Monday, March 6, 2017

Institutionalized Moral Hazard in Health Care

Q: What happens when providers post all-inclusive prices for medical services?
A: They actually have an incentive to reduce costs.
See the video at youtube here.


  1. The rising costs of insurance has driven surgeons to open their own surgical centers to first alleviate the markup of hospital billing that causes increased billing towards patients and secondly for the ability to move patients quickly through a private surgical center versus hospital operating rooms where the bottlenecks of equipment failure and operating room time delays the patients and is the cause for surgeons to perform less than half of the amount of surgeries that can be performed in private centers. Private centers also alleviate the administrative expense and the
    I think we’ll start to see more ambulatory centers that are physicians owned pop up in our communities. Self funded employers offer their employees a one stop surgical / medical center and the payback is to waive all costs for medical care for employees. For instance, a sinus surgery hospital bill could run $33,000.00 compared to an all inclusive price of $5,000.00 at a private surgery center who contracts with individual companies.
    Another type of reimbursement model that will become more popular and replace the fee-for-service model is the value based healthcare which rewards physicians for the care they provide i.e., quality over volume of patients. One of the value-based care arrangements gaining interest among employers, especially companies that self-fund their health plans, is called a bundled payment. The bundled payment method reimburses a healthcare provider or hospital for a defined episode of care under a single fee or payment. For example, all services immediately prior to, during and after knee replacement or cancer treatments are sometimes being lumped into a bundled payment. This is a shift away from the common fee-for-service structure in which a care provider is paid separately for each treatment, appointment or test during a treatment plan, generating multiple claims within a single, broader episode of care.
    Bundling pricing allows the insurance company to extract a higher quality of care from the provider as they incentivize and reward the providers based on outcomes of bundling rather than each separate item the provider would typically bill for a fee for service on each service.

    Epstein, J. (2012) Oklahoma Doctors vs. Obamacare: Surgery Center provides free-market medicine. Retrieved from:
    Froeb, L., McCann, B., Shor, M., Ward, M. (2016) Managerial Economics A Problem Solving Approach 4th Ed. Cengage Learning. Boston, MA

  2. While Obamacare may have afforded much of the population of the United States with health insurance, it is not always as “affordable” as it was advertised to the public. A consumer can find coverage with insurance carriers for lower premiums than they could have before, their actual care costs more because there is not much covered by these low costs plans. Meaning that patients have coverage for relatively inexpensive routine things such as a preventative visit with their primary physician, but unexpected and often costlier procedures must be paid out of pocket on top of monthly premiums.

    The Surgery Center of Oklahoma gives Obamacare a run for its money by creating new strategies to avoid high bills. The center is co-founded by doctors who are providing high quality health care for low costs. They can do this by not overbilling for procedures and providing up front pricing. A significant portion of their patients are able to afford to pay out of pocket or their employers have created agreements where their service is paid for considering it is at such a discounted rate.

    While watching this video, I was interested in how they could accomplish offering such low prices considering I have worked in health care my entire life. I have always been surrounded by hospital administration constantly talking about costs and reimbursement rates. By the end of the video, the answer was glaring, and it was one of the main reasons I am currently pursuing my MBA; the top 18 administrators at competing hospital Integris, make on average $413,000 a year. Hospitals have many administrators, all who are paid handsomely, and it has to come from somewhere.

  3. In the case of Oklahoma Doctors vs Obama, highlights the healthcare inflation cost which is unfortunately funded by the working class and their employers to offset the cost of the individuals who are unable to pay for the services rendered to them.
    Hospitals markup treatment cost to compensate everyone regardless of their ability to pay.
    In this clip, Dr. Jason Sigmon points out the pros and cons of the traditional hospital charges for surgery versus the Surgery Center of Oklahoma. More specifically the example of a complex sinus surgery performed at a hospital Integres versus the same surgery performed at the Surgery Center of Oklahoma. This highlighted the “Learning Curve”.
    According to text “Learning Curve”, “As you produce more, you learn from the experience, and this experience helps you produce future units at a lower cost.” In the blog, Dr. Sigmon uses the example of a complex sinus surgery performed at a hospital versus the same surgery performed at surgery Center of Oklahoma. The hospital cost was marked up six times the cost at the surgery center. Dr. Sigmon pointed out the fact that the everyone at the surgery center is involved in the care of the patient, where at the hospital, executive administrators are paid top dollars that drive up the cost of healthcare. In all this everyone start to catch on. There are some pros the Surgery Centers indicated such as no administrative staff, high quality healthcare at low prices, and twice as many surgeries than hospital. This goes to show that there is always another way, “plan B”.