The state of American healthcare has me pulling my hair out more often than not. Pricing of healthcare services, a prolific topic on this blog and thorn in the side of most Americans, is the major contributor to runaway health insurance costs (see Craig Hasday’s post from last week on efforts to fix this). Constantly speaking about our healthcare pricing system with clients over the years, I’ve gotten pretty good at explaining how it works. To illustrate this wacky system, I relate how purchasing would work if it were something other than healthcare.
Let’s say a company, BoBo Industries, pays a sizeable monthly fee to Be Bop Vehicle Buying Services, which facilitates the purchase of company vehicles. Be Bop has a network of auto dealerships across the country that have agreed to deep discounts off their asking prices, which seems to justify Be Bop’s fee.
Bobbie, newly hired by BoBo, needs a company vehicle. She goes to the Be Bop website and discovers there are three network dealers in her local area.
What neither Bobbie nor BoBo Industries knows is: at one dealership the asking price is $55,000, at another $65,000, and at the third $85,000 – for the same exact vehicle. This pricing data is a closely-guarded secret, as is the discount Be Bop has arranged with each dealer.
None of these asking prices has any relationship to the dealers’ investment in the vehicles they are selling. In fact, a governmental agency routinely buys the same vehicle from these dealerships for $10,000.
Bobbie is given no guidance as to which dealership she should select, so she picks the one her neighbor recommended which has the $65,000 asking price.
After applying the discount, Be Bop pays the dealer $35,000. But, in recognition of the discount they have arranged, Be Bop adds 10%, and invoices BoBo for $38,500. This added fee is in addition to the monthly fee BoBo is already paying Be Bop and is not disclosed to BoBo Industries.
Bobbie drives off in her new company car.
It’s impossible to imagine any company purchasing vehicles this way. And yet that’s exactly how healthcare is purchased by companies every day.
It’s simply ridiculous. There is a better way.