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The Insanity of Healthcare Pricing

It’s hard to believe now, but about 50 years ago when you went shopping for a new car you simply had no idea how badly you were being stiffed by the dealer. Oh, sure, he might show you the invoice price from Detroit, but he’d also routinely add hundreds of dollars for shipping, dealer prep (whatever that was), accessories, undercoating, and rustproofing.

I clearly recall driving to a suburban dealership with my father and his being told that if he wanted the great price he’d seen advertised, then the back seat in the four-door sedan would “be extra.” And indeed, when we opened the rear door…there was empty space. The seat had been removed and could be restored for an additional several hundred dollars.

As a result of this industry-wide chicanery, buyers would drag themselves from dealer to dealer, trying to find what seemed like the best deal. Car dealers ranked at the very bottom of public opinion polls.

Then, in 1958, Congress passed the Automobile Information Disclosure Act, which required car dealers to affix essential pricing information to the windows of every car sold in the US. Today, the sticker must include fuel economy, greenhouse gas emissions, and crash-test safety results. If that’s not enough information for you, there’s always Consumer Reports and numerous websites for price and quality comparisons. Although you’ll still have to negotiate the value of your trade-in, at least you’ll be buying a vehicle as an informed consumer.

Haggling over healthcare costs
When it comes to big-ticket items in health care, you’re back in the 1950s trying to get the best price for a Buick Roadmaster.  Most prospective patients don’t bother to check, but were you to do so you’d find it’s very difficult to get anyone to commit to a price. That, and you never know for sure what add-ons are going to appear on your bill. If you comparison shop, the price ranges will make you shake your head in disbelief.

In fact, the old cliché “You get what you pay for” simply doesn’t exist in healthcare. Data on quality, so readily available for big-ticket items like cars and washing machines, is virtually unavailable in health care. You’ll be wheeled into an operating room, as World War II pilots used to say, on a wing and a prayer, not knowing for certain if your surgeon is the malpractice king of Illinois or has just been released from a rehab program and taking Valium to steady his hand.

These were the conclusions (though less dramatically stated) reached in a recent article published in JAMA Internal Medicine entitled simply Availability of Consumer Prices From US Hospitals for a Common Surgical Procedure.

In this study, researchers tried to find out how much a total hip replacement would cost an imaginary 62-year-old woman who had no insurance but did have the financial means to pay cash. They telephoned two groups of hospitals: 20 of America’s top-ranked orthopedic hospitals (as rated by U.S. News and World Report) and a selection of randomly chosen hospitals, two in each of the 50 states plus Washington, DC.

How much will it cost?
Using a standardized interview script, a researcher (probably one Jaime Rosenthal, the medical student listed among the authors) would call the main number of the selected hospital and go through the same steps you yourself might encounter to get a price for a hip replacement. The authors were seeking what’s called a “bundled price,” an all-inclusive dollar amount that covered both surgery and hospital costs. If a hospital couldn’t supply a bundled price, separate calls were made to orthopedic surgery practices to obtain individual prices for surgery.

This process must have been exhausting for the poor Jaime. At virtually every hospital or doctor’s office phoned, there was confusion, suspicion, and unreturned voicemail messages. Each hospital would be contacted up to five times in an attempt to get pricing. If after five calls a price was not obtained, the hospital was tagged as being unable to provide one.

The results?

  • Of the 20 top-ranked hospitals, 12 (60%) were able to provide a bundled price (hospital plus surgeon), although three of these 12 required getting separate estimates, one from the hospital, the other from an affiliated surgeon. Of the remaining eight, five provided some prices (usually hospital charges, but not surgical), and the last three hospitals could provide nothing.
  • Of the 102 random hospitals, 64 (63%) could provide a complete price estimate, but only 10 (10%) were able to give the bundled price. The remaining 54 required separate phone calls (hospital first, surgeon second). 22 of the hospitals could provide only partial pricing and 16 (16%) could not provide pricing at all.

By the way, the commonest reasons for being unable to provide a price were:

Patient needed to see a physician first
Don’t provide price estimates by phone
Have no way to provide such an estimate

(Imagine trying to comparison shop for a refrigerator this way.)

I know you’ll be curious about the prices. Among the top-ranked orthopedic hospitals, the average price for a total hip replacement was $53,140. The average price among the randomly selected hospitals was $41,666.

But what astonished even the researchers (and the author of an accompanying editorial) was the price range, which varied from a low of $11,100 to a shockingly high $125,798.

Remember, these disparate costs are for precisely the same surgical procedure, performed by a board-certified orthopedic surgeon. Given the tenfold price spread for the same procedure, do you get what you pay for?

With an expense like this–not to mention it’s your body they’re cutting open–it’s reasonable to want some data, like rate of complications (infections, postoperative deaths, re-do rates) and facts about the surgeon (malpractice, state board complaints). But here again, there’s virtually zero transparency, no way to find out if the low price you’ve been quoted represents shoddy quality or a terrific value.

While you can readily find data to prove that you’ll get a better car tire or house paint if you pay more, it’s virtually impossible to verify that paying top dollar for surgery delivers better results. You may think (and hope) that a high price correlates to high quality, but that’s wishful thinking.

There’s simply no data available to prove it.

So listen up. No matter how you might bristle at the words “government regulation,” sometimes someone has to step in and demand change. It wasn’t the auto industry that voluntarily made our cars safer or protected us from the extra charge for the back seat. It was pressure from the feds.

Sadly, any pressure we might have exerted to control both the price and quality of health care has, via the Affordable Care Act, given the reins to the insurance industry, whose goal is not quality but bottom-line profits. Interestingly, the French health care system seems to have gotten it right. The price for every conceivable medical or surgical service is a fixed, fee-for-service amount, negotiated and mutually acceptable to both physicians and the government. Speaking as a physician, I would really like prompt payment of a haggle-free fixed reimbursement.

A realistic solution to the quality issue may well be the judgment of the marketplace–namely, patients themselves. Think Angie’s List (which does grade physicians, and when I look over the list, the docs at the top are indeed good ones). With the insurance companies running the show, a “bad” physician is one, for example, who doesn’t push generic statin drugs to get your cholesterol below 99. A “good” physician is one who works fast and avoids sending patients to specialists.

Right now, however, if you’re compelled to self-pay for a surgical procedure, pretend it’s 1954 and start shopping around for the best deal you can find on that Buick Roadmaster. And prepare yourself for sticker shock.

Be well,
David Edelberg, MD


Leave a Comment

  1. Mery Krause says:

    I’m already in shock over the range of prices out there for a hip replacement. Hope I never need one, cause I’m not a good comparison shopper or negotiator. Thanks for the info, anyway, in case I ever need to use it. Hopefully our system will be more like France’s by then.

  2. Addie says:

    This has become a huge issue in the legal-health policy world. See the article below and note the $85 million available to the States for increased health pricing transparency.
    An End to Medical-Billing Secrecy?
    By Steven Brill, May 08, 2013, Time posted at CNN

    This morning, Health and Human Services Secretary Kathleen Sebelius is announcing a groundbreaking initiative that will take a lot of the secrecy out of hospital billings.

    Acting on the suggestion of her top data crunchers at the department’s Centers for Medicare and Medicaid Services (CMS), Sebelius will release a data file that shows the list — or “chargemaster” — prices by all hospitals across the U.S. for the 100 most common inpatient treatment services in 2011. It then compares those prices with what Medicare actually paid hospitals for the same treatments — which was typically a fraction of the chargemaster prices.

    CMS public-affairs director Brian Cook told me that Sebelius’ action today comes in part in response to TIME’s special report on health-care-pricing practices in the March 4 issue, “Bitter Pill.”

    In the same announcement, Sebelius is offering $87 million to the states to create what she calls “health-care-data-pricing centers.” The centers will make pricing transparency more local and user friendly than the giant data file she is releasing this morning.

  3. Bill Clinton lost his presidency because he and Hillary came charging into the White House with meetings and plans to do health care reform.

  4. Jude Mathews says:

    I’m sending this to a lot of my friends. Hope it becomes a cause celeb and we can see some results eventually. Regarding the offer from Sebelius (see below), I wonder what will happen after that 87 million runs out in, say, a year? Also, I always thought there was a way to find out about whether individual docs have a track record for specific operations. Maybe that was an urban myth?

  5. John says:

    Interesting and informative, as always. I’m glad to know that Angie’s List evaluates doctors. Why doesn’t Consumer Reports? Nothing would get their attention faster than the same kind of expose you describe appearing in CR. JAMA is fine, but it lacks the popular reach of CR.

  6. Gilbert Adelstein says:

    If buying the Buick Roadmaster meant calling your insurance company and asking only one question- when and where do I pick it up- no one would care how much it cost.

    Unfortunately Congress is unlikely to even address the issue until concerned voters take to the voting booths demanding change from their newly elected representatives.

  7. Linda McNulty Sauer says:

    I am still making monthly payments to the hospital and surgeon for a new medical device, iFuse, for fusing sacro-iliac joints. I have no recourse but to pay for something that didn’t even help me. We have a stupid healthcare system.

  8. jean fischer says:

    Chapter 2:The insanity of prescription pricing.
    A skin Dr gave me a sample and a prescription for Finacea . I priced it at Walgreens and it cost $214. without insurance. I wanted to be sure it worked before laying out that kind of money so decided to use the sample first. In the meantime I left for my summer home in Canada. I had it filled here (same brand, not a substitute or generic) and it cost $47 …. go figure.

  9. Mark Kelgard says:

    I recently had a hernia correction, 2 hour outpatient. Surgeon $800, assistant $180. Surgical center/hospital: $53,334, minus $43,225 “new account adjustment”(?). No wonder they have marble atriums – and construction cranes! Apparently they’re not too worried about the ACA.

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