25 January 2012

The Myth of the Cost Sensitive Patient

It simply will not go away, and the fact that anyone who has ever interacted with the health care system thinks this will ever be more than a pipe dream is simply delusional.  The offender (this week) is former CBO and OMB director Peter Orszag. (Disclosure: I once had a man-crush on him as the uber-wonk of health care reform, until he left government and cashed in at Citigroup.)

Orszag writes in Bloomberg: To Shop Smart, Patients Need to Know Price of Care, in which he argues for greater price transparency "with the goal of helping people become smarter shoppers."

Sweet baby zombie Jeebus help me.

To his credit, Orszag notes that the extant experiments towards this goal "have not been overwhelmingly successful," in perhaps the same way that the captain of the Costa Concordia was "not entirely prudent" in his navigation. He also acknowledges that cost-conscious medical bargain hunters are "unlikely to play a dominant role in reducing health expenses." So he at least relatively connected to reality, unlike the free-market fanatics who continue to insist that if only patients were obligated to bear the costs of their medical care, they would magically demand only the most cost-effective care and our health care cost inflation crisis would be solved.

But it's just not so. I've made this point before over and over. But again, it bears repeating:
The patients who are the drivers of health care costs (you know, the sick ones) are neither equipped nor situated nor interested in pursuing the cheapest health care.

Bear in mind that we are talking about a relatively small slice of patients: half of all health care costs are concentrated in the sickest 5% of patients in the US, and 80% of costs are accounted for in the top quintile!

cost distribution

These folks are sick, which means in many cases they are not feeling good, what with being sick and all, and when you are not feeling good it's hard to be really rigorous in making sure that your procedure of the week is being performed by the cheapest possible surgeon. What's more, when you are sick, you often have a doctor, and that doctor has associates and affiliations which you may find yourself being steered towards. And you may even trust your doctor, and when he tells you that a certain consultant or hospital is a good one, then you might just take him at his word and go there without first creating a spreadsheet of all the local options and their variation in costs.

This is all assuming that you have a choice in the matter. The ambulance may take you to the closest ER, or the surgeon who offers the best price on your cardiac bypass might happen to practice at a hospital with the most expensive ICU (which you weren't expecting to need so you didn't put that line item in your spreadsheet).

This is assuming that you live in an area with more than one network of providers; many regions have evolved a near-monopolistic health care ecosystem.

Finally, it's all academic because the typical patient who is a real super-user of medical care is spending so much money that even an insurance policy which is designed to have a high level of cost sharing and encourage patients to be highly cost-conscious cannot have a hope of paying a reasonable fraction of the actual costs of their care.

For example (a not-entirely random example): when I got the bill for my wife's radiation therapy last year, it was the largest invoice I have ever seen that did not have a mortgage attached to it. If I recall correctly, it was about $80,000. Worth every penny, I might add. So what threshold would be effective in getting me to choose one provider over another when the treatment is so insanely beyond my means to pay? None. At least none that exist in the real world. If I were on the hook for 25% of that $80K, it would be a horrible burden (even for a rich doctor, yes). I would have been able to scrounge the money I am sure. But then, I'm in the 1%. Well, maybe the 2%. What about a median-income patient? Someone earning $60,000 a year (well above median, I might add) would find medical co-pays of $5, 10, 20,000 crippling and completely beyond their means. Which means that healthcare insurance either insulates the typical patient from the cost or forces them to defer needed care.

There's very little middle ground. Yes, it's theoretically possible to find the magic level that would motivate a patient to become a "smart shopper" without resorting to self-rationing, but that sweet spot is so small and so variable from person to person that I am skeptical it could ever be implemented on a large scale, and certainly will never ever "bend the curve" on health care costs.

None of this should be interpreted as an argument against transparency in health care costs. The system is so distorted that the typical gross charge is triple the actual cost, and just like airline fares, no two people pay the same price for the same service. It's an outrage, or it should be. Transparency might be a good thing in and of itself. There might even be merit in linking costs to quality, if it can be done rationally (of which I am not entirely convinced). But I wish to god that people would stop pretending that patients who are seriously ill and marginally informed about the economics of health care can ever be utilized as a tool for reducing the national cost of said care.

Because it's a fricking delusion.


  1. I agree with" But I wish to god that people would stop pretending that patients who are seriously ill and marginally informed about the economics of health care can ever be utilized as a tool for reducing the national cost of said care" BUT
    For those of us looking at decisions about whether or not to have a procedure the cost has a Big influence. Have you ever tried to find out what you would have to pay? Medicnes response is just open your wallet and let me take what I want. Insurance response is we don't have any idea and no we won't tell you what ridiculous cut of the nominal charge your doc agreed to.

    The medical industry should be charged under the RICO act.

  2. Actually insurance companies should be held to account for the current debacle. Doctors have no leverage, insurance sets the price. You should be mad at them.

  3. I was facing the potential for sinus surgery a few years ago. 2 to 3 days in the hospital, followed by 6 weeks off work, if the ENT was to be believed.

    I convinced his office to give me the CPT code for the surgery and their approximate charge for it. I called the hospital where he practices that my insurance is contracted with to find how what the average cost of that surgery was.

    Then, I called my insurance company and talked to a benefits rep. She was quite impressed with the homework I had done. I was trying to figure out how to schedule the surgery, because when I had it done would affect how much deductible I had to meet and how much of my part I could expect to get back from my pre-tax medical expense reimbursement. She also informed me that the hospital where it would be done was the single most expensive place in my state to receive medical care.

    The only reason I knew that this was a possibility was I work in a hospital, and I used to be the one to answer those questions for patients.

    I ended up not having surgery. My internist convinced me to take a medical approach to the problem, which included 4 years of allergy shots. If the medical approach hadn't worked, the best case I was looking at was about $5000 out of pocket.

  4. Two friends in a hot air balloon get in a storm. The wind blows them here and there, so finally when the storm is over they do not have even the faintest idea where they are. Luckily soon they see somebody down below them, so one of them starts shouting down to him: Hey man, where are we?
    On the Earth, comes the answer. The guy turns to his friend saying: Hey this guy must be either a bookkeeper, or a controller.
    How do you know this, asks his friend.
    Because he gave me a correct answer, which is worth noting!

    If you keep this always in mind, you'll live in peace with them, and with yourself as well.

    Experimental Mouse

  5. Sorry for the error:
    The last word of my comment is - of course - NOTHING (Erroneously typed noting)

    Experimental mouse

  6. We need national health care Period. So why should this even be discussed.

  7. I had a hip replacement June of last year. I would have preferred to have it done in Everett, which I believe was closer to home as well as less expensive. However, local doctor wouldn't touch me so off to Seattle I went. I applied for charity care to help with the hospital bill and just made my final payments to doctor & hospital this month. Still working on husband's hospital stay from February of last year... Frankly who we paid first was determined by who was most aggressive about sending us to collections. But the choice to get care was no choice, it couldn't be put off a minute longer.

  8. For a bit of help predicting out of pocket costs for out of network physician services, try using the FAIR Health consumer cost look up tool:
    Before you get on this site, be sure to check out your insurance policy to learn how your insurer will determine the allowable benefit for out of network services, and the percent of the allowable payment that will be your responsibility (the coinsurance payment rate, usually around 20-30% of the allowable benefit). This is an example of what is meant by transparency in health care costs, but it also shows just how complicated this whole health care insurance gig is.

  9. I do wish there was more cost transparency for patients, and more accessible information where the typically offered care is not in line with the evidence (e.g. the ever-popular "clean up" knee arthroscopy that has been shown to be no more effective in improving knee pain than PT alone in most cases). But it would almost exclusively benefit healthy patients, for sure.

  10. I am a cost conscious health care consumer, and have been able to make good cost saving decisions over the years without affecting the care of my family. But you are right, I am an anomaly and not a big enough consumer of heath care services to matter, and my experiences will not, nor should they, be a driving force in this.

    The problem I really have with all this is putting the federal government in charge of the decisions (not the death panel crap, but the decisions of how care is delivered.)

    The one example we have of how they would do things is the VA. Under the VA system if you have a heart attack in Baker City, Oregon, and wind up needing a CABG you will be sent by ambulance to Boise, flown by air ambulance to Seattle, have your surgery, and be flown back to Boise to be driven back to Baker City. In the process you will bypass half a dozen hospitals that could have done your surgery, had your care delayed by at least two days, and two or three times the needed amount of money will have been spent. This is what makes sense to the federal government, and it's only one example of how badly they run healthcare. Putting the people that make those kind of decisions in charge of my family's care scares the crap out of me.

  11. Leaving the very sick patients aside for a moment, how about the not-so-sick patients? What about charging a nominal out of pocket fee ($1-5) in the emergency department (but not at the PCPs office) due at time of presentation* for "clinic" complaints. I think this would encourage the "not-sick" patient to get non-emergent care in a (less intensely resourced, less expensive) non emergent setting. That HAS to save some money.

    *anyone deemed actually emergent (triage level 1-2) could have their fee waived

  12. Hi Shadowfax,

    I own and operate a small midlevel clinic. It is 'price fixing' under federal law (a felony) if I discuss fees with another practitioner in my community, so how can costs be 'contained' when we don't and can't legally know what others charge. How can costs be contained in such a system unless fees schedules are 'dictated' by government? Such a state of affairs would be a 'last straw' for me as a Libertarian. I would go to a cash only paid up front system of care or go sell cars or whatever.

    I don't take medicare (at 20cents on the dollar paid for services rendered) and if Medicaid gets any worse (currently about 55% in my state if they pay at all) I plan to quit with that too. Then I may close and go to work for a large group and just get a paycheck, some paid vacation, paid CME and some retirement funding. As a self employed solo practitioner I don't get any benefits that I don't provide for myself.

    The problem in Amerika today is that folks like us are treated like serfs by government oficials. The only answer to this is to strip all non-elected officials of all soveriegn immunity from civil tort actions for the official acts they take. Then maybe they will begin to respect the Constitution and the rights of citizens again. Then they may have to pay for legal malpractice insurance or loose their house and retirement if they violate a citizens rights, as we are at risk to do for our medical services. If the government wants to dictate fees then they must accept all legal liability as well.


  13. My insurance now has $250 ER copay, ostensibly to decrease ER abuse.

    The problem is if you call you doctor and ask for an appointment they tell you sorry, can't see you, go to the ER.

  14. I agree with you that the one who is sick can’t possibly have a clear mind to be aware of the financial details of the procedure. I think it’s best for patients to have more dynamic relationship with their physicians; they would get more transparency because as they get to know them they're able to see them as an individual rather than a theoretical case.

    Dong Henze


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