Monday, January 05, 2009

Healthcare Payment Systems Let Convenience, Not Value, Drive Healthcare Spending

A story in the Pittsburgh Post-Gazette last fall demonstrates how current healthcare payment systems encourage higher costs with no better value.

A retired university professor found that an anti-nausea drug (Zofran) that he was paying $557 per month for at his local Rite Aid was available from an independent pharmacy for $46.58. This is not a brand name vs. generic difference — it’s the cost difference for the same generic product. In shopping around, he found that CVS was charging $420, Walgreen’s was charging $410, and Wal-Mart was charging $110, quite a variation, and all higher than the independent. According to the article, the wholesale price was under $17.

He had an unusually strong incentive to shop around — even though his prescription plan pays 80% of the cost, he has to front the money and get reimbursed. People with flat co-pays wouldn’t have either the incentive of the percentage co-insurance or the need to float the funds for the full price, and would likely go to the closest store.

A spokeswoman for Rite-Aid confirmed that. “Most of our customers are insured, and they have a wide choice of pharmacies for prescription services, and so convenience, value-added services, and days of operation, rather than price, are the primary drivers” of where customers choose to go, she said.