Charging $700 per hour for routine physical therapy

In the C-J...

My first thought was to switch professions. I love my job. But for the standard 2,000 hours of work per year, $700/hour equates to $1.4 million for services that are professional but relatively modest and routine. I could live with that!

But then you quickly realize that the physical therapists (PT’s) are only making a small fraction of that money. Most of it is going to insurance companies and the providers who hire the therapists.

My youngest son had minor injuries—from an impressive growth spurt and over-exertion from playing soccer and running track. Kentucky One Health and Frazier Rehab charged Anthem about $500 for the first appointment, where the therapist’s expertise was easily the most impressive. After that, the routine exercises and follow-up appointments were billed at about $700/hour to Anthem.

Anthem “negotiated” these down to about $300/hour for me. Wow, thanks! We didn’t meet our deductible until late in the game and we were surprised by the $1,253 bill. Boo on us for not checking prices. That won’t happen again—and I hope you won’t make the same mistake! Then again, the most prominent financial part of the one-page form my wife signed to get services said, “Copay per visit—$0.00”.

How can the market possibly sustain $700 or $300 (or the $180 we ended up paying out-of-pocket) per hour for these services? Because health care and health insurance are not well-functioning markets.

Instead, we have tons of government intervention that reduce competition, increase costs, eliminate coherent pricing, and grossly distort incentives and behaviors. People often point to capitalism as the problem in health care, but that’s a strange claim given the amount of government involvement.

The most important distortion: the subsidy for health insurance provided to employees and employers—as a tax-free form of compensation. The subsidy inflates the role of insurance, well beyond its usual job of protecting us against rare, catastrophic events. (The subsidy is also remarkably expensive, costing the average family of four almost $3,000/year. And it’s regressive, providing much greater benefits to those with higher incomes.)

Car insurance mostly covers accidents. Life insurance covers death. Fire insurance mostly covers fires. But health “insurance” covers everything from cancer to allergy shots, from heart attacks to PT.

Of course, “true” health insurance wouldn’t deal with allergy shots or routine PT services, since those are neither rare nor catastrophic. They are included because the subsidy encourages employees and employers to arrange for “insurance” that covers all health care services. Imagine the costs and problems we’d have with car insurance if it covered door dings and oil changes!

Some might protest that they couldn’t afford PT without insurance. First, you don’t know for sure, since the costs would decline or even plummet without coverage—and your insurance would be less expensive. Second, for those who really can’t afford it, the government could provide services to the indigent through Medicare or another welfare program.

Of course, it’s easy to understand why Frazier wants to charge $700/hour and is willing to accept $300/hour. Suppliers always want higher prices for what they sell. The far larger mystery is why Anthem accepts this price. (Or beyond that, why are Indiana University and its employees happy enough with diverting more compensation into the higher premiums they’re paying for such outcomes?)

I don’t have a great answer, but my educated guess would include something about complex negotiations between three immense bureaucracies and little concern about costs because they’re relatively invisible.

Most prices in health care are strange—if they can even be called prices. Only non-insured markets in health care—e.g., Lasik and cosmetic surgery—behave like normal markets. In other words, they have technological advances that are welcomed by all, declining prices, increasing quality, and very few complaints.

If you want those outcomes in the rest of health care, then you’ll need to greatly reduce the role of government in health care and health insurance.

Here’s another funny thing: the bill from Frazier only had one line—with the range of dates for services rendered, a four-word description of the services (“physical medicine and rehab”) and a charge of $4,453. Maybe they were trying to save money on ink?

After some time on the phone, Frazier sent me a detailed, understandable, one-page description of the two charges for each of the seven visits. Beyond that, it was difficult to get more information, given the layers of customer service from employees who aren’t trained to handle such questions.

Again, this is not the sort of thing you typically see in well-functioning markets. But one should expect opaque pricing, murky and limited information, and extremely high prices unrelated to the marginal cost of provision—when government and insurance are so heavily involved. 

Frazier did send my son a nice “thank you” card afterwards. So, that was nice.