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Tuesday, March 27, 2012

Everybody is trying to gain share

A piece in the Kaiser Health News caught my eye. Insurers are paying patients to select lower cost providers. http://www.kaiserhealthnews.org/Features/Insuring-Your-Health/2012/Cash-Rewards-For-Cheaper-Care-Michelle-Andrews-032712.aspx

This is an interesting twist but perhaps I should not have been surprised. I have previously blogged on the convoluted nature of triangular relationships and the tendency of these relationships to result in two of the parties ganging up on the remaining party (http://georgiacontrarian.blogspot.com/2011/02/accountable-care-organizations-another.html). At the time all I saw was the providers and payers in cahoots, reigning in care and sharing the gains. The approach described in the Kaiser Health News piece puts this in an entirely different light  with payers and patients teaming up to put the squeeze on providers.

I believe this approach may have legs. The question I have is just how much money will it take to entice a given patient to go elsewhere for care? It might not take much under many circumstances and the insurers may be willing to pony up significant sums to shuttle patients to lower cost providers. The math is fairly straight forward. Whatever the delta, offer half and look for a bite.

This is classic arbitrage. There will be easy early gains to be squeezed and price pressures down will tend to decrease the range of prices to where everything will look like Medicare pricing. In the present environment no one will charge less than they charge Medicare because they cannot. The insurers will capture temporary gains until providers figure out how to gain the system by increase volumes as they have done before.  That is assuming that global payments do not become the norm. If that happens, then the insurers will switch sides and the providers and payers will again gang up patients, figuring out how to cut back on care, saving money and those two parties will split the gains.

Ah... the circle of health care continues....

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