When Michael injured his knee, he did what any responsible person would do. He was not incapacitated, and though the knee was painful and swollen, he could get around pretty well on it. So he waited a few days to see if it would get better. When it didn’t, he saw his primary care physician, who examined it and quite reasonably referred him to an orthopedic surgeon. The orthopedic surgeon considered ordering an MRI of the knee but worried that insurance would not cover a substantial portion of the $1,500 price tag, so he suggested a less expensive alternative: a six-week course of physical therapy that would cost only $600 – a quite responsible course of action.
At the end of this period of time, Michael was still experiencing pain and intermittent swelling. The orthopedic surgeon made another quite responsible decision and ordered the MRI exam, which showed a torn meniscus. The orthopedic surgeon could have recommended arthroscopic surgery, which would have earned him a handsome fee and generated revenue for his physician-owned surgery center. Instead he again acted quite responsibly, advising Michael that the surgery would actually increase the pain and swelling for a time and probably not improve his long-term outcome. Based on this advice, Michael declined surgery.
Though everyone in this case proceeded responsibly, the ultimate outcome was inefficient and costly. Many factors contributed, but perhaps the most important was the fact that Michael’s physician outlined choices based on an inaccurate understanding of the costs associated with his recommendations. The orthopedic surgeon thought that the cost of six weeks of physical therapy was 60% less than the MRI. In fact, however, the actual payment for the MRI from the insurance company would be only $300, not the “retail” price of $1,500. What appeared to be the less expensive option was actually twice as expensive, and it delayed definitive diagnosis by six weeks.
This story is emblematic of a larger problem in contemporary healthcare. No one – not the patients, the physicians, the hospitals, or the payers – really understands in a thorough way the true costs of their decisions. After receiving care, patients routinely receive by mail multi-page “explanations of benefits” that show huge differences between list prices and actual payments. Most find it baffling to try to determine who is paying how much for what. Physician practices and hospitals get calls every day from panicked patients who believe that they are being billed for exorbitant costs, when in fact most or all of the charges will be paid by insurance at a huge discount.
Likewise, physicians often have a poor understanding of the real costs their healthcare decisions generate. Many do not know the retail prices of the tests, medications, and procedures they prescribe and perform. Even the ones who do often have little idea how much will actually be collected for such services. For one thing, the costs are difficult to pin down – price lists are hard to come by. And many medical schools and residency programs make little effort to help physicians understand the economics of their practice. Besides, people go into medicine because they want to use their knowledge and skills to heal the sick and relieve suffering, not because they love business.
Everyone has heard the horror stories: the single dose of aspirin for a hospitalized patient that costs $25, or a charge of over $100 for diapers for a newborn baby. Of course, hospitals have justifications for such charges. Some patients cannot afford to pay, so paying patients and their insurance companies subsidize their care. Moreover, some healthcare service lines, such as radiology and surgery, produce high revenues that that help to help pay for money-losing services, such as the 24-hour emergency room and in-patient psychiatric services. But from the point of view of patients and the public, such charges seem absurd. Physicians are often dismayed, as well.
In the minds of the two most important people in health care decision making – the patient and the physician — the economics of healthcare resembles a black box, or perhaps a dark and tangled web. And when neither has a good handle on the economic dimensions, both find it next to impossible to make well-informed and responsible healthcare choices. Some simply don’t care – they are too sick or too busy to pay attention. But even the ones who would like to know frequently can’t seem to find out. Patients who are tempted to inquire may worry that their doctor will take offense, and physicians who ask too many questions may be branded troublemakers.
The goal here is not to reduce the cost of healthcare, or even to slow its rate of increase. The goal is simply to make sure that people know what they doing. When we are too insulated from the benefits and costs of choices, it becomes very difficult to choose effectively. Consider a hypothetical car shopper or salesman who does not know the list price of the vehicles, the amount of money that will ultimately change hands, or who will pay for it. When so many important factors in the purchasing decision are hidden, it becomes nearly impossible to choose responsibly. In emergencies, there may be no time to explore the options, but what about the vast majority of cases when there is time to deliberate?
If we are to remedy what ails contemporary healthcare, we need to take steps to facilitate well-informed and responsible decision making. This means informing key decisions makers, and especially patients and physicians, of the economic implications of their choices.
The intent is not to supplant clinical and ethical considerations, but to ensure that the key people grasp the cost dimension. As patients and physicians like Michael and his orthopedic surgeon weigh healthcare decisions, they need to know the answers to three basic questions:
Who will pay, how much, and what for?
Richard Gunderman, MD, PhD, is Professor of Radiology, Pediatrics, Medical Education, Philosophy, Liberal Arts, and Philanthropy at Indiana University; he was a past president of the faculty at Indiana University School of Medicine and currently serves as Vice Chair of Radiology. Gunderman is also the 2013 Spinoza professor at the University of Amsterdam, the author of over 380 scholarly articles and has published eight books, including Achieving Excellence in Medical Education, We Make a Life by What We Give, Leadership in Healthcare and most recently, X-Ray Vision.