Showing posts with label Lotterman. Show all posts
Showing posts with label Lotterman. Show all posts

Tuesday, August 13, 2013

Lessons on Medical Pricing and Service from My Toyota Dealer

I really like my Toyota dealer.  They advertise that they are one of the most successful dealerships in Minnesota and I have no reason to doubt that.  Everytime I end up waiting in their customer service area there are anywhere from 30 - 50 people waiting with me.  Everybody checks out at the same cashier.  Everybody hears the conversation between the customer and the service manager and basically the fact that the customers seem uniformly satisfied and all of their problems have been addressed.  As I sat there today looking at a long line of satisfied customers I thought of a comparison with medicine.

Let me start off discussing my parallel by saying that I have always been a proponent of medical pricing being one of the most significant problems in health care.  The example that I frequently post is the difference between an MRI scan of the cervical spine in Japan ($150) to the cost of the same scan in the US ($1200).  But in other posts I have compared the costs of formulary to non-formulary drugs and the steep discounts that frequently apply to services by physicians.  Economist Ed Lotterman discusses the effects of price discrimination in health care at this link and the reason why health care companies do it.  They make more money even though they end up charging much higher prices to the people who can afford it the least.  There are many other subtle (if you don't think about it too long) ways of rationing medical services to provide a high volume low quality product that really does not address the problems that most people want.  As an example, I was shocked in 1987 when I encountered for the very first time a physician who refused to answer any questions about a "second" problem.  He was obviously annoyed when I asked him about a medical concern that was not identified as the reason for the appointment, even though I am certain he could have answered the question in two minutes.  The people at my Toyota dealer frequently have two or three or even five problems and the service manager calmly explains what has been done  or what the cost will be in the event of a major repair.

As I thought more about it, my name was eventually called and I walked over to pick up the car and review what had been done.  I thought I might need a price list for a comparison, so I walked back out into the service area and talked to a service manager who looked like he was about my age.  I asked him for a price list and thought about what kind of reaction that  would get in a medical clinic - not just the price list but asking additional questions after the appointment with the doctor was officially over.  He enthusiastically replied: "No problem at all sir.  It is tricky to find on our web site.  Let me show you how to get it there.  And let me print it out for you.  My usual printer doesn't do a good job, so let me send it to a better network printer."  Within a minute it was in my hand.  None of the gasping and eye rolling that you might expect in a medical clinic.

What is a fair comparison?  I decided against emergency departments.  Car repairs are generally not life or death, even though a lot of people with non-emergency problems end up staying in emergency departments for a long time.  I decided that urgent care and primary care clinics were problems the best comparisons.  The Toyota dealer has three levels of maintenance based on mileage or time:

Yellow Service
Every 4 months
$72.95
Green Service
Every 12 months
$219
Blue Service
Every 24 months
$379


The price list shows all of the specific tasks that this dealer does for car maintenance and the task list is longer as the price increases.  I can't post any medical comparisons because the actual price that you will pay is unknown.  If you are insured, your insurance company generally negotiates prices with a clinic that are generally much lower than you would pay if they billed you their usual retail price.  Practically all physician billing would occur at the Green or Blue Service level.  As I look at the Yellow service, it is strictly maintenance without the services of a diagnostician.  How many times have you had to see a doctor in order to get lab tests or an x-ray?  There are a list of things you can get from Toyota without seeing a mechanic.

What about affordability?  Everybody in the service center today was driving a Toyota ranging from essentially new to at least 6 years old (the age of my car).  Everyone with a fairly new car wants to keep the warranty current by doing the suggested maintenance.  There will always be some outliers who never change their oil, but let's assume that people generally want to protect their investment for at least 6 years or 100,000 miles.  What is the trade off in terms of investment at risk driving service fees?  If we look at the current per capita health care expenditure in the US it stands at $8,233 per person per year.  According to the Kaiser Family Foundation in 2012, the average cost of insurance for a family was $15,745 with the worker paying $4, 316.  Worker only coverage averaged $5,615 per year with the annual cost to the worker of $951.  The current cost of health care for a retired couple at age 65 with Medicare is estimated to be $220,000, not including nursing home care.

The 5 or 6 year cost of health insurance for a family costs the same amount as just about any brand new Toyota on the lot.  There are a couple of potential questions about the value of the purchase.   If we are considering non emergency and routine medical care, does the purchaser of health insurance get the same value as the purchaser of a new Toyota?  Or is medical insurance purchased strictly to protect the family against bankruptcy associated with a medical catastrophe?  And do your get the same level of service?

On the service level,  I don't think that primary care or urgent care clinics can compare to my Toyota dealer.  I just learned today that they are open until midnight and they see all of the walk ins who want to be seen at all times.  Their pricing is completely transparent and affordable to everyone who pays the same amount for health insurance that they would pay to purchase a new Toyota every 6 years.  That is basically any family purchasing health insurance.  Technology is a frequent argument to justify the high cost of American medicine, but people purchasing hybrids are the beneficiaries of a $6 billion research project by Toyota that put them at the forefront of that technology and made it as cost effective as purchasing any other new car.  Technological innovation like that in medicine rarely translates into a cost effective solution for patients that quickly.

Without government mandates and the threat of bankruptcy, I think health insurance would be a very difficult product to sell based solely on market factors and the actual service you get for the money.  That is what health care companies like to call value.  I guess the bright side is that we all don't have to purchase an insurance product that would allow us to get a new car.  It is hard to imagine how bad that product and the service of that product would be.

George Dawson, MD, DFAPA

Disclosure:  Not a stockholder in Toyota.  My only interest in Toyota is in keeping my car running well.

References:

Ed Lotterman.  Price discrimination:  Free market at work.  November 15, 2009.

Ed Lotterman.  Trip to hospital illustrates complexities of health care pricing.  December 23, 2012.