Retail health care and reform

posted at 10:55 am on March 15, 2010 by Ed Morrissey

My column originally appeared at American Issues Project last year, but is no longer available on line.  With the ObamaCare bill approaching a final vote, this seems like a good time to remind readers that other options are available for reforming the cost structure of American medical care.

In the midst of all the talk about a top-down overhaul and reworking of the health-care industry, supposedly to fix the failures of the private sector, two new studies show that the private sector could do a better job of reform if government would just get out of the way.  Time Magazine features two Rand Corporation reports on the rise of a new phenomenon, retail health clinics, and the impact that price awareness and competition have on the market.  The studies focused on my state, Minnesota, which prides itself on health-care public policy – but private-sector care wins out.

What are “retail health clinics”?  Chances are, you’ve already seen them.  These clinics have begun rapidly spreading to malls, big-box retail stores such as Wal-Mart and Target as concessionaires, and drug stores like Walgreens.  Instead of hiding behind insurance co-pays, the clinics offer pricing up front to consumers, so that they can decide for themselves what to “buy” and how much they want to pay for service.

This is the same mechanism that works to keep prices down and supply consistent in other areas of health care that insurance plans do not traditionally cover.  For instance, cosmetic surgery and Lasik rely entirely on consumer compensation.  There are no third-party payers to get in the way of rationally allocating resources to demand.  In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise.

Does price transparency work for retail clinics?  According to Time, it does:

When it came to fees, the results were even more dramatic. For the various kinds of services studied, the average visit to a retail clinic cost $110, versus $156 for urgent care and $166 for a family doc. As for ERs? A cool $570. While even $110 for a clinic visit seems pricey, that is only the average for the three procedures studied. Minute Clinic, the industry leader with 514 outlets, charges just $62 for a minor illness or injury exam and $20 to $66 for a wellness or prevention visit. …

Average cost per lab test in the Rand study also differed significantly depending on the provider: $15 at retail clinics, $27 at urgent-care facilities, $33 at doctors’ offices and a whopping $113 at the ER. The study did not bear out the fear that retail clinics would be inclined to overprescribe drugs, and when the clinics did write a prescription, the out-of-pocket cost was lower: $21 compared to a high of $26 for ERs.

To compare, try calling a traditional clinic to get prices for visits and services.  Chances are, you’ll wait a long time on hold while staff try to find the answers.  That’s not their fault; they have built their financial model on negotiating prices with insurers in bulk.  They are not prepared in most cases to operate on a direct consumer service model  (and if you walk in without insurance, be prepared for a long visit at the desk.)

Of course, the real measure of effectiveness comes from results, just as it does with any other market.  If the services fail to solve the problem, then they’re inefficient no matter how little it costs.  Rand’s study addresses this too, as Time reports:

If the results are any indication, the next time you have a routine medical need, you should probably make haste to a clinic. On a quality scale of 0% to 100%, the clinics finished first with a 63.6% while urgent-care centers and doctor’s offices followed within a couple of points. Habitually overcrowded emergency rooms came in last at a distant 55.1%.

So retail-health clinics have the best ratings, although it’s probably more accurate to say that they did no worse than traditional, insurance-modeled providers.  Certainly that was the conclusion of the studies’ author, University of Pittsburgh Medical School professor Dr. Ateev Mehrotra.

Let’s take another look at the retail-clinic prices and show the direction any health-care reform should take.  In 2007, the Minnesota Department of Health estimate for premiums paid per person in the state was $3,627, or about $302 per month.  With that money, consumers could have visited clinics for one wellness visit and three illness or injury visits every month and still have had money remaining at the end of the year.  For myself, a Type II diabetic with an easily-managed thyroid condition, I would need at a minimum two wellness visits and one blood lab every year, which would cost at most about $300 for the entire year.  I would have $3300 left over to spend on other priorities each year rather than paying into an insurance pool.

Given the realities of pricing and competition, we should reform the health system not by building more all-encompassing insurance plans, but by returning health insurance to its rational place: as a bulwark against catastrophic loss.  If consumers bought health-care services in a rational market, the price for the overwhelming majority of transactions would be well within the money we would recoup from ending comprehensive coverage policies.

People with pre-existing conditions, such as myself, could access catastrophic coverage a lot easier if insurers didn’t have to pay for all of the maintenance services required.  Prices would drop to a rational level where almost all families could afford coverage.  Government regulation could protect consumers from suffering rejection and cancellation much as they do now.  In the meantime, providers would get properly compensated, which would create growth in supply, especially in family practice, which faces a serious provider shortage.

If we want to reform care, bend the cost curve downward, and promote supply in the health-care industry, we need to learn the lesson from retail health clinics.  The top-down reform proposed by Congress threatens to stop real reform and amplify everything that’s currently wrong with the system.


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The top-down reform proposed by Congress threatens to stop real reform

It preserves the same broken, nonsensical system in amber and it’s not “reform” by any stretch of the imagination.

But again, Congress has no idea what they are doing and they are ignorant and arrogant regarding how little it is they do know.

We must kill this Bill.

NoDonkey on March 15, 2010 at 11:00 AM

This makes all the sense in the world,

but first you’re going to have to pry ObamaCare out of the Democrat’s cold dead hands.

cool breeze on March 15, 2010 at 11:02 AM

It preserves the same broken, nonsensical system in amber and it’s not “reform” by any stretch of the imagination.

Took the words from my mouth. This isn’t “reform”, it’s a twisted kind of corporate conservatism that will hurt the average American.

Dark-Star on March 15, 2010 at 11:03 AM

From the New york Daily News online:
“……….a half-dozen accounting gimmicks built into the legislation – including the fact that federal budget projections are based on 10 years worth of tax collections and just six years of spending increases.” (emphasis mine).

Read more: http://www.nydailynews.com/opinions/2010/03/14/2010-03-14_pull_the_plug_barack.html#ixzz0iBMzs5yg

Cybergeezer on March 15, 2010 at 11:12 AM

Ed you do know that most, if not all, “doc-in-the-box” retail based clinics, are in fact ARNP’s not physicians. Often their assistants are not RNs, but LVN/LPN or a tech. Payroll is lower as is the acuity level of patients the will see – that is what makes them cost effective. You can also make this lower cost choice at some doctor’s offices who have an ARNP/PA in practice with them.

batterup on March 15, 2010 at 11:12 AM

It preserves the same broken, nonsensical system in amber and it’s not “reform” by any stretch of the imagination.

Took the words from my mouth. This isn’t “reform”, it’s a twisted kind of corporate conservatism that will hurt the average American.

Dark-Star on March 15, 2010 at 11:03 AM

…an attempt to reinforce a calcified old relic, or keep a river flowing through a meander that is in the process of being cut off.

Count to 10 on March 15, 2010 at 11:13 AM

This legislation, if passed, shall be the foundation for the “…… civilian national security force that’s just as powerful, just as strong, just as well-funded.”

This, Obama has pledged to assemble.
The tyrant shall get his soldiers to control the citizens.

Cybergeezer on March 15, 2010 at 11:15 AM

Most of us are convinced a market based solution to the health care problems would save money and make more sense than what is currently being offered but market based solutions are antithetical to Obama and the lefts core philosophy.

fourdeucer on March 15, 2010 at 11:17 AM

THIS CONGRESS HAS BECOME THE ENEMY OF THE UNITED STATES.

Cybergeezer on March 15, 2010 at 11:18 AM

Very good Ed.

I’ll just add one more example of emerging market-based solutions:

$4 generic prescription drugs.

Texas Gal on March 15, 2010 at 11:32 AM

Apparently we’ve come to the “if it stops moving, subsidize it” stage of the process.

TheUnrepentantGeek on March 15, 2010 at 11:36 AM

Government’s handling of H1N1 last year was a fiasco. Big Sis Napelanto said 50 million were going to die; then they ran out of vaccine, then they changed the recommendation from one vaccine to TWO. Next, they directed schools to stay open (costs money when schools aren’t open) when doctors were telling parents to keep their children home if they were sick.

Leave my healtcare alone!!!

TN Mom on March 15, 2010 at 11:36 AM

BREAKING: SCOTT MURPHY DEFECTS. NOW VOTING YES.

Scum.

andy85719 on March 15, 2010 at 11:36 AM

The top-down reform proposed by Congress threatens to stop real reform and amplify everything that’s currently wrong with the system

.

If it ain’t top down “reform” then it is a non-starter at this point. Only killing off the current legislation and starting anew would put retail health back in play.

highhopes on March 15, 2010 at 11:37 AM

Given the realities of pricing and competition, we should reform the health system not by building more all-encompassing insurance plans, but by returning health insurance to its rational place: as a bulwark against catastrophic loss. If consumers bought health-care services in a rational market, the price for the overwhelming majority of transactions would be well within the money we would recoup from ending comprehensive coverage policies.

The market moved the insurers toward comprehensive services. There are many types of insurers, but the ones we are most interested in are the medical and malpractice insurers. Liberal juries for years considered the medical industry a cash cow, and malpractice awards skyrocketed. As a result of skyrocketing malpractice awards, a whole insurance industry was invented. I doubt Dr. Hegedorn (my pediatrician in the 1950′s) had malpractice insurance, but I’m betting 99% of the pediatricians in the country today have this insurance — and it doesn’t come cheap. Because it costs, the doctor passes said costs on to the consumer, and we all pay over and over for those John Edwards awards.
Malpractice doesn’t just extend to the doctor — it extends to the supplies he consumes and the labs with which he contracts, so even those fees are exorbitant when considered in the light of an earlier era.

As for medical insurers themselves — they operate on sound actuarial policies that, if nothing changes, assure them a constant operating profit of about 3-5%. Some of those policies become inoperative when an insurer deals with a private individual, which is why they charge non-group insureds such a high rate differential.

There was a recent article about New York’s mandate that insurers insure all comers regardless of previous condition. Healthy individuals who knew they were healthy avoided buying insurance until they required medical care. At that point, they would present themselves to be insured, get insurance, and then undergo the medical procedures they needed. For insurers, what did that risk pool look like, and how did they respond? As I remember from the article, walkups were in the range of $9,000 per year in fees.

How will the government get around that kind of risk-taking? The answer will be that everyone must have insurance, but some people’s insurance will be subsidized to a very low cost — for the very poor, nothing. Now, anyone care to hazard a guess as to health-care utilization in an environment where you do not have to pay any kind of gatekeeping fees?

And, for the clincher, does that question have any relationship to the costs of healthcare to those who can afford those fees?

unclesmrgol on March 15, 2010 at 11:51 AM

unclesmrgol on March 15, 2010 at 11:51 AM

We always here how wonderful nationalized health systems are, but we never here about the one huge factor that makes them different from ours.

We have too many damn lawyers and a legal lottery system that drives up the cost of health care because of defensive medicine.

No other system in the world is like ours, because of our f’ed up “legal” system.

We don’t need health reform. We need tort reform and we need to stop making millions of lawyers rich.

NoDonkey on March 15, 2010 at 12:05 PM

FYI, my dental clinic has had online fees for almost a decade. It’s a system that works. Folks come from over 100 miles away, many mentioning my web site. Yes, we’ve offer laser tx, CEREC one visit crowns, digital xrays, air abrasion and more. While some dental clinics in our area have spent a lot of time in the last year sitting on their hands with high fees, we’ve been steadily busy.

The marketplace works when it’s tried…. Go figure…

drfredc on March 15, 2010 at 12:20 PM

Couldn’t agree more, Ed. Retail clinics are the wave of the future. Where ever did we get the idea that any medical insurance be it government or otherwise should provide all our needs? It’s madness. I too have only catastrophic with a very high-deductible and it certainly has the effect of making me take good care of myself….

Webutante on March 15, 2010 at 12:25 PM

a bulwark against catastrophic loss.

Amen.

All the docs in my family are excited about the Minute Clinics and they hate Obamacare.

But it’s a political decision. All the activist groups will scream if less than Cadillac policies are offered.

PattyJ on March 15, 2010 at 12:40 PM

Webutante on March 15, 2010 at 12:25 PM

Agree – when I had a catastophic care I stopped to think about doing anything where I might get injured and whether it was worth it.

Congress is trying to cover everything, so it’s all “free”. “Free” care will bankrupt us twice over, since this idiotic “stimulus” Bill bankrupt us the first time.

NoDonkey on March 15, 2010 at 1:15 PM

I don’t understand why people are so afraid of having to pay for routine care. I never had insurance that paid for doctor visits and prescriptions until my children were in their late teens. And, I never hesitated to seek medical care. So often at the pediatrician that it was always a monthly statement and same with pharmacy. And, yes, prices were lower then. I think that was part of the reason. Now doctors and pharmacies have to spend so much time conforming to insurance requirements, especially gov’t type that it increases their costs and thus our costs. Insurance wasn’t meant to pay first dollar. Now the big Obamacare will require pre-paid coverage for those with pre-existing illnesses and elective surgery (abortion). This is not insurance.

Oleta on March 15, 2010 at 1:21 PM

The party of slavery under the guise of “Healthcare” seeks to subject you to their new modern version of slavery for one and all. You’ll find the specific references to the real intent(CONTROL) here: “Judge Kithil Highlights Most Atrocious Sections of Health Care Reform Bill”. http://texasgopvote.com/blog/judge-kithil-highlights-most-atrocious-sections-health-care-reform-bill-03114

wtng2fish on March 15, 2010 at 1:36 PM

When I was young almost nobody had health insurance. Medical care was compitent and costs were reasonable. For example, my oldest son was born in 1952. The costs were $54 for a routine hospital stay and $75 for the doctor (including prenatal care). This all changed with the increase of medical insurance. The more the insurance covered the more the costs went up (probable due to increased (unnessary) use. It appears that there is a direct correlation between medical costs and the percentage of insurred. My solution to health care would be to provide “major problem” coverage and make everything else “pay as you go”.

duff65 on March 15, 2010 at 2:50 PM

Thank goodness someone at the top of the media food chain is finally talking about this approach – everyone pays for their own and re-establishes the tried and true benefits of having the people who receive a service being the people who PAY for the service. ALL problems sort themselves out soon thereafter. Incent people to pay for their own by removing tax benefits to employee-provided insurance (for employers and employees) and (in the short term) provide incentives to businesses to pay the cost of health care plans (or a portion thereof) directly to employees who can use it to pay direct to providers, buy insurance on their own or spend on something non-health related. Tax revenues increase – to pay down debt, disposable household incomes are increased and the cost of health care is reduced.

sacfly on March 15, 2010 at 4:17 PM

Essentially right, Ed. The biggest problem with medical care in the USA today is third-party payment. I know; I’m the business manager of a medical practice. It drives up overhead, while restricting reimbursements, which puts doctors in a no-win vise, while state mandates drive up premiums for patients.

Insurance is supposed to be for catastrophes—risks that you cannot manage yourself. No one has their homeowner’s insurance pay to fix a leaky faucet. But everyone with ‘health insurance’ runs off to the doctor and expects insurance to cover it.

And, there is no reason for medical insurance to be tied to employment; that’s a leftover from WWII wage and price controls (‘benefits’ were a way around them).

We have a structure in place that will transform medical care for the better: Health Savings Accounts. Combine those with catastrophic, high-deductible insurance, and you will ipso facto bring ‘retail medicine’ back into play.

But the Democrats (i.e. the Socialists) want ‘universal health care’, a la the Soviet Union. The Great Pretender Obambi has no interest in ‘reform’ or even in insurance. He clearly intends to destroy the health-insurance industry, by eliminating underwriting. The insurance companies, despite being vilified, are playing along, because in the short run they will get mandates, which will earn them a bundle. Then when the industry dies, the execs can retire in splendor to Costa Rica. And the rest of us will wait in line at the Registry of Health, only to find out, “You don’t qualify.”

MrLynn on March 15, 2010 at 10:30 PM

Correction:

Insurance is supposed to be for catastrophes—risks that you cannot manage yourself. No one has their homeowner’s insurance pay to fix a leaky faucet. But everyone with ‘health insurance’ runs off to the doctor and expects insurance to cover it.

Should be:
Insurance is supposed to be for catastrophes—risks that you cannot manage yourself. No one has their homeowner’s insurance pay to fix a leaky faucet. But everyone with ‘health insurance’ and a sniffle runs off to the doctor and expects insurance to cover it.

MrLynn on March 15, 2010 at 10:32 PM