Searching for the price of one appendectomy

This month’s Philadelphia Magazine ranks the city’s top physicians — a fad nearly all major city magazines have adopted because it attracts great advertising dollars.


But tucked amid the pages of smiling surgeons and OB-GYNs is a gem of a story by the magazine’s executive editor, Tom McGrath, in which he takes readers through the maze he encountered while trying to decipher the hospital and insurance bills following his daughter’s appendectomy.

After his five-year-old daughter had her appendix out at Children’s Hospital of Philadelphia (CHOP), McGrath set out to learn why it was so impossible for him to understand how much his daughter’s surgery and hospital stay cost, how much the insurance company was paying, and how much he owed.

"I discovered two things: first, that much of the cost of our health care is determined behind smoked glass, where patients are never invited to look," McGrath wrote. "And second, that in trying to make sense of a single simple case where everything went right, you can learn a lot about what’s wrong with health care in America."

Many THCB readers may be familiar with the dense systems of setting
hospital prices, negotiating discounts and the fact that no one ever
pays the sticker price (except maybe the uninsured, at least until
recently). But you are a fraction of the general population. As McGrath
points out, even educated people like himself often fail when it comes
to "health literacy." It’s not because they’re stupid or for lack of
trying, but because the current system is too darn complex. And,
moreover, there doesn’t seem to be any rationale reason behind the complexity except: That’s the way it’s always been done.

McGrath’s family had a United Healthcare high-deductible plan coupled
with a health savings account. He knew he would be responsible for substantial portion of the hospital bill, but that knowledge didn’t make him
make him shop around, which, he points out, would have been in vain
because no one could tell him the actual price of anything anyway.

Thanks, I suspect, to his press pass, McGrath sat down with the head of
billing at CHOP and asked her to explain his mess of paperwork. He
asked Deirdra to explain how hospitals set prices and negotiated with
insurance companies. While McGrath says she was helpful, he finished
with more questions than answers.

"Now, I’ll admit to being a little bit of a wiseass here," McGrath
wrote, "but I couldn’t help wondering — and apparently I, uh, did this
out loud — just why the hell a hospital would establish a price that no
one on the planet was actually going to pay."

McGrath doesn’t offer a remedy for the health care system, but his observations are relevant for any debate about health reform:

  • The current system is far from transparent, and there’s no way the average American can understand it.
  • Having a high-deductible health plan doesn’t necessarily translate into astute health consumerism, which is still largely impossible.
  • Operating a bad system because that’s the way it’s always been done is not a rational reason to keep doing it.
  • Many doctors are unaware of the actual costs of care, which he learned after lunching with his daughter’s surgeon.

"Wow, an endostapler costs $550?” he said, referring to the device he’d
used to close Sarah’s wounds, that had left such tiny little scars.
Then the man who’d saved my kid, a guy I could never repay no matter
how much I paid him, shook his head in disbelief. “That’s amazing.”

McGrath points out that, to him, his daughter’s health and wellbeing is priceless. He wrote: "And that may be precisely what makes our health-care crisis insolvable: We are trying to put a price on something that is, by its nature, priceless."

Yet, health care does have a price, and must have a price because our resources are limited. It would be a lot easier to decide who pays what share of the price if the price was actually known.


18 replies »

  1. I am a General Surgeon. I am reimbursed a lump sum of $550 per appendectomy. That includes coming in at midnight, waiting 2-3 hours for the OR crew to set up, doing the 30 minutes procedure, providing all in hospital care, and all follow up visits. Out of that lump sum I pay my nurse about $150 to come in and assist me, I pay office rent and utilities, and I pay salary and benefits for my nurse/reception staff/medical assistant/cleaning staff/billing staff/etc. With what is left I can sometimes pay for dinner at Applebee’s. Incidentally, I work 12 to 14 hours beginning at 6 am that same morning.

  2. Politicians true intention is of the essence and that is the core to our over all problems.
    America is the biggest multilevel market in the world and the politicians are sitting at the top of the pyramid. Think they will give that up for “The People”?
    I don’t think so, and that’s why France is looking at us funny… like don’t you know?

  3. I have a friend who just got out of a hospital in LA where he had emergency surgery for a ruptured appendix, which he had stoically thought was a severe
    stomach ache for 5 days.
    He has received the first bill- he was in the hospital for almost 3 weeks- and it
    amounts to over $100,000.
    Does this sound even remotely ‘reasonable’? How does one go about rationally
    contesting such charges?

  4. I’m interested in knowing what Tom McGrath found, as I just got back from central America, where my son had surgery for a ruptured appendix in a private hospital in Belize City. We, too, have United Healthcare–which informed me the night of the surgery that it doesn’t pay foreign providers directly. The hospital required cash up front. The total came to about $11,000, including the surgeon, the follow up care, the hospital room (five nights–and I stayed and ate there, too). I haven’t found anything yet on the web as to comparative U.S. costs, so I’ll be interested to see how much UHC reimburses.

  5. The Medicare data base gives us a clue regarding the reasonable price for hospital and physician services. Hospital or physician charges is a fiction. Insurers negotiate “reimbursement” in a way that preserves the relationship with the hospital and maintains the profit margins for the insurer. See http://www.healthcaresoundoff.com for some tips on how to determine what you should be paying.

  6. Physicians do not know the costs of the items that they use, and they use freely. The most expensive supply in the hospital is the physician’s pen. They are courted by vendors to select their product, be it medical supply or pharmaceutical. They do not ask the price, nor do they care as they are not employed by the hospital. The physicians have lost sight of how the financial outcome of the hospital impacts their ability to provide great clinical care. They will waste supplies, opening packs and kits for a single item, wasting the rest, rather than seeking out the individual item. They will get paid for every expensive brand-name item they use from a specific vendor through undisclosed agreements. As they are not employees of the hospital, they are not required to disclose their agreements or have financial independence from the vendors they are selecting.
    Then, after they’ve closed their eyes to the costs, they will complain that the hospital rooms aren’t being refurbished fast enough or that they can’t get the newest technology fast enough. They don’t see the connection between a hospital’s net income and capital budget.

  7. This is so simple. We just need to get rid of health insurance. For-profit health insurance anyway. Insuring everyone is not the answer. A system like Medicare would work if it included everyone, required providers to post prices for everything they offer, had annual deductibles, about 10% co-pays, electronic medical records, many health care managers (policing the system for fraud) and caps of 2% administration costs and 8% of overall GDP. This can be done easily, but the insurers and lawyers won’t like it much.

  8. This story is all too familiar. Went thru it about a year ago. Wound up suing the insurance co with me as the lawyer and they came to court with check in hand.
    But read this first and then go to my web site. This is an excerpt from it.
    The scenario:
    You get into your car on the south side of Washington, DC, drive to the north side of Baltimore (or from Philadelphia to Atlantic City or from Sarasota to Tampa) for a total one way of 58 miles and this is what you will see:
    Next to the highway there is a 160 foot wide (football field width) office park the entire length with about 250,000 people working at useless functions processing health care insurance stuff. At almost every tenth of a mile there stands a Member of Congress facing the highway holding a placard that says “behind me is the best healthcare system in the world” but on the other side of the placard not visible to you the traveler is the inscription “these suckers are paying me for non-needed work”.
    That’s the magnitude of the healthcare insurance business which does not even account for the staff and expense the healthcare providers need to endure. You can see that on your return trip except that office space is 3 times the width that you saw on your first trip.

  9. Who on earth would take a beautiful little girl to have surgery at a place called CHOP?


  10. Jim, the reason insurance companies won’t tell you the price is because they consider it proprietary and a secret contracted price. Revealing it would devulge private company information. The reason the hospitals can’t reveal the price is because they’re bound by the secrecy of the contract between them and the insurance company. Great consumer system eh? The only price hospitals will tell you is the price gouging number they attempt to bleed from the already suffering uninsured. Here in NC UNC Hospitals get to use the limitless power and finances of the State’s AG office to collect. If they could get away with debtor’s prison they would do that too.

  11. so why can’t UnitedHealth which is sophisticated and does know what it is paying simply go the rest of the way and tell its customers what they will pay — if you have your daughter’s appendix out at Children’s Hospital, it will cost you $953? Doesn’t seem like rocket science to me. If they have the clout to bargain a price they’ll pay, why don’t they, proponents of consumer power, negotiate a residual price for their beneficiaries as well?

  12. Funny how I got a bundled price for cataract surgery from a hospital in Canada in less than a day. There consumers are even more removed from the payment system than here. By the way the cost was about 25% of the U.S. price that the hospital here picked for itself. Follow-up drugs were also way cheaper thanks to set prices by the Ontario Government. And, no waiting.

  13. It’s a great concept but it won’t happen without massive payment system reform, and bundling services for all participants, including hospital inpatient,outpatient, ER, surgeon, anesthesia, and pathology. Now, payers define what a procedure “costs” by how much they pay. Hospitals can pick a number if they have to, but it won’t include many of the other players involved. The payment system was never designed for consumers, and can’t really be re-tooled without significant changes to the rules.

  14. Why shouldn’t an appendectomy (or any other prodcedure) be as transparent as an timing belt change?

  15. It’s true hospital prices make little sense. Most got their start literally in the late 60s under early Medicare, and have been inflated, maximized, rationalized, and mostly ignored since. Having worked with this system for over 30 years, I agree it should be different. Bundled prices for procedures make sense. So does outpatient (office) payment that is bundled for keeping someone well, for managing chronic disease, rather than the episodic care needed when chronic care doesn’t do the job. Why doesn’t it change? Probably the same reason that our tax code doesn’t change–a mixture of inertia, entrenched political interests on all fronts, and a perverted sense of comfort with this ridiculous system that has developed. The post above reveals the ultimate futility of the “consumer” movement in healthcare–you are not likely to shop for an appendectomy, and most other accidents or sudden illnesses, and even if you wish to, you won’t find the price or quality information that you need. We need bold leadership in Congress and the White House to have a prayer of moving this rock-and it won’t happen until 2012.

  16. Many physicians offices determine how much Medicare will pay for any CPT code. The clinic then sets their cash price at 200%, 300%, 400% above that rate. Because some insurance companies will pay much more than Medicare, you don’t want to set your prices too low, or you risk losing money that a private insurance company would have paid you. I’m sure the rational is no different for hospitals. And now you know the rest of the story.

  17. I think most negotiations today between hospitals and insurers are up from Medicare rather than down from charges. That said, there is still an incentive for hospitals to drive charges up as far and as fast as possible because they have a bearing on computing the ultimate Medicare reimbursement rate for outlier cases.
    An appendectomy is a classic example of a procedure that lends itself to bundled pricing. CMS may have to provide the leadership on this, but there is no reason why a bundled price that would cover the hospital charges as well as the fees for the surgeon and the anesthesiologist as well as any other care that might be required could not be determined. Obviously, doctors and hospitals would have to work more closely together on how to divide up the payment that would, presumably, be paid to the hospital. In theory, it seems that reimbursement rates for surgical procedures could be developed based on the average amount of time they take to perform as well as the associated skill. So, if an appendectomy, for example, normally takes an hour or 45 minutes or whatever, the reimbursement rate could be based on the expectation that it would take that much time. If it took longer, the surgeon would not be paid any more, and if it were completed more quickly, he would not be paid any less. This is similar in concept to the way auto dealer service departments develop labor charges for specific jobs. Parts and supplies are billed separately, but the full price for the job can usually be accurately estimated ahead of time. Hospitals could absorb the financial risk related to complications
    On the transparency front, it would help if the Medicare reimbursement rate were readily available on a user friendly, transparent database so patients would at least have a benchmark to judge the reasonableness of their own bills and have some basis to negotiate them if they are deemed unreasonable. Ideally, hospitals would also disclose the reimbursement rate from each insurer, especially now that there is a lot more convergence in what the various insurance companies pay. It will probably take changes in legislation or regulation or both to make that happen, and both providers and insurers seem to prefer to keep the pricing system opaque.

  18. What a great post! In response to the author’s question: “just why the hell a hospital would establish a price that no one on the planet was actually going to pay.”
    Hospitals set prices in a way that will maximize payments from insurers, who for some reason, are able to negotiate what they actually pay. It’s a game. For example Insurance co. X may negotiate a payment of y% of charges, so the hospital will increase charges to a point that actual payments will come closer to covering their costs. Trouble is, the uninsured end up getting hit with total charges, unable to negotiate what they pay.