THCB

One Clue to Why Health Care Costs are So High?

By DAVID WILLIAMS

I often hear from hospitals that they’re being squeezed greatly on cost and not getting paid enough by government and private payers. I have some sympathy for this argument, but on the other hand somehow this country outspends every other country by at least two to one, and hospitals are a big part of the reason.

So what gives?

An article in yesterday’s Wall Street Journal (One Way for Hospitals to Cut Costs of Tests), reporting on an Archives of Surgery study, provides part of the answer.

Making physicians aware of the costs of blood tests can lower a hospital’s daily bill for those tests by as much 27%, a new study suggests.

Researchers simply told the doctors what things cost.

“There was no telling anyone when, or when not, to order a particular test,” says Elizabeth Stuebing, a study co-author…

But she says it shows what can happen merely by giving physicians information they don’t usually have. “We never see the dollar amount of anything,” Dr. Stuebing says. “The first week I stood up and said that in the previous week we’d charged $30,000 on routine blood work and I could hear gasps from the audience.”

The situation doctors are in today is sort of like being sent to a store and told to get what they need, but not paying for the goods and not  knowing the prices of the items or even which items are expensive and which are cheap. That’s certainly a formula to run up the bill, even if inadvertently –which is what the “gasps from the audience” indicate.

The experiment was analogous to putting prices on the items in the store, but still letting the shopper buy whatever they thought they needed. That’s a step in the right direction but not exactly draconian from a cost control standpoint! (Of course there are some cost control measures hospitals impose centrally, which is different from my shopping analogy.)

I have mixed views on whether physicians should be exposed to what things cost. Pricing in hospitals is not like pricing in stores, because “charges” are often a small fraction of what’s ultimately reimbursed. I don’t know that I want doctors making tradeoffs based on faulty data or an incomplete understanding of patient preferences.

Still, letting doctors know what’s cheap, moderately priced and expensive is a good idea. In this case it seems to have held physicians back from ordering things that weren’t needed. And it does give a peek at how bloated expenditures in medicine are today.

It also underlines the fact that we are far from the point where consumers can control costs by having “skin in the game.” Do we expect patients to challenge daily blood draws on the basis of their cost and medical necessity? I don’t.

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Maurice RaffoulMichelle L.Blair JamesNeel Shah, MDTim Recent comment authors
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Maurice Raffoul
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Maurice Raffoul

All i can say is if you stop medicare, medicaid and private health insurance, the cost will come down 85%, also make it so you can sue a doctor, let me tell you why, i lived in germany for 2 years as an industiral machinest with my wife i am 42 she is 41, I was just transfered back to colorado, now, when we were over in germany my wife was not feeling well about two years ago. in germany it is against the law to have private insurance, and since we were not citizens we new a doctor on… Read more »

Blair James
Guest

I think it is essential that doctors know how much things cost as it is becomes significant when prescribing medicines to their patients. The fact that the society is challenged with what is happening in the present economy and people can’t afford to be hospitalized. These doctors should be sensitive enough to understand it and how things are going in the real world.

Neel Shah, MD
Guest

particularly for inpatients, there is often a substantial difference between what a test or treatment costs a provider to administer, what gets billed to the patient (or payer), and what the patient ultimately pays. as a result, many doctors cannot even estimate the cost of routine tests and treatments within an order of magnitude.

Maurice Raffoul
Guest
Maurice Raffoul

I like plastic surgens because they operate in the free market not testing and over billing and geting paid from insurance and socialized medicine systems, you guys could make a great living if you just charged cash and people should not beable to sue but you guys think that your worth all that money your not, medicare is a sham, i never new about any of this tell 5 months ago i wish we had germanys medical system why better, because they don’t treat people that are not cash payers of citizens of the country. In this country you guys… Read more »

Tim
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Tim

Reform theories should start by imagining self-interested actors, as distinct from what the actors would be like if the reformers were impersonating them in a parlor exercise. So: the cost of being sued is still greater than the cost of not knowing others’ costs. Until that equation reverses, aggregate behaviors do not change.

Richard L. Reece, MD
Guest

On thing that has always surprised me is that most doctors do not know the cost of drugs they prescribe. Most doctors prescribe a limited inventory of drugs, and it seems to be they could have a list of the prices of these drugs next to their desks. Some doctors who dispense from their offices and who stock drug inventories in their offices become sharply aware of costs of drugs. Patients with health savings accounts are also sensitive to drug prices. There are ways of making physicians and patients aware of costs.

Devon Herrick. NCPA
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Devon Herrick. NCPA

It’s not just that physicians do not know the cost of medical services they order. It’s also that physicians (and hospitals) are not competing on price. Patients are not price sensitive because 88% of medical bills are reimbursed by third parties. Physicians know that most patients are insensitive to the price of medical services. Thus, neither doctors nor patients have an incentive to know the cost of services provided. Disclosing the price to the doctor might change physician behavior slightly, not as much as if he/she had an incentive to control costs or risk losing business.

Maurice Raffoul
Guest
Maurice Raffoul

LIke i said out law health insurance, out law medicare, medicaid and no sueing any doctor no matter what and the cost will collapse doctors wont be driving really nice cars because if patients had to pay they would not go to the doctor are system is bankrupting everyone except doctors, medical malpractice lawyers and politicians. I am sick of paying for health insurance 23k per year and i am not sick, if i get sick i rather die, I know that when i went to the doctor 5 years ago everyone was over 65 in the waiting room let… Read more »

Peter
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Peter

I bet doctors know the cost of THEIR services. I have never met a doctor who actually wanted to know the costs, they felt they were irrelevant to the care needed and would only cloud their mind with non-medical information.

toronto eye doctor
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we are into eye care services,cataract operations,contact lenses .
thanks

Margalit Gur-Arie
Guest

Would any physicians out there care to comment here on how these announcements regarding costs (or prices) of tests would affect your decision making process? Is it something like “oh wow, $100 a pop… I don’t know why I’m ordering this stuff anyway, so I guess I don’t have to do it….”? Or maybe “jeez… I guess they don’t want me to order this stuff….. I better not… hope I don’t get sued…”? I am also wondering if this type of study should include at least a cursory look at outcomes. Of course 11 weeks may be to short of… Read more »

Stephen Meyers, MD
Guest

I definitely see what you are getting at, and it is a good point. I look at it from how things tend to play out in the real world. In the ER and inpatient setting docs have a tendency to take a “shotgun” approach, ordering tests for all possibilities at once. This often is due to time constraints, such as the pressure to move patients efficiently through the ER, or a doc making the most of his/her only stop by the hospital that day. Improved knowledge about cost could motivate a physician to slow down, order the most important tests… Read more »

Margalit Gur-Arie
Guest

Thanks Dr. Meyers. This makes perfect sense. I was trying to compare this to what I do and although I most often don’t know exactly what people get paid, I do know that they get paid. So when I task someone to do something, or not, there is a background process that calculates if a particular task is “worth” doing. So maybe doctors don’t need to maintain an accurate list price in their memory (to Peter’s point below), but a general knowledge of what is expensive and what is cheap should probably help decision making.

Suboxone Doctors
Guest

I think it is due to the fact that the government spends to much money on other industries

Jonathan Halvorson
Editor

Nice example. If these results can be generalized, it’s the epitome of low-hanging fruit. But the next question is: when would a hospital paid FFS want to publicize this information internally? Would it do so for all services, or just those that are least profitable? If a hospital is not paid FFS, it would not be able to publicize charges, but would look directly at costs (in as much as the hospital even knows what these are). In that case, making the information public would be even more effective because the administration would be touting a mantra of efficiency. To… Read more »

Oscar Nelson
Guest
Oscar Nelson

I think the other low hanging fruit is improving the efficiency of hospitals that was mentioned in one of the previous posts on the blog this week. It seems like hospitals are jumping through hoops to do all the complicated things and looking beyond the simple things that every other industry has figured out a long time ago.

Stephen Meyers, MD
Guest
Stephen Meyers, MD

Just to clarify, I think you meant that reimbursement is only a fraction of charges.

There is no doubt in my mind that physicians, both inpatient and outpatient, would think twice before ordering some tests if they knew ballpark prices. I don’t think exact costs are necessary. Maybe just national averages.

The exception is for the uninsured patient, who often ends up being billed the unadjusted charge, so actual pricing for the individal facility might be valuable, too.

Then the trick is how to display the prices at the point of care (order entry).

Stephen Meyers, MD
http://www.MedSavingsBlog.wordpress.com

Michelle L.
Guest
Michelle L.

I work for a 7 hospital healthcare system where we understand the cost of an uninsured patient compared to an insured patient is not “fair.” We use predictive software that will package procedures and provide quotes to the uninsured at the point of care. Additionally, we also educated the physicians on the cost of diagnostic testing. Both has made it possible to continue to provide the high quality care our patients demand but made us more accessible to the uninsured. Win/win…