Wednesday, October 10, 2007

Health innovation, providing care to the uninsured young.

One of the problems in health care is that the industry has been so regulated and controlled that one often doesn’t see innovation in the provision of services. And there is precious little price competition.

The reality is that most patients don’t pay directly for any services they use. They pay a monthly premium and then get “their money’s worth” once they’ve spent their deductible. This encourages over-consumption of care. It isn’t that people seek care just for the fun of it -- though a very small number do. It is more that they seek care when it is not necessary or spend money on services “as a precaution” when the situation doesn’t warrant it. What they rarely do is shop around and check prices. That one clinic has a specific test for $200 while another charges $75 doesn’t concern them anyone much.

The way health care is set up there is a perverse incentive for patients and doctors to overspend. The result is consumption of more care than is necessary making health care very expensive. All the extra care that is purchased doesn’t add very much to the health of the average person. And if it were their money it wouldn’t matter. But most health spending, even in the United States, is paid by third party payers. That there is this tendency to overspend is one reason that socialized care providers ration care. Of course if U.S. care tends to overspend the reality is that socialist systems underspend, often grossly so.

When Mitt Romney pushed through coercive/mandatory insurance laws in Massachusetts 90% of the public was already insured voluntarily. And of the 10% who were not insured most are still uninsured. They are ignoring the law and say they are willing to pay the fines for being uninsured. And many of these uninsured are young, working individuals who don’t feel that they need insurance. In fact two-thirds of the uninsured in the US are under 35 years of age.

And this makes sense. They are doing what insurers do -- they are playing the odds. And the odds are that someone under 35 or 40 won’t need much medical care at all. This is why the young shun insurance and why politicians and insurers want to force them to buy it. For the young the insurance costs more than it is worth. That leaves those more prone to illness in the insurance pool, pushing up rates for them. If you can spread the risk to people who are almost no risk you can subsidize the care of people who are at higher risk.

Don’t be fooled about politicians and health care providers whining about uninsured young people. They aren’t actually concerned about the young person in question. They are merely trying to force them into a system to subsidize the care of others who are at risk. What they care about are the premiums, or taxes for state care, that these low-risk individuals provide. When it comes to mandatory health insurance the young are a means to the ends of others, they are not ends in themselves.

But it is true that the young tend to have little coverage. And one physician who figured this out saw a potential, lucrative market that was going untapped. Jay Parkinson is a young physician who has created a practice geared only for the young -- particularly the uninsured young. He basically charges $500 per year for care. What that gives the patient is unique however.

First, you don’t come to his office. You can’t. He doesn’t have one, though he is thinking about it. He comes to your home or office. He does a routine exam and asks lots of questions to get an idea of your general state of health. And from that moment on you have unlimited access to him -- sort of. You can call him anytime on his cellphone for advice. You can e-mail him as well. If you want to show him a problem use your computer cam to do it. You get two personal visits a year but as many e-visits as you want or need.

And it appears that for a huge percentage of patients e-visits are just as effective. And other U.S. physicians are now looking at the service as well but charging a fee per on-line visit ranging from $20 to $30 each. Certainly if more physicians copy the Parkinson model those rates will be coming down.

Most the problems that the young have are of a minor nature. Parkinson knows this. For major problems you go to the hospital but for day-to-day care this may be the best deal around, provided you are under 40. Over that age and he says the health profiles change dramatically and he’s not geared for that.

Parkinson figured out the basic economics of health care. And he realized that high costs are due to the fact that most patients actually have insurance. He says: “Since so few patients who regularly visit physicians have no insurance, they don’t concern themselves with their fees. Physicians also don’t care about competing for self-paying patients because there are so few of them. The secret is…physician prices for self-paying customers range absolutely all over the board. I am taking advantage of this fact to save you literally hundreds of dollars per interaction with the health care system.”

Having figured out that third-party payments drive up spending and reduce price competition Parkinson offers another service to his uninsured clients. He price shops for them. He said: “I called one radiologist and found he’d do a chest x-ray for $75 and another would charge $300. For cash-paying patients the prices are all over the place.” By collecting this information he helps keep the other medical costs for his patients low. While quality is important, when there is equal quality he sends his patients to the lower cost provider.

Studies of physicians found that few of them actually have any idea what the costs are for specific services they recommend to their patients. They simply don’t know. They have no incentive to know, or to care. And since 80%+ of their patients have third-party payer insurance the patients don’t care either. When most the customers in a field of business don’t care what the prices are it is not surprising that costs skyrocket. It would be surprising if they didn’t.

The same is true for medications which can vary in price from pharmacy to pharmacy. Parkinson says: “I personally visited hundreds of pharmacies in Manhattan to get you the lowest price on medications. I also know the most reputable internet sites that charge the lowest prices for prescription medications.”

Basically Parkinson treats the day-to-day concerns under his $500 per year policy. And for patients who need more than he offers he acts as a consultant to help keep their prices down.

Parkinson has lots of it right. Some of it he gets wrong. He says that “the health care industry profits largely by keeping cost information from you.” But that is not typically the case as Parkinson himself already has stated. The main reason that the information is hard to find is that no one in the system cares about the costs except the minority of patients who are self-insured. Parkinson’s patients care. Most other patients don’t.

That is the dilemma of third-party insurance for health care. The insurer cares and tries to keep costs down but if they act to ration care there is a outcry from patients and others who charge them with lacking compassion. There is a large number of individuals just waiting to find any excuse to attack private health care providers at the slightest provocation because they ideologically opposed to it. And often politicians step in and try to force the insurer to provide the care regardless of the costs.

There is very little price comparison because third party payment plans make price comparison unnecessary. Patients don’t compare the costs of physicians or medication, physicians don’t compare the costs of various tests and other services, such as x-rays.

Parkinson may see himself as offering a service that “greedy profit-making” companies don’t offer. But his service is an example of the market at work, whether he knows it or not. He is offering a service to individuals who are basically cut out of the system that the politicians have forged when they wrote the laws that so completely regulate health care provision. And no doubt Parkinson profits from offering his service -- if he didn’t he wouldn’t do it, or do it for long. I hope he makes lots of profits from it since this will encourage other physicians to follow his example.

I would also note that Dr. Parkinson is sitting on a gold mine if he utilizes it correctly. If he has visited hundreds of pharmacies and called various clinics and specialists to gather price information he has amassed some valuable information. Instead of merely offering that information to his patients he could offer it to the wider community through a subscription web site.

I could see a site that allows you to put in your location in the city and what medication you required For a one time fee per medication the site then prints out the list of the 10 cheapest service providers within a certain distance from your home or workplace. And for comparison it might provide the five cheapest providers in the entire city. It could do the same for things like x-rays. With something like 4 million residents in the city the numbers willing to buy the information is far in excess of the 1,000 patients Parkinson wants to have on his books.

He would only be selling the price information not providing medical care. But it could help hundreds of thousands of people to dramatically reduce their costs, even people he couldn’t take on as patients. Markets do work when they are allowed to work. And Dr. Parkinson exemplifies that. He is a medical entrepreneur and a profit-seeking capitalist in the best sense of the word even if that might make him frown.

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