Not Your Ordinary Marketplace

Some takeaways:

Whether directly from their wallets or through insurance policies, Americans pay much more for almost every interaction with the medical system.

High prices mostly result not from top-notch patient care, but from business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees.

The United States spends about 18 percent of its gross domestic product on health care, nearly twice as much as most other developed countries. The Congressional Budget Office has said that if medical costs continue to grow unabated, “total spending on health care would eventually account for all of the country’s economic output.”

Consumers, the patients, do not see prices until after a service is provided, if they see them at all.

Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending (NoVA has told us this, of course).

Even doctors often do not know the costs of the tests and procedures they prescribe.

Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.

The article focuses on colonoscopies as a case study of an ordinary procedure run amok. If the American health care system were a true market, the increased volume of colonoscopies — numbers rose 50 percent from 2003 to 2009 for those with commercial insurance — might have brought down the costs because of economies of scale and more competition. Instead, it became a new business opportunity, and moved out of the office and into the hospital.

The cost of a colonoscopy in the United States varies staggeringly, from place to place, and even within a city. Austin averages four times Baltimore, for example. New York is even higher, of course.

It is the pricing of these ordinary medical procedures that surprises me as a major contributor to our inflated health care costs.

I recommend the linked article.

11 Responses

  1. I think it’s really overwhelming how screwed up our health care delivery system is. This is interesting and not what I imagined after all the talk we have here and elsewhere about end of life care.

    While the United States medical system is famous for drugs costing hundreds of thousands of dollars and heroic care at the end of life, it turns out that a more significant factor in the nation’s $2.7 trillion annual health care bill may not be the use of extraordinary services, but the high price tag of ordinary ones.

    One of these days I’ll tell y’all about my brother-in-law who is a flaming hypochondriac. It takes everything myself and his therapist can come up with to keep him out of his doctor’s office and even then we’re only successful about 50% of the time. I just lost a battle with him last week keeping him away from an orthopedic surgeon for a very small baker’s cyst on the back of his knee. He’s going whole hog I guess eliminating every other non-possibility.

    What I find really discouraging about the health care debate is that the right and left couldn’t come together and find a solution that will really work. I’ve read about so many good ideas, even from lay persons such as Mark, but instead we came up with a plan that preserves the weird health care market while barely putting pressure on costs. A lot of Americans will benefit from the ACA but we could, and should, have done better.


    • lms (from the article):

      While the United States medical system is famous for drugs costing hundreds of thousands of dollars and heroic care at the end of life, it turns out that a more significant factor in the nation’s $2.7 trillion annual health care bill may not be the use of extraordinary services, but the high price tag of ordinary ones.

      It seems to me that one solution is to turn “insurance” back into actual insurance, i.e. protection against the high cost of extraordinary services rather than as a tax avoidance scheme in paying for ordinary services. Unfortunately Obamacare does exactly the opposite…increasing the number of ordinary services (e.g. birth control) that must be covered by law. That is to say, Obama has simply added to the 3rd party payer problem that Mark identified, so the problem will necessarily get worse, not better.

      Short of price controls – which are an inevitability, and probably a design, of Obamacare – the cost of health care services will rise. And after the price controls comes the rationing.


  2. “She refused a dermatology medication prescribed for her daughter when the pharmacist said the co-payment was $130. “I said, ‘That’s impossible, I have insurance,’ ” Ms. Yapalater recalled. “I called the dermatologist and asked for something cheaper, even if it’s not as good.””

    Amazing, when it’s her money she can shop. Wonder if there’s a lesson there?

    “As the cases of bottled water and energy drinks stacked in the corner of the Yapalaters’ dining room attest, the family is cost conscious — especially since a photography business long owned by the family succumbed eight years ago in the shift to digital imaging. They moved out of Manhattan. They rent out their summer home on Fire Island.”

    Cost conscious? Really?


  3. I believe that’s a reference to them buying in bulk. It is recommended that one keep a significant supply of bottled water on hand in the event of an extended service interruption. Residents of NJ would tend to agree with this notion.



  4. I don’t beleive that’s their motivation. They drink bottled water and energy drinks, not tap water and, for example, coffee. That doesn’t sound cost conscious to me.


  5. As 49-year-old scheduled to get his first colonoscopy next year, I wonder if this will have percolated down to by level by then. I doubt it. Colonoscopies are now considered du rigeur like prostate exams and mammograms.


  6. As someone who woke up in the middle of her colonoscopy last year I’ve gotta say I don’t think we want to go back to it being an office visit procedure……………just sayin’


  7. According to, 14 percent of people who try to buy that plan are turned away outright. Another 12 percent are told they’ll have to pay more than $109. So a quarter of the people who try to buy this insurance product for $109 a month are told they can’t. Those are the people who need insurance most — they are sick, or were sick, or are likely to get sick. So, again, is $109 really the price of this plan?

    So the 75% that pay that rate are not going to experience rate shock?

    “We as a society have never really said here’s what reasonable insurance is,” says Larry Levitt of the Kaiser Family Foundation. “It’s just been anything goes. For the first time they’re setting a minimum about what reasonable insurance should be.” They’re also setting a minimum about who should be able to get it, and at what cost. Now it really will work like Best Buy, where the price on the tag is the price everyone actually pays.”

    If the Federal government dictated to BestBuy what a reasonable TV is, set a minimum of what reasonable tv should be, a minimum on who could buy the reasonable tv and what it costs. Yeah, identical!

    Some people will find the new rules make insurance more expensive. That’s in part because their health insurance was made cheap by turning away sick people. The new rules also won’t allow for as much discrimination based on age or gender. The flip side of that, of course, is that many will suddenly find their health insurance is much cheaper, or they will find that, for the first time, they’re not turned away when they try to buy health insurance.

    The 75% from above that paid the advertised rate?

    It’s all so confusing cause just last week it was gonna be dirt cheap.


  8. Scott

    protection against the high cost of extraordinary services rather than as a tax avoidance scheme in paying for ordinary services

    I don’t necessarily disagree that was one possibility we should have looked at in health care reform. We never really came close to exploring all the real possibilities once it was decided to save the existing insurance structure and employment based coverage.

    I don’t see how we’d ever get to where you think we need to go. Actually, our daughter’s PCIP coverage was very cost sharing centered.


  9. I believe I posted this here a few weeks ago. The March 2013 issue of Time was dedicated to the cost of healthcare here in the U.S.

    They discovered the high cost is due to prices set in the “chargemaster” databases used by hospitals. And when they asked the hospitals where/how the amounts in the chargemaster are determined, not a single hospital would say. Although one did respond and say that the prices on the chargemaster were set for “non-U.S. citizens, coming to the U.S. for medical purposes” as they believe they would be willing to pay the highest prices possible…. although those are the same prices they bill everyone and then discount to those with insurance and Medicare… with Medicare having the largest discount, which still includes full reimbursement for the cost plus an additional 6% to help cover all other costs for the hospital.

    For example, an x-ray that actually only costs about $18 is billed to the patient for about $200 or more. A chemo drug which a hospital can purchase for $3,000 is billed to the patient for as much as $35,000 (HUGE difference). There are many things provided to and billed to patients with markups as high as 10,000 times the cost to the hospital.

    Now that’s why healthcare in the U.S. is so expensive. Other nations have cap limits on how much can be charged… not so here in the U.S. If it weren’t for healthcare being treated as an open-market commodity, there would be no use for the chargemaster and healthcare costs could drop dramatically.


  10. This is somewhat related to the cost of health care I think and besides that, it’s really interesting. I think I mentioned that my brother-in-law is a serious hypochondriac, what I didn’t mention is that it’s a new development that began when he started seeing a therapist and taking a variety of prescribed drugs for anxiety. His therapist says there’s no connection but I’m not so sure.

    For years, it was fairly easy for people in the pharmaceutical and medical industries to label Healy, Kirsch and Breggin as alarmists. But two summers ago, one of the most prominent members of U.S. medical establishment, Marcia Angell, former editor-in-chief of New England Journal of Medicine, published an article damning the over-prescription of psychoactive drugs. In two essays in the June 23, 2011 and July 14, 2011 New York Review of Books, Angell backed arguments by the university clinician Kirsh, the mental heath journalist Robert Whitaker, and Boston psychiatrist Daniel Carlat that there is something extremely suspicious about the following trends: the number of people treated for depression has tripled since the launch of Prozac in 1987; 10 percent of Americans over age six are taking antidepressants; and 30 antipsychotics like Risperdal, Zyprexa and Seroquel are replacing cholesterol-lowering agents as the top-selling class of drugs in the U.S., largely because they are being prescribed to children.


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