
How to Charge $546 for Six Liters of Saltwater - zdean
http://www.nytimes.com/2013/08/27/health/exploring-salines-secret-costs.html?pagewanted=all&_r=0
======
nikatwork
Many in this thread are claiming that price fixing wouldn't occur in a "truly
free" market. This is misty-eyed naivety.

In a completely deregulated free market, it is even more in the hospitals'
interest to form a price-fixing cartel. Any new player in the market trying to
set reasonable market prices could be excluded through market pressure tactics
(eg, tell distributors don't sell to them or our cartel will no longer use
you).

It seems to me that the parlous state of the US healthcare system is in fact a
perfect demonstration of the dangers of a completely free market, and claims
that "oh no it's not actually free enough" are merely handwaving.

~~~
jes
How do you explain other free markets that obviously deliver quality products
at low prices? I don't feel gouged when I buy a television, a cell phone or
lumber at Home Depot.

~~~
DanBC
Cell phones are a great example of the terrible results from supposedly free
markets.

Plans are deliberately priced to be confusing to compare prices; plans are
frequently updated to cause people to be stuck in win-optimal contracts;
consumers are gouged on some items (see bizarre cost of sms in UK); and
companies collude to defeat market mechanisms - see the use of area codes in
auction bids as a method of communication when frequencies were auctioned off.

~~~
CamperBob2
Would this be the same free market that put a Cray 2-class computer in my
pocket for $85/month?

~~~
moocowduckquack
When you look at how much other devices cost that are comparable but are not
mobile phones, then over a grand a year does seem excessive. Comparing the
cost of a phone to a cray-2 is fairly meaningless. It would make more sense to
compare it to a Raspberry-Pi.

------
DanielBMarkham
It's always in the seller's interest to create a complex and opaque system of
pricing, especially when the buyer doesn't even pay for the services. This is
why free markets aren't the answer to everything. It's free and open markets
that drive efficiency out of any process.

The problem here is one of incentives. If I promise to pay you for mowing your
neighbor's lawn, and he rarely reviews what you're doing and I rarely check
with him, suddenly mowing the lawn gets really complicated and expensive. If,
on the other hand, you walk next door and solicit the neighbor to mow his
lawn, suddenly it's a very simple transaction. The difference is one of
incentives. If the goal is to provide mowed lawns, the neighbor is the guy
responsible. If the goal is to provide a rationale for writing a check? Heck,
I got all kinds of easy rationales handy. I can play this game all day.

It should be illegal for anybody to pay a medical bill except for the person
receiving treatment. If you want universal coverage, that's fine: pay the
patient and have the patient pay the hospital and doctor. Once you begin to
incentivize other players besides the patient, you're going to create a mess.
I'd also recommend completely unbundling hospital services. Patients should be
able to buy materials and services on the open market -- and keep the savings
they make doing so. Hospitals should provide clean, sterile rooms for
independent specialists to work, not form a pricing cabal controlling anything
that happens inside the walls and incentivized to game the system.

~~~
dopamean
> This is why free markets aren't the answer to everything.

Perhaps I've misunderstood you here but in my opinion the way healthcare works
is sort of the opposite of a free market and if a free marketplace for health
services were allowed to exist then things like $500 bags of saline solution
wouldn't exist.

~~~
thrownaway2424
It is not possible to have a "free market" in health care because the
"customers" are often on the brink of death, or not even conscious.

~~~
tapp
I've heard this statement used frequently to shut down debates re using market
dynamics to improve the healthcare system in this country.

However, the substantial majority of healthcare services provisioned are non-
emergency.

It is absolutely possible for us to have a freer market in those services
(Lasik procedures are just one frequently cited example) and IMO that would be
a huge improvement over the current Frankenstein system we have today.

------
coenhyde
The problem with having healthcare under private enterprise is that these
healthcare providers do not operate under the free market conditions we assume
they do.

There is no "perfect information" allowing consumers to choose the cheapest
price. As the article points out the pricing structure is very opaque. Not to
mention the "consumers" want the best product regardless of cost, after all we
are talking about their lives here.

Given the lack of free market conditions operating on these healthcare
providers it is only logical that they would behave like the extortion rackets
they are.

~~~
rogerbinns
It is even worse than that. Lets say you want to open a medical facility that
will lower costs. This will end up taking away business from other facilities
where patients don't find the higher costs to provide value. In a free market,
the new facility goes up, existing facilities have to compete, and consumers
benefit.

In 35 states you can't do that. Existing facilities are protected, and you'll
need to establish a certificate of need[1] showing that business won't be
taken away from existing facilities. The somewhat tortured logic is that they
would then have to charge remaining patients more which would raise costs for
everyone so this is a cost saving measure.

Like many parts of US business it is good old fashioned protectionism, and not
free markets.

[1]
[http://en.wikipedia.org/wiki/Certificate_of_need](http://en.wikipedia.org/wiki/Certificate_of_need)

------
ddeck
I am of the firm belief that healthcare is one of the basic goods that should
be provided by a government. Some may cry socialism and argue that free
markets are more "efficient", but that assumes people shouldn't have equal
right to basic healthcare services. It also ignores the fact that many of the
generally accepted principals required for a functioning free market are
difficult to achieve in healthcare. In an emergency situation, for example,
buyers are likely constrained to the closest hospital, at which point that
hospital become a monopoly for that particular buyer. When the the good on
offer is survival, it's easy to see where problems might arise.

I live in a country that has been rated the freest economy on earth every year
since 1995 [1]. Low taxes, small government, minimal regulation. So what does
healthcare look like here for the average person? $13/day. Got a sore finger?
$13/day. Intensive care? $13/day.

There is a significant parallel private system that offers all the luxuries
and perks that a free market can provide (no waiting times, private rooms,
choice of doctor etc.). But it competes with the public hospitals for buyers.
In providing a competing alternative, I would speculate that the public system
limits the type of monopolistic situations that can arise.

No system is perfect and clearly there are enormous differences between the US
and elsewhere, but it's interesting to note that the "freest economy on earth"
has universal public healthcare, in addition to a freely competing private
system.

[1]
[http://en.wikipedia.org/wiki/Index_of_Economic_Freedom](http://en.wikipedia.org/wiki/Index_of_Economic_Freedom)

[2]
[http://en.wikipedia.org/wiki/Health_in_Hong_Kong](http://en.wikipedia.org/wiki/Health_in_Hong_Kong)

[3]
[http://www.news.gov.hk/en/record/html/2013/04/20130409_19040...](http://www.news.gov.hk/en/record/html/2013/04/20130409_190409.shtml)

------
refurb
One of the big reasons for this problem is Medicare. The reimbursement that
Medicare offers is often far less than it costs the hospital. Why does
Medicare not cover the cost of a procedure? Usually because it did cover it in
the past (to the point of generosity) and providers reacted by shifting their
services to maximize the profits.

A good example is the infusion of drugs. Medicare pays ASP+4% (just cut from
+6% due to sequestration). If you're a clinic that doesn't get a discount on
their drugs (mostly community based clinics) you're often paying _more_ for
the drug than the gov't pays you (it's a net loss every time you prescribe the
drug).

However, the gov't does pay a lot to _infuse_ the drug. The result? Providers
everywhere were starting their own infusion clinics and making a _ton_ of
money on it. The profit from infusion clinics would be used to offset the loss
from the purchase of the drug. CMS clamped down on reimbursement for infusion
services recently, but it's still a profit center.

This happens all the time in the US healthcare system.

So what do hospitals do? They jack up the price on every item they possibly
can. Of course insurance companies know what is up, so they negotiate much
better rates for all of the items. However, for those who are uninsured, they
pay the charge master rate which is very inflated.

The problem with the US healthcare system is not that's a free market, because
it isn't. The problem is that's not a free market and it's not a fully
regulated market, it's something in between. So what happens is that some
regulations are put in place, some of which cause certain procedures to be
unprofitable, so providers simply shift those costs to the un-(or less)
regulated prices.

~~~
smokinn
Sounds like the problem isn't actually medicare, sounds more like it's adding
a capitalistic, profit-maximizing middleman into the system.

~~~
jes
With respect, what does capitalism mean to you? Lassiez-Faire or something
different?

~~~
smokinn
The current sense of the term in which I use it now is capital-maximizing. If
you have money, if you're capitalistic, you should be investing in what can
make you the most money, or, if you're bought in to a system, you should be
extracting the most "value" from it as possible.

I'm not using it as a political term, rather to describe our current, quarter-
profit-maximization system driven by the stock market and public company board
+ CEO directives for how to run a company.

It's great for efficiently using capital to exploit existing innovations but
it's really bad at things like investing in the public, social good of things
like healthcare.

~~~
falsedan
Try 'mercantile' instead.

------
bpm140
I have two active kids and am reasonably active myself. We have probably
received medical treatment a dozen times in the last year, a combination of
walk-in clinics, personal physicians and emergency room visits, depending on
the circumstances. During these visits, the staff have used equipment, given
procedures and prescribed medication and have rarely, if ever, inquired about
my thoughts on treatment.

When my son jumped off the couch and cut the inside of his mouth open, I
wasn't asked my opinion on treatment. And if I had been asked, I would have
simply said "you're the physician, do what will make him better the fastest."
The same would have gone for when I had pneumonia or had to get a tetanus shot
after getting fishhooked while surfing. My goal is simple -- recover the best
the fastest.

How does one legitimately comparison shop for a baby delivery? Imagine, for
instance, Hospital A says their births average $20,000 and Hospital B says
their births average $30,000. Which rational prospective parent chooses the
$20,000 option?

Hospital care is not like buying a car, where most people can consider
themselves educated enough to make a decision based on competing factors --
perhaps I'm willing to give up some handling for a lower price or I'm willing
to sacrifice fuel economy for more power.

The average person knows nada about the medical practicalities of giving birth
(or treating pneumonia, or even stitching gums) so they cannot make informed
decisions about what are reasonable tradeoffs.

As other people have said, medical treatment is an inelastic need. Parents
don't say "you know, I'm cool with 50% less effective treatment for my child
at 50% of the cost" and people don't say "you know, 90% functionality of my
leg will be just fine if you can bring this in at a discount."

So not only do you have a lack of informed customers, you have a lack of
choice in outcomes. A free market solution for medicine is a fairy tale spun
by people of certain social and political persuasions.

~~~
gbhn
The article focuses on what can hardly be considered a complicated good: salt
water. Medical grade saline is highly regulated, and must be one of the most
commodity products that exist in the country today. (The article takes pains
to establish this.) It takes minimal effort to understand what it is or to
compare prices. And yet, as the article says, there is no functioning market
for it.

For something like "set this broken bone" sure, it's difficult to talk about
the price for this risk vs. that risk. But for the liters of saline used
during the procedure? That ought to be trivial to analyze. Yet it is not.

~~~
bpm140
But the need is still fundamentally inelastic. You're seriously ill from food
poisoning and you've lost a lot of fluids. The ER nurse is about to stick an
IV into you and wave your hand weakly and say "Wait, how much is that IV fluid
you're putting in there?"

The nurse says $500.

Option 1) You say "no way, I can't pay that." The nurse shrugs and says "well,
that's what it costs for IV solution here."

Option 2) You say "holy hell that seem expensive for a bag of salt water." The
nurse shrugs and says "well, that's what it costs for IV solution here."

Option 3) You say "I'm really not comfortable paying that. What other
treatment can I get?" The nurse shrugs and says "sir, this is the standard
protocol for treating acute food poisoning. We put a saline solution into your
arm via IV to replace your fluids. There is no alternate treatment. We're
really busy in the ER, so I need to put this needle in your arm or get to
another patient."

Now let's add a functioning market as you allude to:

Option 3, redux) You say "I'm really not comfortable paying that. What other
treatment can I get?" The nurse says "well, we also have this other saline
solution for a buck." You, reasonably, say "wait, what? Why is this other one
500 times cheaper than the first one?" The nurse shrugs and says "no idea, I
don't make them. They both seem fine to me though." You, still being
reasonable, say "then why is one so much more expensive than the other? Will
the cheaper one do just as good a job as the expensive one?" The nurse shrugs
her shoulders and says "look, I can't promise anything one way or the other.
We default to the more expensive one but if you want the cheaper one, that's
your choice. It's probably fine. Just sign this form that you're opting for
the cheaper solution."

What does a rational person with zero context choose?

~~~
BudVVeezer
That depends on what the rational person can afford. When they're thinking
"500$ means I don't make my house or car payment this month and I'm not
certain how I'll feed my family", they may say "I'll take the 1$ bag",
consequences-be-damned. And they're still a "rational" person.

------
jostmey
And herein lies the true problem of medicine in America. We have the worst
possible healthcare system. It is a privately run industry without any real
competition. Almost anything would be better - either public healthcare or
real competition. Instead, what we practice in America is an exercise in
insanity played out on sick and injured.

~~~
sourc3
I agree. When it comes to your or your family's health you will not go with
"cheap" even if it is the same level or better service/outcome. This is why
the entire system needs to first create a nice feedback loop. Right now there
are no metrics on how well certain hospitals are doing that can drive patient
selection.

Usually, the patient just ends up going to the specialist their primary care
provider referred them to or the closest one home. Until the quality/outcome
data is made public there is no hope in steering people to better
hospitals/providers.

There are some attempts lately in freeing up this information but I guess only
time will tell how effective they will become.

On the bright side, it will only take one good health insurance company (I am
thinking more like the type of disruption that a "Virgin" like company may
bring to the table) to start using this data and driving some meaningful
change.

------
ck2
Basically it comes down to we'd rather let people die instead of telling
hospitals they cannot do 10000% markup.

Even limiting them to 1000% markup would be "wrong".

Yay 'murica.

Be sure to donate blood while you are waiting for your loved ones in the
hospital so they can sell it for 10000% markup too.

~~~
rokhayakebe
Population control, maybe?

------
newsmaster
What's the price of water in the desert? Somebody clearly realized this and
appplied it to US healthcare system. Way to go capitalism.

------
angersock
There was a really, really good (depressing) article I'd read about a year or
two ago talking about how group purchasing organizations worked to influence
the costs of devices.

The example case was a guy who'd developed an auto-retracting needle, and was
screwed out of business by some major manufacturers pressuring hospitals not
to buy it.

Does anyone have a link to that article?

~~~
t0dd
Is this the article you refer to?

"How the medical supply industry blocks device startups from selling to
hospitals"

[http://www.washingtonmonthly.com/features/2010/1007.blake.ht...](http://www.washingtonmonthly.com/features/2010/1007.blake.html)

~~~
angersock
Yep! Good find!

------
ucha
Health expenditure per country (as a fraction of their GDP). The US spends 50%
more than France while in France, health care is free and universal.

[https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/rankorder/2225rank.html)

------
dr_
Free market decisions will work when the patient has a choice. For example,
when going for an outpatient visit to a doctors office that is scheduled in
advance. One could argue that the patient has time to review their choices,
call different providers and come to a decision. This is not the case when the
patient is being urgently hospitalized. They are typically rushed to the
closest medical center and are subject to the prices it charges and it's
providers charge. Given that they have no choice, whatever system it is that
leads to these high prices is unlikely to change - if you are forced to buy
something from me, why wouldn't i charge you as much as i feel like for it?
The government could get involved and force hospitals to adhere to a certain
fee schedule - but why should for profit institutions have to adhere to this?
In a truly capitalistic society they really shouldn't. The best ways to deal
with this is to maximize insurance coverage, which is one goal of the
affordable care act, and then to really use it as insurance and not to pay for
every possible medical service a patient may require. Insurance companies will
negotiate reasonable rates for hospitalizations. And if it's really being used
as insurance and not to cover regular outpatient services, premiums would
remain low as well. So would there still be stories of the $4 Tylenol tablet
dispensed in the hospital? Probably - but in the grand scheme of things, it
wouldn't matter as much.

------
socialized
After spending six months in the hospital for orthopedic care for my news it
became very apparent that unless you had a negotiated rate with your HMO or
were on Medicare, pricing was the wild west. If you could discern what the
bills were for via the medical codes, you would become outraged by the
overhead. The best part is that hospitals get to hide behind HIPAA as they
gouge and steal.

------
_pmf_
And what about these web sites for thousands of dollars? I mean, if I can
throw something together in 30 minutes using MS Paint and Wordpad, how
ridiculous is it that a designer charges more than 20 USD per hour?

Ah, I see. It's only en vogue to complain if I don't know anything at all
about the constraints of the domain and am pulling stuff out of my ass. My
bad.

------
yalogin
So this is by design isn't it? The fact that insurance covers everything and
the hospitals do not have to eat up any costs begs for this to happen. If the
majority of customers (patients) pay out of their pocket then the hospitals
would be incetivized to make themselves attractive to patients. Else why the
hell do they care? In fact they mark up prices multiple times to offset any
unforeseen costs of eating up costs as well. There is no incentive in price
transparency, no incentive to compete among hospitals. Honestly if you are
covered then as an individual you don't care either. I am not sure what the
solution is here.

~~~
carbocation
Serious question: why do you think that hospitals don't have to eat costs?

It's a loaded question in the sense that I've been at various hospitals and
they always talk about their budget shortfall which is in part due to non-
reimbursed care provided to those who cannot pay and/or have no insurance. But
it's also not a loaded question in the sense that I want to understand why
people would think hospitals don't eat costs.

~~~
yalogin
Oops, I was thinking something and typed something else entirely. I meant to
say that since the insured pay for the uninsured (through marked up prices),
the hospitals are incentivized to jack up prices.

------
elstevo
Not to defend the costs or the state of the system, but the justification for
the prices of medications in hospitals usually includes the time of the
nurses, pharmacists, and techs that make the whole administration process
happen safely.

Also, hospitals will bill whatever amount they can get reimbursed. Most
insurance companies have contracts with hospitals where they only get a
fraction of the billed amount. The rest is written off by the hospital.
Uninsured patients can usually work out payment plans for lower amounts as
well. That said, healthcare in the US is still pretty damn expensive.

------
dude3
I think there are 2 big factors that always seem to be missing from these
investigations. The high costs offsets individuals who don't pay for their
healthcare. Keep in mind that the hospital must treat anybody who walks in the
door and they frequently do not get reimbursed by the government. Also keep in
mind that the solution must be perfect when it physically cannot be. Because
if there is a .0001 percent chance of failure, every doctor that treated the
patient gets sued, the hospital gets sued for several million, the
manufacturers gets sued, the middle man gets sued, heck the receptionists
probably gets sued too. Think of the costs of insurance for every party
involved. Obstetricians often pay $85,000 to as much as $200,000 for
malpractice insurance. That's just the doctor.

Reduce the malpractice payouts and shield doctors like other countries do.
Make the government absorb more of the costs for care. The price could
probably be cut by 200 to 300 bucks.

~~~
thrownaway2424
(U.S.) states where malpractice damages are limited do not have lower health
care costs.

------
prawn
1\. Does the industry need a few Mannings and Snowdens?

2\. How much progress in the world is stifled by powerful incumbents blocking
competition? Taxi lobbyists tackling Uber, car industry impeding mass transit
in LA decades ago, etc?

~~~
jonknee
The industry already got one actually, I coincidentally came across this
yesterday:

[http://www.bloomberg.com/news/2013-08-13/florida-
pharmacists...](http://www.bloomberg.com/news/2013-08-13/florida-pharmacists-
win-597-million-blowing-whistle-on-scheme.html)

The TLDR is that an independent pharmacist treating AIDS patients got run out
of business by price fixing competitors. He got the last laugh and sued on the
behalf of the government and has so far collected $597M in awards (the
government has collected over $3 billion).

The behavior of these (very large) firms was outrageous:

> For example, Abbott Laboratories (ABT) sold its antibiotic Vancomycin 1 GM
> FTV to customers for $4 a dose, according to a joint Justice Department and
> Ven-A-Care lawsuit. Abbott reported the cost to pricing publishers as $72.48
> -- 18 times the actual amount, the lawsuit says.

This is likely going on for other types of drugs and then also in every other
segment (medical devices/supplies being a biggy).

------
idiot900
So if the manufacturer charges a dollar for the bag of saline, and the
hospital marks it up a couple orders a magnitude, hospitals must be absolutely
swimming in cash, right? Did I miss that part in the article?

------
hop
What a baffling industry. Wish great things to any startup that tries to get
through the bureaucratic/legal/insurance hurdles to take a crack at some of
this.

~~~
joseph_cooney
With centuries of regulatory capture, powerful, politically-connected vested
interests with huge war-chests, and a deck full of trump-cards like 'safety'
they can play, they might need more than just good wishes.

------
karlkatzke
OT: It's truly a sad day when I have to check to make sure that I'm reading
something in a news section and not the op/ed section of the grey lady.

------
microcolonel
They don't clarify though, the costs of running a sufficiently-advanced
multiple-effect distiller, dealing with the FDA, WHO and whomever else forces
them to... these costs could definitely add up, no?

What do you think the bar is for entering the market of providing water for
injection? Who's there to make it costlier, maybe the insurance oligopoly can
hold some of the blame for this as well...

~~~
zdean
Apparently the bar isn't too high:

[http://www.zorotools.com/g/00107210/k-G4226537?utm_source=go...](http://www.zorotools.com/g/00107210/k-G4226537?utm_source=google_shopping&utm_medium=cpc&utm_campaign=Google_Shopping_Feed&kw={keyword}&gclid=COXYmb3vmbkCFVNo7AodNCYA5g)

------
kumarski
I keep getting that feeling that something must be done.

Any suggestions HN readers?

~~~
csense
Turn healthcare into a government bureaucracy. Because that's an effective way
to combat waste, inefficiency, and overcharging </sarcasm>

~~~
tibbon
Clearly, its a problem a free market will efficiently fix and prices will stay
low. </sarcasm>

~~~
chrismonsanto
At least price transparency worked for surgeries in a hospital in Oklahoma:
[https://news.ycombinator.com/item?id=6014794](https://news.ycombinator.com/item?id=6014794)

Perhaps a similar approach could work for IVs.

------
Questioneer
Near the end of my father's life, he needed medical equipment at home. The
equipment was provided by a company that has deals worked out with all the
local hospitals.

The price for one oxygen condenser is covered after a victim(patient) pays for
the device for around half a year.

Looking over some others I know, they are all going through this same company.
Referred to them by each of their hospitals.

I cannot fully explain the scheme worked out from the hospitals, but I know it
depends on having the often confused patient signing a bundle of documentation
while he is being led out the door. I read over the documents and it seemed
fair, I just had no time to research all that was needed. My father was in
full legal control and he himself just simply followed through with what the
hospital asked.

Fuck you, Airway Oxygen.

