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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