One Clue to Why Health Care Costs are So High?


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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Categories: THCB

18 replies »

  1. 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 are street and asked him, how do you see a doctor he told me and my wife that you can pay cash for a visit witch only cost 25 eurs and the lab work was 35 full cbc and something else regular test, that was it we we soon found out my wife has a mild hypothyroid problem, so the doctor put her on a pill she is not fat has no other health problems. that was that, upon returning to the usa she was feeling sluggish and called a doctor and said she need her thyroid med to be raised, he would not give her a prescribtion with out and office visit or blood work, she asked the receptionist how much this would cost if she paid in cash, for an office visit in colorado and blood work, she told her well i don’t know but said she would call back, later in the day she called and told my wife for an office visit and blood check cbc and an other lab it would be, 390 dollars if we pay cash, my wife was absolutely shock, she said we just returned from germany it was 60euros with is like 85 dollors like i said above for everything, she said well that is what it cost here, being that we were new to boston we tried another doctor, and they said they would do it for 350 we were blow away, i told my wife we have insurance but we had not covered are 1500 dollar deductable, so i said i will just pay the 350, she goes to the doctor she tells the receptionist she would like to pay up front, the receptionish says we will just have you pay at the end, my wife says okay, then the lady asked do you have insurance my wife said yes but she will pay this in cash, my wife said the receptionist was looking at her shocked, she goes back sees the doctor get her blood draw, doctor says he will call her with results, my wife pays the 350 cash, get a reciept and leaves the next day the doctors receptionist called and told my wife she needs to raise her thyroid med alittle, she tells her come pick up the perscription and come back in 6 weeks for a re test, about two weeks later my wife gets a bill from the doctor for another 160 dollars, she is shocked because she paid cash, she calls the doctors office the receptionist picks up and says the doctor ran other labs. My wife said she told the doctor that she would pay cash when she was in his office he said that is fine, the receptionist said my wife owes the money, so i told her to just pay it and not to go back, i said we will find a place to run her blood work with out a doctor, soon to find out that in most states you cant just call a lab and get your lab work done and pay them cash, you have to have a doctors order in almost all states except louisiana and arkansas, so my wife paid for seeing a doctor for 2 min she told me and labs 510 dollars, way to much, the doctors and the lobbist have made it so you have to see a doc to get blood work done, it is a cartel and if you out law private insurance, medicare and medicaid people will stop going and the prices will go down make people pay cash, like with plastic surgery, also make it so you cant sue a doctor and things will get as cheap as germany, also in germany my wife said the doctor had one receptionist and him, in the us she said there were more works in his office, I now there reason the doctors are so busy here is because of all the old people but why are were telling everyone over the age of 65 that we will pay 80% of all there health bills tell they die you don’t think those doctors are milking this system, that is the only reason they can charge and make so much out law it, I have worked my ass of all my life 12 to 14 hours a day, i make about 95k a year working in colorado, i have insurance that i pay for me and my wife and one kid it is 1800 dollars a month my employer matchs this, look in germany it was cheaper to live there than in the us, also in germany even though they have a public system ie the government will pay up to 80% of your health care you still have to pay 20%, we were not citizens so we could not get they public, also in germany if you are not legally in the country and don’t have there version of a social security number you have to pay cash, we are allowing the rich to rap this country and the poor to benefit form health care people all over the world who are poor die every day because of lack of health care why not here, and if you are not legal no health care unless you are unconcese not going to the er, also what is this thing with a doctor not refilling a prescription with out an office visit my wife in germany saw the doctor one time he gave her a perscription and she just went to any pharmacy asked for her thyroid pill and told them the dosage and that was it this is a corrupt and non free market economy, pill of shit i am an american but i realize after all of this that there are other places to live, that are way cheaper, I ask again why do we need insurance we dont it is just a way for the doctors and insurance companies to make the middle class pay more, if i was make 500k a year i would not even have insurance, but in this country if you get sick with out it you are financially ruined, any doctor that gets on here and says anything is nothing but a academic, who has never worked or closed a real deal.
    Like i said if you get sick and you have no money let the person die, all these people on social security disablity, you are dieing let them die we cant carry them, then we will see the real hearts of these doctors.
    Fuck doctors and all medical people over paid fucks in this country,

  2. 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.

  3. 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.

    • 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 charge way more to my insurance than if i pay cash, medical care should be related to if the patiant can pay period just like if my car is broke and i can’t fix the mechanic wont fix it unless i pay. My dad is from lebanon and medical care there is way cheaper than here and germany is way cheaper than here.

  4. 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.

  5. 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.

  6. 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.

    • 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 them die.

  7. 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.

  8. 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 a period for measuring outcomes, so I don’t know.

    • 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 initially, and only move on to secondary tests if needed.

      Outpatient physicians also become numb to the costs of tests. Some of this is fed by patient demand. As a family physician, every week I see numerous patients who request “lab work.”. When I ask what tests they are requesting, more often than not the response is “everything.” More is seen as better. Having cost information at the point of care can assist the doctor-patient discussion.

      Here’s an admittedly overly-simplified analogy. If someone offered me a free (or very low-cost) home inspection for termites, mold, rodents, and radon, I would likely take them up on it. Even if I thought my home was unlikely to have any of those problems, each service would have some chance of helping me out. However, I know that in reality the combined cost would not be insignificant, and am less likely to arrange an inspection of low yield.

      Knowing the price of anything makes one more carefully scrutinize its importance/value/necessity.

      I hope that helps to answer your question.

      • 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.

  9. 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 avoid accusations of rationing by cost, the hospital would have to turn to evidence-based standards. And then of course the anti-science contingent (these days seemingly aligned with Republicans) would yell that they don’t want some pointy-headed experts telling them what works, or anti-reformers disguised as concerned citizens will say that the science isn’t good enough to use, etc.

    These are the battles we have to look forward to over the next 10-20 years, maybe more. We’ve been fighting them for decades already, but momentum has clearly shifted with the ACA.

    • 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.

  10. 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

    • 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…

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