Competition and Reimbursement Negotiation in Medicare

There has been an awful lot of rhetoric about “normal markets” in the healthcare debate; how they work, how the healthcare market should work and how “competition” will solve all of our problems. (SIDEBAR: I’ve also seen plenty of uninformed commentary about how making the whole system non-profit would solve the problems. Please note that “non-profit” is a piece of tax code with regulations and restrictions attached, any look at the behavior of the so called non-profit participants currently operating within the healthcare system might tell you that a wholly non-profit system is not the panacea many think it is. But I digress…)

I have strong opinions about the healthcare system, and could go on at length about it, but I am also a trained MBA and strongly believe in metrics, data and rigorous analysis to aid decision making. As such, when I hear people talk about the government dictating what people get paid for services and how that will spell the end of civilization as we know it I scratch my head. In a normal market the largest purchasers of any given service are able to dictate pricing, using the scale that their volume affords them to drive a strong bargain with upstream vendors (healthcare providers in the case of Medicare) and pass along savings to downstream consumers (taxpayers and Medicare enrollees in this case). Wal-Mart is illustrative of this theory; they drive incredibly hard bargains with their vendors and pass along savings to consumers; like it or not, agree or not, that’s what they do and that is a normal market behavior.

So when I hear so called “market based solutions” that don’t think the government (aka the single largest purchaser of healthcare services and products, via Medicare, Medicaid, VA) should negotiate directly with, for example, drug companies, I am somewhat baffled. Of course in my corner of the world the government has long since dictated prices to us and continues to struggle with methodologies to do so effectively. I don’t always agree with their decisions or rationale, but that’s how it works. You also may not find me on a rooftop shouting for “market based solutions” to the healthcare issue. It doesn’t behave like a normal market, is not subject to the same elasticity of supply and demand, and is a truly unique space to operate within, both as a consumer (please remember I am a cancer survivor, I am intimately familiar with the inside of the healthcare marketplace as a beneficiary as well as a business owner) and as a provider.

So the next time someone says “we need market based solutions and the government shouldn’t dictate prices…simply ask them how pricing should be established and if the government controls the space (currently covering nearly 1 in 3 Americans via Medicare or Medicaid) then why shouldn’t they negotiate and set more uniform rates for services, procedures and products related to healthcare? This would get us around the very sticky issues of payment disparities between facilities (where there are two facilities in similar geographical territories, there is no demonstrable difference in quality or outcomes and there are dramatically different payments for each) and create a more rational and stable market for healthcare services and procedures by leveling the playing field. This is how payments are made in many areas of the Medicare program already, it simply needs to be universal; their inability to do so will continue to allow costs to skyrocket in key areas, and is a breach of fiduciary duty by those tasked with maintaining the programs integrity and sustainability.