Thursday, April 13, 2006

Transparency in Healthcare

Dr. Wes, a cardiologist, asks if it might make a difference in healthcare costs if we knew the actual cost of our care:

But what if costs were disclosed? What if costs were available online or during the ordering process on the Electronic Medical Record for physicians to make judgments about how many tests they REALLY need? Might it affect care negatively? I doubt it. Would it change outcomes? Probably not. Reduce cost? Absolutely. Is it difficult to implement? No.

And taking that concept one further, what if the patient could see the costs of expensive technologies? What if the costs of implantable defibrillators were available online? (For instance, it’s easier to find what a defibrillator weighs, than what it costs…. I checked Google, the big three ICD manufacturers websites [Guidant, Medtronic, St. Jude] and could find none.) Stents? Would patients always want the “expensive version” of technology or would they settle for a lesser model if it saved them or the system a few bucks? I don’t know. But to shield the ultimate consumers (the patient and their doctors) from these costs is counter-productive and serves to permit price increases to occur without public awareness and limits free-market competition. Transparency in healthcare costs is just as important as transparency on corporate financial statements. Maybe more. And this won’t just help the doctors and patients.

Incidentally , Dr. Wes, mine cost about one hundred thousand dollars--give or take a bit.


Blogger TMink said...

Also, think how elective surgeries that are not covered by insurance are priced. Laser vision correction specialists advertise specials on the radio here in Nashville. Breast enhancement docs often offer two for the price of one. But I digress.

Certainly, knowing the cost and paying out of pocket share some psychology. It is easy to ignore the bills that the insurance pick up. But thank God they were there for our triplets stay in the NICU which was up there with Dr. Helen's new ticker.

6:20 PM, April 13, 2006  
Anonymous The Medical Blog Network said...

We have been beating the drum of healthcare transparency over at TMBN ever since getting started. Without openness about availability, relevance, quality, and pricing there can be no meaningful reform.

Check out my recent commentary on Health IT World: Consumers at the Gates: Resistance Is Futile

... and an older blog post outlining the vision: Open Medicine vs. Single-Payor Healthcare

7:21 PM, April 13, 2006  
Blogger Greg Kuperberg said...

Incidentally , Dr. Wes, mine cost about one hundred thousand dollars--give or take a bit.

In the interest of transparency, did that hundred thousand dollars come out of family health benefits for Tennessee state employees?

8:03 PM, April 13, 2006  
Anonymous Anonymous said...

For people covered by insurance adequate to pay the bill, what difference would it make if they knew the cost of the services?

10:23 PM, April 13, 2006  
Anonymous Anonymous said...

Costs represent expenditure of resources to provide a good or service. Price is what is charged to the consumer.

In dealing with healthcare it's important to acknowledge that one person's costs are the prices they pay to another person. So we have to be careful when we think we know the cost.

For example, the $100K defibrillator has a cost that includes the research, development, testing, regulatory compliance, manufacture, and marketing of the device. This is internal to the manufacturer, and will never be divulged.

What might be known is the unit price the manufacturer charges the hospital. Then we can look at the unit price the hospital charges the patient.

The $100K is better thought of as a price rather than a cost. I suspect it is the price the hospital charges the patient. It is probably far different than the manufacturer's cost.

All defibrillators of the same manufacturer and model will have the same cost, but the final price to the consumer may have large variations.

10:53 PM, April 13, 2006  
Blogger David said...

"a cost that includes the research, development, testing, regulatory compliance, manufacture, and marketing of the device. This is internal to the manufacturer, and will never be divulged"...although it won't be divulged for a specific device type, it could probably be estimated fairly closely from the P&L and other financial disclosures of the manufacturer.

8:41 AM, April 14, 2006  
Blogger Dave said...

Isn't this a perfect example of asymmetrical information, wherein one party (isnurers, medical device manufacturers) has more information than another party (patients, doctors)?

Information asymmetries, as I understand them, reduce efficiencies (and transparency) and exacerbate costs.

8:42 AM, April 14, 2006  
Anonymous Anonymous said...


One might be able to estimate the cost of a device from the P&L if the company produced only one device. But most of these things come from very large companies with diverse operations and products.

Even within the company there will be a struggle between different project managers over how much of the company overhead will be charged to their particular product.

9:31 AM, April 14, 2006  
Blogger DrWes said...

Well, Helen, here's another tidbit - a reader on my blog mentioned his e-mail to me that in Pennsylvania, his device was billed at $77,545. Now, if INTERSTATE open competition was available for health benefits, I bet your insurer would love to have paid a lower price. But as long as our politicians and elected officials are fed by the pharmaceutical, device industry, and insurance interests, not much is gonna change. But what if our "Army of Davids" insisted on this transparency?

9:47 AM, April 14, 2006  
Blogger Helen said...


I have heard of other devices costing more and some less from others in my cardiac wellness program--one patient mentioned his was 125,000 but I believe what some people think is the price--is actually what is billed to the insurance company--most do not pay near that amount.

The hospital I go to gives me a printout of every charge prior to charging me or my insurance company for it. I doubt this is typical but it is one reason, I use this hospital because at least I know what the charges are for each procedure etc.

10:02 AM, April 14, 2006  
Anonymous Anonymous said...

I think knowing the cost would help. I went in to the ER last fall for chest pains and after a couple EKG's and a thorough exam, the docs determined that I had a strained intercostal ligament from moving furniture a couple days prior. The doc said he was "99.5%" sure that's what it was. He offered me a chest x-ray and another test to rule out any other problems but I declined -- I've worked on the periphery of health care for years and I know how much these things cost, and I couldn't justify the expense in my head for 0.5%, when the doctor's explanation made perfect sense to me.

10:03 AM, April 14, 2006  
Anonymous Anonymous said...

I suspect the price of a defibrillator in a hospital is similar to the price of a tablet of Tylenol. We all know what Walgreens charges for Tylenol, yet hospitals charge between $2 and $5 per tablet.

They are spreading their total costs over as many items as possible. The $2 price for Tylenol has no relation to the price the hospital pays for Tylenol, but it has a huge relationship to the costs the hospital incurs to keep the whole operation running.

The same is true of sophisticated medical devices. The hospital will spread operating costs over the prices it charges for its medical devices. All those costs get spread, but different hospitals may have different allocations.

Knowing the specific price of a medical device would be useful only within the confines of a single hospital. If DefibA is priced at $100,000 while DefibB is priced at 125,000, then the consumer could say the entire procedure could have a price variance of $25,000, and could make a choice.

A patient can't get a defibrillator from hospital-A, then get a surgeon from hospital-B, then get an operating room from hospital-C, then get post-operative care at hospital-D. It's a package deal, and all the consumer will care about is the total price of the package.

However, for high priced items, all the consumer will really care about is his out of pocket expenses after insurance pays the hospital.

12:48 PM, April 14, 2006  
Blogger DrWes said...

"... all the consumer will really care about is his out of pocket expenses after insurance pays the hospital."

Anonymous is right. And therein lies the nearly impossible double-bind doctors (and yes patients) encounter when trying to "fix" the healthcare system.... insurance. The patient doesn't have to pay... or do we?

I agree that markup of prices for hospitals in inevitable (and even necessary) if they are to keep their doors open... after all, they must pay their bills, too. But to think that these price elevations that exceed the rate of inflation can continue and don't effect society at large (look at the number of uninsured) is also flawed.

I think that if a "retail price" of a defibrillator system (generator and leads) was posted publically at, say, $39,000, then the markup for YOUR hospital can be estimated WITHOUT reviewing company financial statements, and if the billed price becomes say, $200,000 next year (even though a wide range of prices can be found in great blogs like this), you might want to know why and are now empowered to negotiate, or if needed, litigate.

2:08 PM, April 14, 2006  
Blogger gs said...

Not having time to look for references, I submit the following as barely a step up from a rumor. (Reader beware!) Months or years ago, I read that medical societies like the AMA compile cost-of-treatment statistics for standard procedures, but these organizations try hard to keep the data out of the public eye: in one case, by claiming that the information is their intellectual property.

2:12 PM, April 14, 2006  
Anonymous Anonymous said...


Health care costs will continue to increase, and these will be reflected in prices. The only way to keep health care costs down is to curtail innovation and the delivery of that innovation to the public.

When did implantable defibrillators become available? I don't know, but let's say 1990. Before then people just died. There was no additional care delivered, hence no additional costs. Innovation offer possibilities that didn't exist before, and people want to buy them.

The same is true of CAT scans, MRIs, angiograms, artificial joints, and drugs. When they didn't exist, there was neither cost nor price.

The next innovation down the line will be snapped up just as quickly as those mentioned above. Costs are not being driven up, rather total available treatments have multiplied. Each additional treatment has a cost, and it adds to the aggregate.

There may be a future tipping point where treatments maintain and increase health rather than correct problems. That could result in decreasing costs as current and future corrective therapies are no longer needed.

For those who personally don't want to wait for that tipping point there is always healthy eatig and exercise.

Regarding the $200,000 billed price of a $39,000 device:

Pushing that price down through any means is just a game of mole bashing. Push one price down, and another pops up as the hospital covers its operating costs. Push them all down, and service is curtailed since the hospital can no longer maintain the level of service.

2:33 PM, April 14, 2006  
Blogger DrWes said...


Your points are cogent and right on. And technology is awesome: we've seen longevity increase to unprecidented levels through this unbelievable innovation. But there ARE options in therapy that might save money (does every patient need a dual chamber defibrillator when a single-chamber device might suffice?) In the old days, there were not "lifetime limits" to insurance policies, but $200K is a healthy chunk out of a commonly-available $2 million dollar lifetime policy. What happens when you hit your max?

Unfortunately, the multiplicity of testing we do if often unnecessary, but is performed streamline patient visits and limit liability. (Don't get me started about liability reform). We can and should do more to curb costs in conjunction with the hospitals and insurers. I'm just saying, that awareness of the costs of these tests when I order them might help limit expenses, and that is good. And real costs to the patient provide a useful starting point when these decisions are made.

Infestation with 'moles' can be beaten by removing the food that keeps 'em alive and multiplying, yet the strong (responsible) will adapt and survive. Efficient, responsible hospital systems and insurers will survive in a free, open-market system. (Why have Certificate of Need states?) But finding the bad moles without restricting their access to unlimited food (our dollars) is, as you say, impossible.

3:14 PM, April 14, 2006  
Anonymous Teresa said...

Years ago (nearly 20) I was being treated at a large University hospital. I was referred there by my original doctor for treatment he supposedly could not provide. So, I went. It was 50 miles from my house and (due to traffic) took me nearly 2 hours to get there.

They wanted me to have a scan that meant I would have to go to the hospital there for 2 consecutive days in a row. The scan cost $895 and took up 2 complete days because of travel and waiting room time. They wanted me to do this every 3 months! And even though the insurance was picking up the tab - I was still having to take huge chunks of time to get it done. (did I mention I had young children at home back then?)

The second time, I asked them to call either or both of my local hospitals to see if they had this scanner available. I could get it done there and have the results sent to them. They resisted mightily saying that - outlying hospitals just don't have the good equipment their hospital had... (this is BS by the way) I told them - I didn't have the time to waste entire days everytime they wanted to do a test.

Well, it seems that not only did both local hospitals have the scanner - they were both newer and in much better physical shape then the one at the University hospital. AND it cost $495 for the scan!!! A nearly 50% difference in price.

I didn't go to that University hospital for long - they finally ticked me off enough that I went looking for a doc closer to home. But the lesson was - always check on prices - especially if your insurance only pays a percentage of your bill!

6:05 PM, April 14, 2006  
Anonymous Anonymous said...

With costs increasing insurance companies are becoming coyer. Often they are willing to pay their percentage of ""fair and reasonable"" costs rather than what is charged. Often their fair and reasonable is 25 % or thereabouts of charges. To appeal the patient has to show comparable charges at other facilities which are virtually impossible to get. Itis a system out of control. Transparency can only help.

11:37 PM, April 14, 2006  
Blogger Maj.BertramPudgeman said...

Was the 100k the cost or the price? The reason I ask is that my mother's recent catherization and overnight hospital stay was billed at $40,000!!! Then discounted to medicare to be about $3,500. (No there is not an extra zero in the 40k.) I wonder what the true cost was and I know what the price is. Unbelievable.

7:26 AM, April 15, 2006  
Blogger SMSgt Mac said...

Dr Wes is correct. Increased transparency of medical costs is desirable. There are four relevant possible cost outcomes to having increased cost awareness. 1. Costs keep rising out of control, 2. costs keep going up but at a manageable rate, 3. costs are stable and change only due to inflation/deflation, or 4. costs go down.
The first outcome is no change from the current condition. It would be impossible to discern if the out of-control-rise in costs was abetted or mitigated by incresed transparency unless the costs were brought under control which is by definition another outcome. Unless someone can identify a mechanism by which increased transparency would cause costs to rise faster, I would say the such a case would be infeasible: hence there is absolutely no risk to having increased transparency on the one hand, While there is a high probability of improvement on the other, since all other possibile outcomes are desirable.

12:10 PM, April 15, 2006  
Anonymous Anonymous said...

smsgt mac,

1. What do you mean by control of costs? Whose control? Towards what purpose? Do we usually see control of costs in our economy? How does one control the resources expended to deliver a chest X-Ray?

Are you sure you aren't referring to prices? If so, our overwhelming experience shows that control of prices leads to shortages of goods and services.
2. What is a manageable rate of cost increases? Costs actually tend to go down over time as efficiencies are realized and fewer resources are necessary to deliver a given service. So, I will presume you mean managable price increases. What does that mean? Managable by whom? Managable over a fixed set of services, or including new treatments, technlogies, and drugs that are added? Mangable for a single service, or managable for the aggregate of all services?
3. Any expectation that aggregate prices will move only with inflation is based on a fixed level of service that does not change with added technology. If we stayed with X-Rays only, this might apply. However, when Cat scans and MRIs became available, the X-Ray was supplanted in many cases because of a better service. Limiting aggregate prices to inflation means freezing service quality and prohibiting the introduction of new technology.

Limiting individual service prices to inflation inhibits the introduction of new technologies, since the hospitals tend to spread the very high cost of new technologies over the existing services until the new technology begins to experience efficiencies of scale.
4. Prices of individual services may go down as technology provides more cost efficient means of delivery. However, those services will usually be used to subsidize the higher costs of new technologies.
5. Increased transparency will probably hurt nothing, but it will also do nothing to change the basic forces at work. It might add a level of understanding that is currently absent, but it would probably also create competing interests, as particular patient groups fight to keep the price of their own treatment low regardless of what happens to the prices of other peoples' treatment. We would have the defibrillator folks fighting the artificial hip folks over how much over the direct costs of their treatment they should bear.

We see a similar situation today with drugs. Interest groups for a given disease tout the fact that it costs twenty-five cents to produce a particular pill. So, they want to pay only thirty cents. They ignore 1)development costs, 2) profit incentive, and 3) the fact that part of the price of the pill that solves their malady is being used to develop treatments for currently untreated maladies.

The new drugs on the market were financed by the prices charged for the old drugs that have been on the market. People are content that others paid for the development of their drug, but want the chain to stop with them and their malady. They don't want to pay anything that pays development for new drugs.
6. So, should we oppose price transparency? I don't think anyone really knows what is meant by the term, and at present it is undefinable since the assumptions behind the idea have not been defined in economic terms.

1:36 PM, April 15, 2006  
Blogger quadrupole said...


1) For chest x-ray delivery there are several components to the cost. First, you have the capital investment in the x-ray machine, I expect this to decline over time as we get better at making the equipment. Second, you have the cost of the rad-tech, there may be room for decline by better managing the rad-tech as a resource, but probably not much. Third, you have the cost of interpretation by the radiologist (an MD). We already have VERY good expert systems to interpret x-rays. However, it turns out that the expert systems tend to miss things radiologists catch, and catch things radiologists miss, so while they improve care, they don't replace a radiologist. There is now a growing industry in outsourcing x-ray interpretation to radiologists in India, who do comparable work to US radiologists at a fraction of the cost. So there's a lot of room to squeeze down the cost of chest x-rays.

3) I can point to several industries where costs have dropped and the quality of the good or service delivered has dramatically increased.

2:52 PM, April 15, 2006  
Blogger SMSgt Mac said...

Whoa there Anon!

First off, I hope your spleen is back where it belongs- that had to hurt. ;-)

You spilled a lot of ink and incurred a lot of Opportunity Cost in response to a very short, very top-level analysis.

First off, recognize I’m talking System Analysis, Ops Research and Game Theory. You are talking Econ 101 & 102. We are viewing the same landscape but describing different things while speaking different languages. It also doesn't help, as you recognized in your comment, that there is indeed a fairly high level of abstraction to the concepts (health care, transparency, etc) we are discussing at this time.

Second: I never confuse "price" and "cost". “Price” is what one pays for a "Cost".

Third: Methinks “Cost Control” are trigger words for your ears. Re: What do you mean by control of costs? Towards what purpose? Whose control?

“Control” should not be interpreted as some single entity with their hand on the switch – and it surely doesn’t mean 99% of what any Legislator or 99.9% of any Legislative Committee could come up with on their own. In fact, about the only thing they could do that was positive is remove or weaken some laws and regulation – but they’d probably screw that up too.

Actors within the health care system, by negotiated and/or iterated design, exert pressure (including possibly changing the system design and adding or removing actors within the system) on the system through either new or changed behaviors or technical/material innovation(s) that alter the performance of the system, to meet one or more desired objectives.

In this case the desired objectives are to ensure the sustainability of an effective health care system while attenuating/eliminating the growth in the resources involved in the operation of the health care system for the benefit of the actors within the system. Responsibility is shared (this is where legislation usually screws things up) among all the actors in the system. Ultimately, one might say the designers and actors are the ‘controllers’. Within an ideal closed system, I believe the designers and actors would be the same.

Increased transparency (knowledge about) of the health care system design and associated costs can only allow the actors within that system to identify system design weaknesses and strengths, and then motivate them to act on that knowledge and improve the system.

My apologies to our host for eating up her bandwidth.

6:13 PM, April 15, 2006  
Anonymous Anonymous said...


By your definition I'd have to say the health care system is controlled. The actors do negotiate, iterate, and exert pressure. However, there is no reason to think control exists only if it is aimed at an objective of "the sustainability of an effective health care system while attenuating/eliminating the growth in the resources involved in the operation of the health care system for the benefit of the actors within the system."

The control could be aimed at many different objectives. I don't think you can say control exists only when it aims at one chosen objective.

We might also recognize that in a large system it is reasonable to expect people to negotiate, iterate, and exert pressure towards many different objectives.

I would also disagree that your objective is optimal. Creating resources within the system for the benefit of the actors can have a positive or negative effect. It can be positive when a new MRI center is opened by actors seeking to maximize personal wealth by providing an incremental service. Growth in rsources also happens each time a newly minted doctor hangs out his shingle in seeking personal benefit. It can be negative when an administrator seeks to pad staffing by employing relatives.

I'd say the consideration of personal benefit of the actors tells us little.

Do you consider the health care system to be a closed system? If so, why?

10:32 PM, April 15, 2006  
Anonymous John G said...

Having just gone through two hospitalizations/surgeries, I look somewhat askance at the notion that, had I known the cost of particular items beforehand, my use of hospital/medical resources might have been different. Frankly, that's nonsense.

The first hospitalization was emergent care and an extended stay due to my condition and complications. Most of the time I was sedated and, even when conscious, probably incapable of making serious decisions due to the combination of the after effects of anesthesia, prolonged sedation, narcotic pain killers, scads of other meds, and extended immobilization in bed. In a word, I was "out of it".

The 2nd hospitalization was the reversal of the 1st procedure - a reconnection of sorts. I chose to undergo it rather than live with the appliance I had been left with following the 1st surgery. I chose it knowing it would involve at least a week in the hospital, surgery, recovery, sedation, narcotic pain killers, scads of other meds, and the risk of complications (some of which arose). I chose it knowing that after the 1st $140,000 procedure/hospitalization, this one would run probably a third of that (actually, it ran about $60k).

Had I been able, would I have chosen anything different? Definitely not. First, who am I to tell my physicians what to do and not do? Second, as mentioned, I was in no condition mentally to add 1 plus 1 for much of the time (I'm told when I woke up from an extended unconsciouness following the 1st surgery, and asked my name, I persisted in replying that I was Sir Thomas More, Exchequer of England. Although I don't remember that happening, I'm heartened by the fact that at least I was selective in my choice of identities.) Now, if only my subjects had obeyed...

The only significant choice I made during the entire time was to refuse to have a nasal gastric tube replaced (a vile procedure) when it became apparent that it had been removed too soon. I lived, somewhat uncomfortably, for a day or two until things normalized, but I did live.

Choices, prices, alternatives were meaningless. I was insured, this is what my physicians wanted, therefore I mostly went along. That's all that mattered to me.

In actuality, I later learned that what Blue Cross paid the hospital was something less than retail. Significantly less. I'm pleased at that development, but it still doesn't change things.


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