By Richard Gunderman, MD
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.
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