It’s Third-Party Payers, Stupid

How can you write an entire column about waste in health care and never mention why there is waste? Uwe Reinhardt shows he’s up to the task at the New York Times economics blog. Maybe it’s that bottle of champagne he mentioned the other day.

Are there huge administrative costs in the market for cosmetic surgery? Not that I’m aware of. How about Lasik surgery? What about walk in clinics? Domestic medical tourism? I don’t think so.

Even with third-party payers, waste suddenly vanishes if they empower patients and get out of the way. It took all of two years for WellPoint’s cost of joint replacements at out-of-network California hospitals to almost match the in-network cost after WellPoint made patients responsible for the extra payments.

Think about that. WellPoint didn’t have to negotiate a fee with anyone. No arguing or hassling over the charge for an aspirin—qqqor any other charge. Just patients explaining to the admissions office that they only had so much money to spend. (That’s almost as effective as global budgets and price controls without all of the unintended bad consequences!)

Is there waste in the Canadian health care system? Of course there is. It’s in the form of delayed surgeries. Cancelled surgeries. Even unnecessary surgeries. The cost of that kind of waste typically eludes the accountants however. That’s because the cost is born by the patients.

[Cross-posted at Psychology Today and John Goodman’s Health Policy Blog]

John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books, Priceless: Curing the Healthcare Crisis and A Better Choice: Healthcare Solutions for America.
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