Dropping the Price of Surgery

I would like to share a story about my son’s recent surgery that, while only one simple case, reveals the foundational problem with the U.S. health care system.

I write this story as a father of a 12 year old boy who has cerebral palsy. Jack is fortunate to be healthy and active with minor medical needs. As he has grown he experienced some issues with contractures in his right lower leg which recently required a minor 2 hour outpatient surgical procedure. That is where our saga begins.

When Jack’s surgery was scheduled I started the time consuming process of getting price estimates from the surgeon, anesthesiologist and the facility since we have a high deductible insurance plan. The physician fees were straight forward and relatively easy to obtain, not so with the facility. Jack’s surgery was scheduled at the local hospital’s outpatient surgical facility. I called the hospital to request a price for the surgery and they said they couldn’t really tell me. They offered to send the procedure codes to an external reviewer who would provide a general idea of the anticipated charges. Three days later the answer came back at $37,000. I reiterated that I had high deductible insurance and needed to know the actual price they would bill me after an insurance adjustment to the network fee schedule.

The hospital next referred me to my insurance company. The insurance company referred me to their PPO network. The PPO network said that they could not reveal the prices until after the case was performed. I called back to the hospital.

At this point the hospital said that they could not tell me how much the discounted price would be either and they also wouldn’t negotiate a cash price with me. They expected the discounted price to be in the range of $15,000 to $25,000. They also offered to limit my out of pocket portion to $10,000. I am now on day six with over a dozen phone calls; not the price I expected for a 2 hour outpatient procedure.

I asked my son’s surgeon if he ever operated at any independent Ambulatory Surgical Centers (ASC) and if so would that be an appropriate place to perform my son’s surgery. As it turns out there is an ASC in the ground floor of his office building and it would be no problem to do the surgery there. One phone call and 10 minutes later I have the exact price for his surgery- $1,515.

My son had his surgery and is doing well. We got a fair price because we demanded more of the system.

This simple surgery makes me pause to consider so many issues we face in our health care system. Why does it take days and dozens of phone calls to get pricing information from hospitals? Why can’t hospitals provide upfront prices for their services? Why do they expect to bill patients unknown amounts that they determine after patients have already received care? And what about the patients that don’t know the system. Would a patient facing a $40,000 bill delay or defer surgery when they might get the care they need if they were able to use the $1,500 center? Do they know to ask? No. Does anyone really help them? No.

And what about the healthcare providers. Why didn’t my son’s surgeon recommend the ASC in the first instance? Why hadn’t the surgeon done a single procedure in the ASC in over 2 years? At 10 cases per surgical day, at about $20,000 more per case; how much has this practice cost patients, employers and insurance companies? Millions each year for one surgeon and his patients?

It all goes back to our foundational problem with U.S. healthcare. The business model of our health care system is based on third-party payments from insurance and government. This has evolved to the point that many patients and providers don’t stop to consider why they shouldn’t spend $37,000 for something that could easily be delivered for $1,500.

It is not easy being a patient-consumer, but it can be done. Let’s hope the system moves in a direction that allows this to happen.

Jeffrey Rice, MD, JD, is CEO of www.healthcarebluebook.com.

Costs of Care (Twitter: @CostsOfCare), where this post was originally published, is a Boston-based nonprofit organization that collects anecdotes from doctors and patients. We feel these stories are poignant because they put a face on some of the known shortcomings of our system, and also because they unveil how commonplace and pervasive these types of stories happen.

47 replies »

  1. “They are not afraid of the honesty that is associated with transparency.”

    Then where is the proof? You might also ask if a lower price is “negotiated” without a written (and understandable) standard of care for comparison where are the cuts going to be made to make up the difference.

    Your lawyer and your CPA “tell” you their hourly rate, do they negotiate it? How good are you at choosing a mechanic unless it’s through trial and error? How much error will you tolerate in your doctor/hospital?

    “Doctors are ready to stop being controlled by the union like mentality of the AMA”

    Only about 1/3rd of docs are AMA members. Where is all this transparency for the other 2/3rds?

    “We’ve been trying that for decades and we can see that it is not working and never will.”

    Then what would you legislate to achieve “it”?

  2. Most doctors are actually smarter than that Bob. They are not afraid of the honesty that is associated with transparency. You may feel that they are too egocentric believing they has “achieved professor-like status”, but most of them are not that conceited. My lawyer tells me his hourly rate, so does my CPA, and my actuary, and my mechanic. Doctors are ready to stop being controlled by the union like mentality of the AMA, the CMS and hidden fee schedules. We’ve been trying that for decades and we can see that it is not working and never will.

  3. You are exactly right bob. This is the absurdity of those who argue that “market forces” and “competition” (now coded as “patient centered care”) are the best way to lower/control prices.

  4. In my experience, many specialist MD’s feel that the posting of prices like a butcher shop is beneath their dignity.

    They feel that they have put 10-15 years of awesome preparation in order to get professor-like status. The posting of prices comes down to hustling for business.

    I remember reading an article in Harper’s a few years ago that followed a specialist around during one of his workdays at a major clinic.. He went from challenging case to challenging case,and no one ever brought up money, and certainly no patient treated him like a car salesman.

    I realize that there are ways to achieve better pricing and more affordable charges. I just don’t want anyone to get carried away with the idea that individual patients can or should bargain for lower prices at the time of care.
    I can afford to annoy a car salesman and never have to see him again. I cannot afford to annoy a doctor who may literally have me in his hands.

    Personally I favor a national fee schedule with minimal adjustments allowed, as Uwe Reinhardt has advocated.

  5. “all the administrative load required to bill/rebill them”

    No different than private insurance.

    If local market docs save so much with cash pay then you’d see signs in their waiting rooms that quoted price for cash pay to encourage it. My experience has been that it’s as hard as pulling teeth to get any doc to discuss/negotiate price, or even have a policy about it. There is one PCP doc in a local county that does nothing but cash pay and posts his prices – he’s the exception and probably the only one within more than a 100 miles. But the price problems are not with primary care docs, they’re with hospitals and specialists.

  6. Really, what disciplines/services? In your own market? Why would you get those discounts off insurance rates when all we hear from docs is they can’t make money on Medicare/caid rates?

  7. “Actually 76% of insured Americans are covered under a self funded plan.”

    Well then why is there a problem if we’re already there? “The best way to achieve sustainable cost reduction is to introduce transparency”

    “may or may not involve leaving your local market”

    Ever used it? My local market is UNCH and Duke – no negotiating there. The last time this “solution” came up it showed you do indeed need to leave your local market. Works best with hospitals trying to fill in blank spaces in their treatment schedule that don’t want to get their local market to expect lower prices.

    “I pay for all of my medical care cash”

    What type of discounts do you negotiate?

  8. Actually 76% of insured Americans are covered under a self funded plan. Right now they are already told which hospital to go to. This is an alternative where they are not told.
    MediBid may or may not involve leaving your local market.
    I pay for all of my medical care cash, and I have a catastrophic plan to cover the unexpected.

  9. “Healthcare Bluebook helps when the employer has an incentive for the employees to shop.”

    Self-funded, that would be about 50% of plans (I believe). What would you do about the rest? Just wonder if you’d like to be told which doctor and hospital you have to use?

    “MediBid does not always involve leaving your home state.”

    Maybe not, but it involves leaving your local market. My state (NC) is about 500 miles by 150 miles and mostly rural with little choice for hospital care. Still not an easy task, especially for people with limited means.

    Have you had direct experience with BlueBook and MediBid? Who pays for your present coverage?

  10. Peter, Healthcare Bluebook helps when the employer has an incentive for the employees to shop.
    MediBid does not always involve leaving your home state.

  11. Ralph, why would an insured person care about the price on HealthcareBluebook? Wouldn’t their insurance company already have negotiated the lowest price? The uninsured may find the prices listed helpful but they don’t have a contractual agreement with the provider. And if an uninsured wants to negotiate they’ll have to do separate negotiations with each discipline in the hospital. You call that a solution?

    As far as medibid is concerned is it really practical to get out-of-state care with the travel costs and distance from family support? Who’s going to do the follow-up care?

    Interested in how you are insured and if you’ve ever tried to negotiate a price with a provider?

  12. Bob, Government Medicine does not work. It has failed in every country it has ever been tried. Why should a physician who has invested over a decade and hundreds of thousands of dollars be enslaved by the government?

  13. The law called Medicare requires it’s participants to charge all patients at least as much as they charge Medicare unless they have strict criteria showing financial need and a subsequent reduced fee structure. So, if you’re a Medicare provider you’re breaking the law if you continue to provide “professional courtesy” without providing it to all your Medicare patients also.

  14. this is opposite of what people think they are entitled to but might be a solution as good as any other.

    In exchange for early Medicare the beneficiary would be enrolled in an alternate plan that forgoes transplants and some other benefits to reduce the 355K in expected claims. I would also limit providers to better performing ones and also make some major changes to address fraud.

    If you want access to Medicare early you would have to make these sacrafices. Everyone under age X would only have this option.

  15. Medicare is 40 trillion upside down already. We could cancel all defence spending and it wouldn’t make a dent in the existing debt. There is no way Medicare can afford to take on more people at a loss.

    If anything was to be done it would have to be Medicaid.

    Medicare beneficaries are already getting an unsustainable deal. They contribute 114K in premium and get 355K in benefits. Do you want to triple payroll taxes? And thats just to break even on the current system, if you want to lower the age that can buy in then what quadruple them? 600% increase? How much of a burden do you want the next generation to assume. Then to compound the problem who is going to assume their burden?

    We need to ration what seniors are taking out of the system. The last thing we can do is offer to help more seniors today at the expense of the kids.

    Is it going to be pleasant, not at all, we have a lot of sins to pay for, All of us are going to have to sacrafice

  16. Regarding the issue of people postponing care because they cannot afford it:

    – when it comes to young people I would tend to agree with you. They make a choice not to buy health insurance, but they put $1,000 into car repairs and think nothing of it.

    At older ages this is less simple. At my age, the best health insurance I can buy is $453 per month with a $5,000 deductible. (from the State of MN health plan, I have heart disease.)

    So I will pay $5,040 in premiums during a year and a $5,000 deductible betore insurance covers anything. (there is a $400 deductible for drugs.)

    On this basis, there are a lot of treatments that I may postpone! $453 per month pretty well exhausts what I can spend on health care.

    At these rates, the only people who buy insurance are those who believe they are going to use it. So the premiums go up and up in an actuarial
    ‘death spiral.’

    Those of us between 55 and 64 who fall out of group insurance have no good choices right now. The ACA is unlikely to make things better. (in fact it will make this scenario more common for younger people.)

    The least bad solutiion is a Medicare buy-in, with premiums adjusted to incomes.

    It is not a vile condemnation of the private insurance industry to say that it cannot cover older persons with health histories at an affordable premium.
    There are lot of things that private insurance cannot do.

    I worked for an insurer that wrote private coverage on seniors before 1965. This was a respectable company, but the policies were just junk.

    Obviously if a 62 year old can buy $10,000 worth of Medicare for $3,000, due to their income, then this will add to the Medicare tax burden.
    Is this so horrible? We can raise the Medicare payroll tax (which we have to do pretty soon anyways), or we can cancel the next round of new nuclear weapons.

    Bob Hertz

  17. Few thoughts Bob;

    In regards to Drug cost we need to differentitate between lifestyle Rx cost and necessary Drug Cost, and I’m not talking Viagra. I’ll defer to the doctors but I believe generics treat like 90% of all illness. Most expensive brand name drugs are modifications to frequency or combination with other drugs, not true new theraputic treatments. I see people every day filling Rx for ER versions of existing generic drugs that cost 10 times as much. Is it easier to take a pill once instead of 3 times a day sure. Is it cost effective, by no means at all. Our high drug spend is becuase of the choices individuals make in their treatment. When I work with members on their drug needs its very easy to tell who has traditional co-pay drug plans and who has HSA or high deductible.

    Its not possible to do a comparison of Canadians or Europeans to Americans and it be anything close to scientific, yet look how many are done. First variable you can never control is the meaning of valuable or needed care. In the US 70 year olds feel a new hip is mandatory so they can stay active, you don’t see that in other countries to the degree you do here, how can you possibly control for expectations in such a study?

    Next variable you can’t cotrol is the squishy meaninging of afford. When I quote individual insurance less then 5% buy. 95% of the time its cost. All these people drove decent cars, ate out, had cell phones and cable TV etc etc. What does it mean to forgo care becuase you felt you couldn’t afford it? Its a subjective test which would remove all meaning from the study, yet look how often it is done and trumpted in our “News”

    Granted it would be very useful data if such a study could be done. Akin to studying Communism and Capitalism, which was worse the bread lines everyone suffered or the soup kitchen only a few did? I don’t see how you could accomplish it with healthcare and those measures.

    I think a good starting point would be to study American consumption in general and how hi healthcare rates compared to other consumer decisions, like a big house, cell phone, vacation, etc. Those pushing the nanny state would obviosuly dread the results but it would be very educational for the public to see where the problem really begins.

    “Before Medicare, millions of seniors did sit home in pain because they had no money –and either did not know about charitable care or did not want to ask for it.”

    Do you think Medicare ended that? This is the fallacy of Liberalism that needs addressed. That population you discuss was around 13% in 1964. Today that population is 19%. Medicare never addressed that problem Medicaid did. We could never have enacted Medicare saved trillions, not destroyed private healthcare or our budget and we would be in the same place we are today. Medicare solved a problem that didn’t exist, it took over care for the 87% that didn’t need help. Just imagine if we had focused those resources on the 13% that needed it instead of the 87%, Maybe instead of 19% of our seniors suffering Medicaid 13% would have a quality effective saftey net?

  18. I am more on Nate’s side as the discussion progresses, but two points come to mind:

    1. I agree that hospitals are more likely to forgive and/or adjust debts than the public may suspect.

    In several states (NY, Illinos, Cal, MN, Connecticut), there are legal limits on how much a hospital can bill the uninsured.

    Plus I suppose that hospitals do not want the general public to know how they really act, for obvious reasons.

    The number of medical bankruptcies has been a political football, exaggerated by some in the single payer movement and then minimized by others.

    We do need to recognize the large amount of credit card debt that is due to drug costs. When that debt is running at 30% interest, it does soften someone up for bankruptcy even if it is not the proximate cause of the filing. This was a big problem for seniors before Medicare Part D; it is still a problem for non-seniors.

    2 It would be interesting to compare the number of Europeans and Canadians who miss out on valuable care due to waiting lists, vs. the number of Americans who miss out on care due to feeling that they just cannot afford it.

    With high-deductible insurance, we are seeing more Americans in that second category. Before Medicare, millions of seniors did sit home in pain because they had no money –and either did not know about charitable care or did not want to ask for it. (I had relatives in this group, and though I was just a teenager in 1960 I did see it firsthand.)

    The American way sort of leads people to do their own rationing.

    is this better or worse than what a bureaucracy does in single-payor countries?

    All I would ask is that both systems be analysed with all their warts. Too much of the propaganda stays in the realm of capitalist freedom vs. socialist slavery, and medicine is not that simple.

    bob hertz

  19. one of the problems we have in this highly politized enviroment is you can’t have discussions like this.

    I don’t think the number of true medical BKs is anywhere close to 300,000. Hospitals just don’t drag people to court, receive judgements, then garnish wages. Without those steps you could go your entire life with unpaid medical bills. If they do then you file BK which is by no means the end of the world. Most great entrepenuers have done it at least once or twice.

    Yes we have a few horror stories here and there but I rather have a couple of those then poor care and long lines for everyone for everything.

    You could add Germany to the list


    I would be surprised to find a universal care system of any type that doesn’t have the problem.

    lol could you imagine a politician arguing for letting 50,000 people a year go bankrupt so 300 million can get care on demand. To me that sounds like a no brainer. Better 50K go BK then 60 million suffer waiting list. That politician would be tared feathered and out of office before he finished the speech.

  20. Nate does have a point in the sense that it may be better to have American surgery quickly, even if it makes you bankrupt, than to wait months and months for free surgery in a public hospital.

    After all, bankruptcy is jsut paper work — I went through it myself in 1991 — but waiting months and months is painful or even fatal.

    If 300,000 true health care bankruptcies are the social price we pay for having most surgeries ‘on demand,’ then I suppose that overall our society is better off.

    But it is a pretty brutal calculation.

    Are there no societies where the political process generates enough tax dollars for the average citizen to have free surgeries without extensive waiting?

    I suspect there are. So in that sense Nate may be wrong to lug in Canada and Britain as his only counter examples.

    I am not sure if T. R. Reid studied this question deeply enough, but I would like to ask him where there are good publicly funded hospitals.

    Bob hertz

  21. “Contrast this with an ASC who has a much smaller market basket of surgical services, a much smaller staff of surgeons, and lower patient variability. As such, it is is not surprising an ASC can provide a quote.”

    It’s not the range of services, the size of the medical staff, or the patient variability. It is simply the way hospitals have been regulated into mind-numbing complexity by the same federal bureaucracies which we’re told by leftist wonks will bring “efficiency” into medicine.

    The ASC does not get to bill for time, supplies, or any other variables. It gets a single contractual amount for a single procedure. In contrast, when hospitals are mandated by law to bill “cost-plus”, they are incented to load ever tiny item onto the bill, which of course they don’t know till the surgery is long over.

    (This is utterly predictable wherever you try to regulate “profit”; complexity and cost explodes, as bureaucracies grow on both sides of the table. The profit remains, but it has more places to hide, as the two bureaucracies simply spend generations happily escalating other. The customer is met with an opaque, byzantine castle, and spends huge amounts of time trying to find the Ministry of Silly Walks. But enough about progressive economics.)

    Back to hospital billing practices in America: one more time, the reality on the ground is the direct result of governmental action; yet one looks at it and sees under-regulated markets. Confirmation bias is the most amazing thing.

  22. “If hospitals were funded with tax dollars and global budgets, then there would be no discussion of the price for one surgery.”

    I would disagree Bob, Canadians and British specifically worry considerably about the cost of surgery becuase the waiting times are so bad they are trying to afford to pay it 100% themselves to have it done someplace else but timely.

    Just like not everyone worries about prices in the us, majority don’t, not everyone is going to be happy waiting 6 months for routine surgeries or being told they don’t meet the criteria to have something done.

  23. It may seem dreamy to talk like this, but a visitor from Europe or Canada might wonder why hospitals are charging user fees in the first place.

    If hospitals were funded with tax dollars and global budgets, then there would be no discussion of the price for one surgery.

    It is true that in such a system, hospitals would not compete. Well, fire departments do not compete either. No citizen has to call five nearby fire departments to see what they will charge when and if they must come to his house.

    In such a system, taxes would go up. But anxiety and haggling over hospital bills would disappear. (There would be tremendous haggling over the size of global budgets between hospitals and government bureaucrats — but these are well-paid people who can take the heat.)

    There is probably no way for America to adopt a rational system like this overnight — but it is good to keep the possibility in mind. Read Robert Evans and Joseph White for more details.

    Bob Hertz – The Health Care Crusade

  24. This topic goes back to an earlier THCB post regarding the challenges of pricing transparency – which also generated a great deal of discussion.

    There are many reasons why a hospital is unable to provide a firm cost estimate. Many hospitals still bill operating room charges based upon time. So what may take one surgeon 45 minutes to perform may take another surgeon 90 minutes. Add to this the variables of recovery time, imaging required, DME variations (as necessary), etc..

    Of course, the reimbursement methodologies may vary considerably too. Is it subject to APC methodology, a case rate, fee schedule or discount from charges?

    Contrast this with an ASC who has a much smaller market basket of surgical services, a much smaller staff of surgeons, and lower patient variability. As such, it is is not surprising an ASC can provide a quote.

    The PPACA does contain language that requires every hospital in the US to make public it’s charges. However, it qualifies the requirement by stating “in accordance with guidelines developed by the
    Secretary”. Unfortunately, the Secretary has neglected to develop guidelines since passage of the PPACA.

    • Hospital Charge Data. Requires all hospitals to disclose annually a list of its standard charges for items and services, including for Medicare DRGs.
    Effective 6 months after enactment. (PPACA § 10101(f))

    H. R. 3590—769
    ‘‘(e) STANDARD HOSPITAL CHARGES.—Each hospital operating
    within the United States shall for each year establish (and update)
    and make public (in accordance with guidelines developed by the
    Secretary) a list of the hospital’s standard charges for items and
    services provided by the hospital, including for diagnosis-related
    groups established under section 1886(d)(4) of the Social Security

  25. “I reiterated that I had high deductible insurance and needed to know the actual price they would bill me after an insurance adjustment to the network fee schedule.”

    “My son had his surgery and is doing well. We got a fair price because we demanded more of the system.”

    “It is not easy being a patient-consumer, but it can be done. Let’s hope the system moves in a direction that allows this to happen.”

    And yet, it just happened.

  26. There is no “pain of licensure forfeiture” for billing physicians. In fact, there an exposure to anti-kickback liability if you extend professional courtesy to one of your referrers, unless it is extended without regard to volume or value of referrals. I imagine there was some ethical oral tradition among physicians in 1910; it is long gone.

    There seems to be some confusion in the comments between “cost”, “price”, and “charges”. These are all quite different things. All providers know their charge for a service, they can find out their price (if that means what they have contracted to get paid) but their cost is hard to compute and all cost accounting bristles with opportunities for flim-flam.

    Large hospitals have a higher cost for a service to the degree they allocate fixed costs to it. Their marginal costs for that service are not likely to be much different — which is why contribution margin, not “cost”, is the better discussion.

    The real reason hospitals bill, and get, $2,000 for an MRI is not that it costs them more, but because they have that much more market power. They do it because they can. I can deliver the same MRI for $400 and make money on it (and so can they.)

    Oh, and the government has decreed that hospitals get paid much more than outpatient centers for same service, from CMS. Again, I can flip the shingle over the door of an ASC by selling 51% of it to a hospital. The services performed there — same doctor, same nurse, same equipment, same snack before you go home — – will all be immediately reimbursed 35% more. By the same federal bureaucracy that is a paragon of “efficiency” on the left.

  27. Um, no. When I went to med school, the rule I learned was that we will never to bill a colleague, their spouse, or their children. This was on pain of license forfeiture.

  28. And you wonder why hospitals were basically supportive of Obamination Care.

    Franky, with the trends hospitals are setting these days, it will be only a matter of time until they come under the scrutiny of organized crime investigators.

    That is not a harsh comment, but one of realistic prophesy. You read it here first.

  29. What? Please quote the passage that says you do not bill a colleague anything just for being a physician. It is called professional courtesy, not professional expectation. And, I would be hesitant to NOT pay a colleague something for providing a service.

    This is the kind of BS attitude that does not do our profession well in the eyes of non professionals. Hey, take the fraternity attitude to the dumpster where it belongs, please!

  30. Why not a courageous, openly one-term president who would try to create full fee disclosure for hospitals?

    (one-term in that he would never get a contribution from hospitals again)

    Step One -The Medicare fee schedule would be published on-line.

    Step Two: Hospitals would have to declare if they are charging a multiple of the Medicare fee schedule

    (in this case, about a 900% multiple)

    Step Three:

    Most consumer would migrate to hospitals that charged less.

    The (mainly) urban hospitals which pay their CEO $1 million and pay each staff doctor $350,000 and pay nurses $90,000 would start to go broke. Too bad.

    Step Four: Any patient who was booked into a 900% hospital for an emergency would have their bill capped at the Medicare fee schedule.

    If there is no armed-length legitimate contract, then liability must be limited.

    Our courts must start nullifying outrageous medical bills.

    We must learn to have contempt for a hospital’s costs. i do not like Walmart as a rule, but they do have the right idea when they move suppliers toward price-based costing, versus cost based pricing.

    Bob Hertz – The Health Care Crusade

  31. If it is a rarely done procedure, the hospital will not have costs figured out ahead of time. The CPT code does not matter.


  32. “For an example of a hospital that actually has pretty transparent pricing you can look at Alegent Health’s web site and use their cost calculator.”

    Have you ever used that “cost calculator”? I just did a test run with plugged inputs for a CT scan, lumber with dye, no insurance/cash pay, $50k combined income, family of 3 and got a figure of about $2400. At $25k income price goes to about $2000. The tests listed are basic tests, not surgeries with multiple providers. There was an option for financial assistance but which required an interview and income verification. There was no indication about what they’d accept from insurance for the same procedure.

    Not so transparent, especially if you don’t have anything else to compare it to.

  33. For an example of a hospital that actually has pretty transparent pricing you can look at Alegent Health’s web site and use their cost calculator. It works best if you live in NE and can enter your insurance information, but it has a functionality that gives you a price w/o insurance information. Under their old CEO, Alegent was committed to giving away the software so any hospital that wanted to could develop their own cost calculator.

  34. If navigating the pricing system is this frustrating for an MD think what it would be for a lay person, then again for a not so educated lay person.

    As yes, the wonders of HDHPs and how they will bring down the cost of health car – NOT.

  35. How is it possible for a hospital to know the CPT codes, send them to a “reviewer”, whatever that is, and not know how much the payer reimburses for those codes? Do they not have the allowable list handy until after the surgery?

    I disagree with the conclusion regarding the “foundational problem with U.S. healthcare” being that “patients and providers don’t stop to consider why they shouldn’t spend $37,000 for something that could easily be delivered for $1,500”.

    The culprit here is unquestionably the hospital, both for overcharging and for obfuscating the charges. Why blame the victim? Why should patients be expected to police something that should be illegal?

  36. I think part of the problem is that the procedure is not a common one. If this had been one of their most common procedures, they would know what it costs.

    Your surgeon operates at the hospital rather than the ASC because he gets to use the equipment he wants in the hospitals. ASCs limit choices. They may also limit hours and if the surgeon does big cases, the ASC will not be able to handle them.


  37. I have seen more and more employers purchase concierge or assistance programs for their employees. The cost is $3-$4 PEPM but they help employees schedule appointments and find lower cost alternatives. With tight budgets and increasing cost its a tough sell to get employers to make invetments that have soft or hard to measure returns but with stories like this more should be looking into them.


    This is a new one I just meet, haven’t sold their service yet but it looks even better then the ones i have sold. I have worked directly with some pieces they use and have been very satisfied. Huge savings on MRIs and CATs

  38. “It is not easy being a patient-consumer, but it can be done. Let’s hope the system moves in a direction that allows this to happen.”

    Sadly we are headed in the other direction after passage of PPACA. Deductibles are limited, out of pocket is being capped, and countless services now have to be paid at 100%. Instead of embracing the easy and proven solution you have government decided we should go the other direction.

    Barry ASC pricing, that is a good deal he got but not unheard of at all. A $3000 out patient MRI in the hospital can be had for $600 at an imaging center. Hospitals use to be 30% higher, now a days a place like Cleveland Clinic is easily 5-10 times more expensive.

    HDHPs and people sharing stories like this and we could easily cut 10% off our healthcare spending with no decrease in care. Until we have engaged consumers we will never solve the problem.

  39. Dr. Rice,

    I would sincerely hope that any colleague would waive their professional fee. Charging a fellow physician or his/her immediate family would be disgraceful, immoral, and against the Hippocratic Oath (or at least, the one I took).

  40. “Most hospitals probably cannot tell you what their true cost of a procedure is…perhaps an average.”

    Gary –

    Don’t hospitals have to file cost reports with CMS? I remember Paul Levy, former CEO of BIDMC in Boston, writing once that his former hospital could tell very precisely what it costs to provide various services, tests, and procedure. Even an average cost should be sufficient for purposes of pricing. For example, if a given operation normally takes two hours but could take as little as one and a half hours or, if there are complications, as much as three hours, the procedure could be priced based on two hours and the hospital would achieve its targeted return if it allowed enough for bad debts and uncompensated care. Going forward, surgical procedures also lend themselves best to episode pricing for all care needed from several days before the procedure to 30 days after discharge.

    According to Clayton Christensen of Harvard, author of “An Innovator’s Prescription,” hospitals really operate two different models – a “solutions shop” which diagnoses and then treats the patient when it doesn’t know what’s wrong when the patient presents and a “value added process shop” when it performs specific procedures such as a CABG or hip replacement which everyone knows the patient needed when he arrived. This latter category of care lends itself to precise pricing based on known average costs for either the procedure itself or the broader episode of care whereas the former should probably be priced more on a per diem basis until the problem is specifically identified and a course of treatment determined. There could be separate per diem rates for a semi-private or private room vs. an ICU, CICU or NICU level of care.

  41. This scenario is a typical story, not an outlier. Hospitals have made a complex bureaucracy about billing and reimbursement for many years.There are many reasons for this, and many of them are not due to the hospital’s intransigence or lack of transparency. Most hospitals probably cannot tell you what their true cost of a procedure is…perhaps an average.
    This is a reflex due to the intransigence of insurance carriers, Medicare, Medi-caid, HMO and PPO contracting. Many hospitals do offer a cash discount.Each hospital is contracted with a particular carrier, or iPA individually and the rates are set by prevaling market conditons and competition.
    Another side of this story is the ASC. These entities are relatively simple, their procedures are in a setting of efficiency, no prolonged overnite stays and if there is a problem, the patient is readily transferred to a hospital. Every provider using an ASC must have an admitting privilege to a hospital or another provider who has signed an agreement to admit for (him/her).ASCs originally developed out of the frustration of medical staffs with the inability for many hospitals to demonstrate efficient methods of high volume surgery, and the mix between outpatient surgery and inpatient surgery. Elective cases were mixed in with the emergency cases and it is common for elective cases to be sent to the back of the line if an emergency presented itself.
    The use of the DRG, diagnostic related group upon which CMS bases many payments to hospitals adds another fixed variable which must be entered into the equation of establishing a fee for a hospital.
    Will this change with Obamacare? I doubt it. Undoubtedly Obamacare will have another fee schedule, to be reduced annualy by another formula.

  42. While the inability to get a straight answer about pricing from a hospital before services are rendered is exasperating, the numbers in this post regarding the ASC don’t sound right to me. My understanding is that ASC’s generally have a cost structure about 30% below hospitals because they don’t operate around the clock and they rely on hospitals as a backup resource in the event of complications.

    When I had a 45 minute surgical procedure at a NYC teaching hospital in 2004, the OR charge alone was $4,067 which insurance paid plus another $560 for time in the recovery room. One night in a semi-private room was billed at $3,771 which insurance also paid. Assorted labs and drugs came to another $910. The surgeon billed $6,000 but accepted $1,751 as full payment from insurance. The anesthesiologist, who was out of network, billed $1,680 and he managed to collect that amount. The total cost of the episode paid by insurance was just over $12,000. Whether surgical procedures are performed in a hospital operating room or in an ASC one presumably needs the same number of staff to assist the surgeon. The cost to provide that team, along with the sophisticated equipment, is significant. Maybe Nate has some data on this but I doubt that the ASC’s actual cost is more than 30% below that of a nearby hospital.