Gaming payments and price transparency

The WSJ published an article in February touching upon the timing of hospital discharges and optimal payments (Health Care Gaming). It should come as no surprise that hospitals know how to extract optimal payments for services they deliver. Their survival as durable entities depends upon this. It is not limited to hospitals in the health care realms. What they do is not against the law although the optics may be disturbing. Essentially every individual whose health care job depends upon supporting themselves financially through the labor they do is in the same boat and they do the same thing to some degree. One cannot help but become aware of what one does that produces margins for oneself or one's employer and what does not. If you are not bringing in more resources than one is consuming, you are not long to the business you are in. Health care is a business, whether one labels your specific entity as for-profit or non-profit. Not for profit entities still maintain their margins and are assessed for financial viability by the same metrics as for profit entities.

The price transparency movement in health care is gaining traction and this movement as currently focused tends to highlight where specific people or care delivery entities appear to extracting more value out of the system than they appear to be adding to patients. The data as currently released tends to highlight specific high billing physicians. This sort of information highlights people and entities which are probably not breaking the law, just exploiting quirks of the current billing and payment system. Many might be embarrassed by the data but only a few will be at risk for indictment. They deliver the services billed for. Whether the services are needed or add real value to patients is another question. Those questions can be raised for a large percentage of health care services delivered in general. Then there is a whole other layer of outright fraud which is layered on top of this where services not delivered are billed.

Health systems market services which generate margins. They have no choice if they are to survive. All business are based upon this.  Even the most minimally astute businessman in health care knows what services are lucrative to deliver.  They can not and do not market goods and services which lose them money, even if these services are in great demand and add value to consumers unless they have a philanthropic benefactor which allows them to operate at a loss. Even that cannot go on forever.

What health care services generate substantial margins? That depends upon what can be collected for the service and the cost of delivery. Cost reduction is all of the rage at this point since those who deliver health care services cannot control prices. That is because for most prices for individual services in health care are administratively derived and not subject to market forces.  The CPT coding lottery is completely arbitrary and has basically no self correcting capabilities. The price transparency movement is now identifying activities where prices are set too high, resulting in inappropriately extracting value from consumers and payers. However, there is of yet no mechanism for this movement to identify where prices have been set to low and the services are is short supply, have disappeared, or have been so resource starved that the quality of the services has degraded.

The loss of market pricing systems in health care has removed a key mechanism for when prices are too low and shortages ensue. Markets in health care can drive down prices but there is no mechanisms for them to correct upward if that is what is desirable. This results in interruptions of access to services which patients may need or want. Services artificially priced below levels to provide sufficient incentives to generate a consistent supply will be in short supply or simply cease to exist. When scarcity develops in true market based systems, the price signal informs relevant parties that a scarcity exists and prices adjust accordingly to prompt new suppliers to enter into the market. In the realm of administratively set prices in health care, no such mechanisms exist. No self regulating mechanisms can operate since prices are essentially fixed. Access to key services are lost because no one wants deliver them at the arbitrarily low prices which some person or agency has decided is the right value.

There is a certain irony here since the current mantra within health systems is to develop pathways for access as a key principle to capture market share. The problem here is there is little effort to define what the access is to. From those who see this from a macro level and have little understanding of the nuances of clinical care delivery, they are confused as to what the actual deliverables are in health care. The deliverables are not the appointment any more than the essential deliverables is having health insurance. Both insurance and appointments are means to an end, and that end is for the health care delivery system to act at the behest of patients to fix their problems and add value to their lives. The ability to get patients scheduled for an appointment is simply a potential first step in accomplishing those goals. In reality, ready access to the current model may not be the optimal way to address their needs.

As it currently stands, basically the only way for producers to monetize their expertise is to plug patients into inefficient legacy delivery systems which are more geared to extract value from patients than add value. Plug them into a hurried appointment. Work off some checklist of actions defined by PQRS. Collect their copay and bill a third party for the remainder. Maybe listen for a few scant seconds to their complaints. However, whether you meet their needs or not likely has little bearing on getting paid. They got access to something in a timely fashion, not necessarily what they needed or wanted.

Doctors who tinker with different models of payment under the label of concierge practices are often accused of unethical behavior. The reality is they provide services which do not exist in the current system because the price are arbitrarily set below a minimum level of support. There is nothing unethical about offering additional options to patients in a financially transparent way, especially when it creates availability of something of value which would not exist otherwise,  that being access to something they really want and/or need.

The real ethical problem comes from a flawed pricing system which creates opportunities to exploit financial arbitrage while adding little value to patients. Imperfect prices set by administrative means will always create these opportunities and humans, being humans, we always exploit them. This is not an approach that can be refined and fixed. Administratively set prices are perhaps useful accounting tools, but they do not and can not transmit essential information about real human needs and priorities. There is no real learning curve here. Any system which depends upon setting prices for goods and services by administrative means can not succeed and will ultimately hugely misallocate resources because flawed human agents will find ways to game the system better and faster than any set of humans can figure out how to stop them.