Most people believe that the price of care and the quality of care are roughly uniform in the marketplace. They believe if they have surgery at one hospital the price for the surgery will be roughly the same as the price for the same surgery at the hospital down the street. The truth is that quality and price are extremely variable in the market and worse yet, there is no relationship between the quality and price.
It’s like if you were to go to the grocery store to buy prime rib and one store sells you hamburger telling you it’s prime rib and you pay three times what actual prime rib costs at the store down the street. There’s a concept called reference-based pricing in which price for medical services are compared to a reference price which is what Medicare pays for services.
Some hospitals get paid one and a half times Medicare prices for a service while other hospitals get paid three times. Why do some hospitals get paid half of other hospitals for the same service? Now you might think the more expensive hospitals paid more because it has higher quality. The truth is, hospitals get paid more because of the bargaining power that comes with having a larger market share. In many cases the quality and outcomes in one hospital are better, yet they get paid less because they have a smaller market share. This is the main reason why hospitals are consolidating in Michigan. Not to reduce the costs but because they can increase what they get paid for services. Why does this matter to the average consumer? Because most of us have very large deductibles and we’re on the hook for the first few thousand dollars of cost. That’s why it’s important to shop for the best quality and service at the lowest price.
The good news is there’s been recent legislation including the Consolidated Appropriations Act which I’ll talk about in a future video that are making price and quality transparency the law for healthcare providers and hospitals. The problem we face in Michigan is that the average consumer does not have access to transparent quality and price data to shop for value. What is worse, insurance companies and hospitals are purposely keeping the data opaque. Additionally, recent consolidation of hospitals in Michigan will give the larger systems the power to negotiate higher prices from insurance companies and price transparency will make smaller hospitals demand higher prices when they see that they’re getting paid a fraction of what the larger systems are getting paid for equal or better quality.
These forces along with increased labor costs and general inflation will conspire to drive up the healthcare inflationary rates in Michigan over the next 5 years to levels we have not seen in decades. In a free market price drops and quality improves when the consumer has both access to data and the ability to shop for value. As it is today consumers in Michigan have neither. You would never buy a washing machine without researching its quality and knowing its price, yet we all seem perfectly comfortable doing that when it comes to our healthcare.
If every service we buy in healthcare is a unit of care, how does direct primary care drive down the price of each unit of care? Direct primary are providers have access to both the quality and the price of care in the marketplace. They are independent of hospital systems and networks so they are free to refer patients wherever the value is the highest that is the best quality and experience of care a the lowest price. That’s what value is by stewarding care to value. It introduces free market forces that make hospital systems compete on quality and price rather than on market share. A highly functional independent network of direct primary care providers in Michigan is the solution we all need to drive down the unit price of healthcare in our state.
