This is the second in my irregular series on what I have learned about the American healthcare system from my most intense interaction with it to this point. I was diagnosed with prostate cancer in January, 2021. It was detected early, so the prognosis is good. My goal is to compare how the health-care system works compared to how it might work if competition were strong enough to ensure that the consumers’ welfare would be maximized, given that health-care providers have their own interests too.
The problem here, to the extent it is a problem, arose as usual because of one third-party payer having to make decisions on what it will and will not pay for, combined with that insurer’s conflicting interests in on the one hand trying to restrain expenses and on the other being seen as a credible provider of health insurance to large employers. And yet the result is still strange.
I decided earlier this year to go with radiation therapy, after seeing quite quickly both a surgeon and a radiation oncologist. (Details in Episode 1.) In my meeting with the latter, he told me about a procedure that his practice now likes to perform before starting radiation treatment. In my case at least, I have now made an appointment in early June. Apparently prostate radiation therapy in this firm is currently being scheduled with some delay, perhaps due to a COVID-related backup that accumulated in the first year of the pandemic.
True or not, the office has now made the appointment for this pre-radiation procedure. A physician will make an incision and insert some sort of gel, which it is hoped will decrease (even further, one further hopes) the chances of surrounding tissue being damaged by radiation. (After insertion of the gel they will use an MRI and some other scans to map the tumor, and then design the radiation beam, which I will receive for a minute or two for 28 days over six weeks.)
Now comes the economically striking part. At my meeting with the oncologist, he told me that if I agreed to this procedure, there would be this strange pas de deux in which his practice would ask for insurance-company approval, the insurance company would say no, his practice would appeal, there would be one or more exchanges of correspondence, and then it would be approved and scheduled.
And indeed that is what happened, with the additional detail that during the bargaining, I received in the mail a form to sign verifying that I knew what was going on treatment-wise.
In a truly competitive system of the sort I described above, the initial procedure’s existence would mean that the insurance company has predictable rules about whether it will pay for the procedure. If the procedure could make the practice money and the physicians were confident in its (marginal, strictly speaking economically) value with respect to survivability, physicians might be expected to compete against one another enough to get the price of the procedure out of pocket down to a level where some, maybe many patients would be willing to pay for it on their own, even if the insurance company said no. But that the insurance company sets the default rule to “won’t pay,” but then in the end pays after a seemingly unnecessary amount of what economists call transaction costs — the time and effort of the staff, who could be doing other things in the office, so that there are more of them than there would otherwise be — is hard to explain.