Our system of indirect payment for medical services by insurance or government programs is supposed to be shielding us from high cost and improving access. In fact it is doing exactly the opposite. This arrangement is in fact greatly inflating medical costs, restricting their availability and retarding innovation. I'm going to post a series of concrete examples - things I observed in my own practice.
As a diabetes specialist most of my patients did home blood sugar testing. A tiny drop of blood from a fingerstick is placed on at test strip which is read in a meter. There are a large number of meter companies, each with their own brand, and importantly the test strips are proprietary, each meter requiring its own type of strip. Until the last 2 or 3 years these meters were priced in the range of $100 in most pharmacies although more recently prices have come down drastically. The reason for this is that the meter is a one time sale and the profit for the producers resides in the test strips which require ongoing use. Companies do not rely on meter sales and in fact give meters away in doctors offices to be given to patients who then are tied to those specific strips.
All insurance companies and government programs cover the strips so that to the insured patient they are either "free" or require only a small copay. As time has gone on all the major brand name companies have refined their strips, improving their speed and accuracy and raising the prices accordingly. At the pharmacy the price of the major brand name test strips runs around $1.50 per strip and can run up over $2.00. To be sure pharmacy benefit management companies, insurances, Medicare and Medicaid reach agreements with the producers to lower those prices and I am not privy to that information but they are expensive nevertheless.
In the case of most medical items it is not possible to know the true market price, that is the actual price at which a producer can sell his product to a cash paying consumer and make a profit. Normally prices are set with insurance payments in mind and are grossly inflated but adjusted by discounts to insurance companies and by price setting arrangements with government agencies. The case of blood glucose strips is unusual in that Walmart sells a series of meters and strips for cash payment to the public at roughly $10-20 for the meters and roughly 15-20 cents a test strip, that is 1/10 the published price of the major brand name strips, which in fact, unlike the Walmart strips, are sold almost exclusively through insurance. I have assessed these Walmart strips and found them to be equal in speed and accuracy to the high cost brand name strips which I used regularly in my office.
In my office extremely few of my patients used these low cost strips, maybe 2 or 3%, despite the fact that I made an effort to inform the patients of their availability and welcomed their use. Why would anyone pay even a small amount for test strips when they can be obtained for free with one's insurance. In fact the free strips became a problem with wastage, prompting Medicare to regulate their use, limiting the amount authorized to 1 strip/day for diabetics not using insulin and 3 strips/day for those using insulin. Such arbitrary regulations are nonsensical since many factors other than insulin use, including importantly patient preference, determine how many strips are used. In fact such regulations do not stop wastage since many patients obtain but do not use their allotted amount and at the same time many others require more than they are allowed.
Who does buy the low cost strips? Well for one the uninsured who attend the free clinic where I work once a week. These low income people find the strips that are sold at Walmart at the market price to be, as they say, "affordable". Even if they test as often as 4 times daily the cost is well under $1 a day instead of the $6-8 dollar cost of the strips that are "free" to those with insurance.
Of course as we all know the "free" strips are not really free. We pay for them through the insurance premiums that our employers pay for us as part of our compensation and in the taxes we pay and the debts accumulated by government entities. But the "free" strips cost more than you might think. In addition to their inflated price caused by elimination of market forces we pay for the wasted strips that are acquired but not used. And in the process of obtaining them we also pay for the time of the people in doctor's offices and pharmacies filling out forms, the computer systems required for billing and coding, the legions of clerks in the insurance companies and government agencies as well as the bureaucrats and consultants in the meeting rooms working out the regulations needed to keep the system going.
Our medical payment system is shot through with this type of thing and it is crying for reform.
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