Why Healthcare is So Expensive Part MMDCLVI
by Tom Bozzo, cross-posted from Marginal Utility
Competition in (increasing) service quality doesn’t reduce costs:
Dane County’s two hospitals that deliver babies are each spending close to $40 million to spruce up maternity units and related facilities for a simple reason: Young women are key health care consumers, often deciding where their families will seek medical services for decades.
“If you don’t cater to women, you lose your market share,” said Kathy Kostrivas, Meriter’s assistant vice president of women’s health.
Many pregnant women tour both hospitals before choosing where to give birth, some bringing birth plans for each step of labor and delivery, said Holly Halberslaben, director of St. Mary’s family care suites.
“They really do their homework,” Halberslaben said. “It can be their first time in a hospital. You want to retain them.”
The somewhat buried exculpatory case for these investments is that the facilities have been operating near capacity, and the Madison area is the fastest-growing part of Wisconsin apart from some areas in the Twin Cities’ exurban fringe. Nevertheless, the hospitals fairly evenly split a market of just over 7,000 annual births, so $80 million is not an insubstantial cost to recover.
I wonder how many expecting moms really are cross-shopping the facilities for compatibility with birth “plans.”[*] Many if not most of the births sort into the two hospitals on the basis of affiliations that send participants in several of the major local health insurance plans to one hospital or the other. So even a modest amount of gold-plating can represent a large cost per birth on the contestable margin. Granted, in addition to some Cadillac plan participants, the uninsured population has (Hobson’s?) choice as to where to give birth. Though it’s messed up in a whole different way if the hospitals’ business plans would seek to recover a significant share of costs incurred to attract well-to-do moms to these facilities from the uninsured.
[*] When John was born, the plan was to have a healthy baby, which turned out to be the plan that was robust to complications that would have mooted any other plans.
One article about hospitals in Wisconsin doesn’t mean that competition doesn’t reduce costs. You’re going to have to do better than that.
Last time the maternity wards in these hospitals were renovated: 1989 and 1996. So about 17 years average between renovations* 7000 births per annum means about $672 per birth over 17 years.
While filet-mignon after delivery sounds a little excessive, OK, a lot excessive, these kinds of renovations will have to happen no matter what system you have in place to pay for it. They’lljust happen every 30-40 years I guess.
Women can and do pick their doctors based on the hospital that will deliver. My evidence is anecdotal and covers a slim sample size, but it does happen. I suspect that it’s a significant chunk of the number of women who can afford the money and time to.
What, exactly, is a “Cadillac” plan? A PPO plan? A particular provider? I’ve never heard a definition of this phrase.
Cadillac plan came up a lot in the 2008 election. I think its any plan that has a total cost over a certain dollar amount (call it $25k). If your employer provided plan is over that amount the government wants to tax it. I’m no entirely sure if it made it into the reform bill, but its really the only provision they’ve talked about that would actually control costs by restricting what can be spent tax free. Our health care system is such a joke… we pay 2x more than any industrialized civizliation in the world for health care and we have lower life expectancy and higher infant mortality rates than any of them. This country is full of idiots.
Sigmund:
Hospitals today exist to render as much service as possible because it is billable. Hospitals that do not render the same intensity and degree of service tend to find themselves on the losing end as profits decrease.
A good medical center costs a lot of money, especially for salaries and equipment. You don’t get a lot of these in the fly-over zone and most of America–only the NYC’s and Chicagos. This is for-profit medicine, of course, so it has to make enough to pay off the board of directors and any share holders, dividends, etc., after operating expenses. No amount of competition will make it cost less. Competition doesn’t do that anyway. It merely causes a price war which results in one victor. Then, monopoly. Cheaper to operate and higher profits. Perfectly capitalistic. NancyO
There is a capital spending “arms race” among hospitals, both because a lot of physical needs updated and because market share and “total campus” concepts are the waveof the future.
I;m not all that concerned, I think labor cost is still the biggest driver, followed by supplies, meds and etc.
It’s good to see someone who knows what Hobson’s choice was, no choice at all. (Hobson’s stables was infamous just gave you the next horse up, no haggling.)
I will buy the equipment argument as I did pay twice for the cardiogram machine. Once to the doctor’s office and once to the hospital. I am sure there is no notation of those fees to put aside for a new machine.
The competition is about services provided and not so much about prevention of needing those services. Hospital rack up profits on providing those services. Prevention is a no gainer for them.
Ken:
Hospitals are profitable when they sell services. No hospital makes money by not doing so or suggesting you can reslove this issue yourself and avosiding the cost of hospitalization. Doctors who are not billable are a liability as they do not bring in profit. Selling preventive care or less costly and proven treatments are not profit centers for hospitals.
The rest is left to your imagination as to how hospitals and specialists justify their existance
My wife is a labor and delivery RN in a for profit hospital (HCA) that delivers between 5,000 and 6,000 babies per year. (Our local county hospital delivers between 10,000 and 12,000 per year.) The “Women’s Center” is a large part of the hospital’s revenue. The facilities are approximately 12 years old with 19 birthing suites. A new renovation for the ante partum and post partum departments will begin in March. I don’t know the expected cost of the renovations. However I can tell you that 95% of the L&D patients are Medicaid recipients. These pregnant women DO shop hospitals even on Medicaid. Would you like to go to the county hospital where women share rooms and many vaginal births deliver in the hallway or would you like a private birthing suite with fairly new equipment and facilities? It’s a pretty easy decision especaially when you don’t worry about out-of-pocket costs. By the way, since the government reimburses a higher rate for C-sections do you want to guess what percentage of these births are C-sections?
Thanks for the comment, little john. Yeah, C sections are a goldmine, properly managed. NancyO
Or it could be becuase of this stuff – good read either way:
http://online.wsj.com/article/SB10001424052748704457604576011382824069032.html
Christopher G. Wayne doesn’t look like a typical family-practice doctor. Known to admirers as the “Rock Doc,” he wears his hair spiked, punk style, and festoons himself with chains, bangles and leather bracelets.
He uses his upscale Miami Beach home as a production studio for Playboy photo spreads, and his MySpace page shows him posing with celebrities such as Paris Hilton and Aerosmith’s Steven Tyler.
There’s something else about Dr. Wayne that doesn’t resemble a normal family-practice doctor: his earnings from Medicare, the government insurance program for the elderly and disabled. Dr. Wayne took in more than $1.2 million from Medicare in 2008, according to a person familiar with the matter, a large portion of it from physical therapy. That’s more than 24 times the Medicare income of the average family doctor, according to a Wall Street Journal analysis of Medicare-claims data.
Kind of hard to argue anything related to competition in the medical field as medical service is not a price sensitive commodity. Health insurance is competitive to some degree, but people don’t shop for the lowest delivery price.
Oddly enough, LJ, unless there are a lot of coincidences in America, I think I work with your wife. The point many people miss is that even though Medicaid moms take the tour, many of them are on Medicaid because they don’t have insurance and when they do bring their families back for care, their families don’t have insurance either. Last year our hospital provided $22M in charity care. And while many people think our 47% c-section rate is due to higher hospital reimbursement, the hospital doesn’t decide to do the surgery, the doctor does. The physician reimbursement for a c-section is only about $100-200 more than a vaginal delivery–not worth the time required for a more complicated follow-up course. Why so many c-sections? Ask Morgan and Morgan…