            launch in October.”

            “A recent analysis by the American Medical Association found that a
            single insurance company held 50 percent or more of the market in nearly
            70 percent of local markets nationwide. And in 30 states, a single
            insurance company covers more than half the people who purchase
            insurance individually, according to the Robert Wood Johnson Foundation.”

            “Paul Ginsburg, director of the Center for Studying Health System Change” had another point of view on the matter, but provided absolutely no data to back up his claims.

            Andrew, are you counting on my not having the time to read those articles to allow you to claim that they provide any valid refutation of critiques of single-payer?

          • Andrew Allison

            I’m disappointed by your highly selective quoting. As I noted, the reports illustrates that there are precisely zero States in which a single company controls the whole market (Strike 1). It also reports, as I wrote above that in the state with the highest single-company market share (AL @ 89%) insurance costs are comparable with those in surrounding States and lower than the national average (Strike 2). Finally, I have not made any comments in this thread about single payer, but simply demonstrated that the the arguments which you made are false (Strike 3).

          • Jim__L

            The first two are foul balls at best. 😉 And we know each other on these boards well enough that any claim you may make to distance yourself from single-payer is disingenuous at best.

            The article uses evidence to establish that there are highly non-competitive markets in this country already, where insurance providers already exercise great clout. Not monopsony, but close, as my quotes demonstrated. The fact that AL is comparable to other states is a significant obstacle to arguing that monopsony makes a significant difference in price.

            Add to that the fact that the monopsony we do have — Medicare — is driving this country into bankruptcy, and the argument that the national government should not take responsibility for medical payments in this country becomes the only rational approach.

  • Andrew Allison

    Do we not have two, quite separate, issues here, namely the price of drugs and the prices of medical services? One can make all sorts of arguments for the disparity in the latter, but it’s hard to justify different prices for the same drug depending upon where you obtain it. The vastly lower prices of identical proprietary drugs abroad can only be explained by monopsy purchasing. The benefit of volume purchase can be seen here in the ability of, e.g., Target and Wal-Mart to offer essentially any generic drug, delivered to your mailbox, for the same low price ($4/30, $10/90).

  • Jacksonian_Libertarian

    “Kliff chalks these differences up to America’s insurance system, and the fact that we don’t have one central body that negotiates prices with Big Pharma.”

    This is a crock, the problem is that insurance companies don’t care what they pay, as long as the numbers add up to a profit. Taking one out of whack price to compare one monopoly socialist medical system to America’s limited monopoly medical system, is like comparing apples to oranges. Let’s compare wait times for appointments, or MRI availability, or equipment quality instead. The only way to have lower prices is to use the “Feedback of Competition” which forces continuous improvements in Quality, Service, and Price. People need heavy exposure to the costs of their medical care, our present system of employer paid health insurance, is responsible for all the bad Quality, Service, and Prices.

    • Andrew Allison

      I beg to differ. The evidence is clear that monopsony, or even omnipsony (a few very large purchasers), works for drug pricing. The problem with medical services is that the negotiating power of the provider is limited.

  • Boritz

    What does someone pay for a fully loaded Ford Mustang in Bangor? In San Diego? in Kansas City? What do two customers at the same car lot who purchase six weeks apart get charged? What does a male vs. female customer pay when closing the deal with a male vs. female salesperson? Argues for single payer for cars.

    • Andrew Allison

      Nonsense. They pay what the market will bear. You are confusing health insurance and the delivery of healthcare. As demonstrated by, e.g., Medicare, having a single provider of insurance is not the same thing as having a single provider of care.

  • Fat_Man

    Other countries have defined their health care systems differently than the US. Many of them have instituted demand management policies by controlling investments in the system and instituting price controls. They may also impose wage and price controls.

    In the US, the hospitals and the doctors have defined the problem as insufficient demand. They have promoted excessive investment while limiting supplies by anti competitive regulations (e.g. certificates of need) and practices (lack of price transparency). The government has aided and abetted them in this definition. Obamacare is just the latest demand boosting mechanism.

    Single payer is just a political fantasy. It will not control costs. To make it work, it might have to include explicit price controls and non price rationing (e.g. death panels). If it doesn’t, the inflationary spiral will continue.

  • Anthony

    Cause for concern: Health care costs are rising and the experts aren’t sure why (Jonathan Cohn – The New Republic).

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