Everything has a price, and we all have become accustomed to knowing how much something is going to cost before we buy it. Generally, we start with thinking about how much we are willing to pay, then finding what we need within the range of what we expect to pay. Whether it is shopping on Amazon.com, negotiating the price with a landscaper, or going out to eat, we get to weigh the options in advance of acquiring the goods or services. And, generally ahead of the purchase of big-ticket items, we get an itemized list of what is available.
I recently had to buy a car. Some of the many decisions that went into the purchase were whether to include some of the offered amenities, including:
- “Surround sound”;
- Seat heaters;
- Blind-spot indicator system;
- Premium floor mat package; and
- Built-in GPS.
My husband and I thought about the price of each of these line items relative to what we were going to “get out of it”—e.g., the value. Seat heaters in South Carolina? No, thanks. Surround sound? We had to flip a coin on that one. Safety features? Absolutely. Premium floor mat package? Only if they were guaranteed to be Fruit Roll-Ups-resistant.
Over the course of several negotiations, we picked and chose options that were highly likely to add value (safety, comfort, convenience) and omitted the rest. Then we settled on a total price, paid the negotiated price, and drove away fairly content.
Now, this doesn’t mean that we actually knew the cost of adding each of those amenities into our new car; would anyone actually be able to tell us exactly how much each of those features cost to innovate, create, and install? Probably not, but they might be able to give us a pretty good estimate, as well as an estimate of how much had been added in to ship it to the dealer, to pay the overhead for the dealership, and to pay the dealership staff (from the front desk to the CEO). And we could feel pretty certain that most buyers would be presented with similar prices, regardless of their personal characteristics.
So all in all, there was a reasonable amount of transparency around the cost and the price of the car and all of its amenities, as there would be in most industries. Except in health care.
A Ton of Money, for What?
There was a fascinating article in the March 4 edition of Time titled “Bitter Pill” that discussed the cost and the price of health-care services.1 It certainly is a worthy topic, as the U.S. spends about 20% of our gross domestic product on health care, whereas most other developed countries spend half of that. In fact, according to the article, the U.S. spends more on health care annually ($2.8 trillion) than the top 10 countries combined—Japan, Germany, France, China, United Kingdom, Italy, Canada, Brazil, Spain, and Australia.
About $800 billion of our health care is paid out annually by the Centers for Medicare & Medicaid Services (CMS). CMS is an ongoing and substantial driver to the depth of the federal deficit. When Medicare was enacted in 1965, they expected the cost in 1990 to be about $12 billion per year, which was miscalculated by more than a factor of 10.
And the federal deficit, while insurmountably important, pales in comparison to the sobering statistic that 60% of personal bankruptcies are filed due to health-care bills.
Equally disappointing, the U.S. does not appear to get great value out of this exorbitant price tag, as our health-care outcomes certainly are not any better, and are sometimes worse, than other industrialized countries.
Elephants in the Room
The Time article talks extensively about the lack of transparency and drivers for cost in the industry. But there are two major, unreconciled questions the article fails to answer that are at the core of the issue:
- Is health care in the U.S. a right or a luxury?
- Can the U.S. health-care system be compassionate and restrictive at the same time?
You really don’t encounter the first question with any other industry. If I am hungry and do not have any money, I would not march into a restaurant and say, “I am hungry; therefore, you must feed me.” But we all feel like we can—and should—march into an emergency room and say, “I am sick; therefore, you must treat me,” no matter our financial situation. For all other industries, we rely on community resources, nonprofit agencies, and some state/federal funding to bridge gaps in basic necessities (food, housing, clothing, and transportation). And when those run short, people do without.
Car dealerships and Jiffy Lube do not have to follow any Emergency Medicine Treatment and Active Labor Act rules. If health care is a right, then we should not make individuals figure out how to get it, and we should not accept huge disparities in the provision of care based on personal characteristics.
My hospital, like most others in the U.S., is trying to figure out how to cut costs and do more with less. In a series of town-hall-style meetings, our leadership has been telling all of our hospital staff about planned cost-cutting and revenue-generating strategies. One of the tactics is to be more proactive and consistent with collecting copays in outpatient settings (before the delivery of any visit, test, or procedure) and to have parity with our local market on setting the price of those copays. But several employees were wrestling with the thought of collecting copays before the delivery of service. Some voiced a particular concern: “But what if they don’t have the money?” Again, not a conversation heard too often at car dealerships or Jiffy Lube.
The U.S. has a long way to go in reconciling these questions. Addressing them might be easier if there were more transparency in pricing. When you walk into Jiffy Lube, you are presented with all the things you might need for your car, based on make, model, and mileage; you get a listing of the cost of all the items, then you make decisions about what you do and do not need as you factor in what you are willing to spend. But when you go for your annual primary-care check-up, you are not presented a list of all the things you need (based on age, comorbidities, family history, etc.); you are not given a listing of the cost of those available services (check-up, eye exam, colonoscopy, pneumococcal vaccination); and rarely is there ever a discussion of what you are willing to spend. You just assume you need what is recommended, then get a bill later. There is almost no incentive for providers to discuss or present those prices to patients in advance. There is even less incentive to reduce the utilization of those offered services. And the price on the bill variably reflects the actual cost of the products/services provided.
In the hospital setting, the price of most products/services are based on the “chargemaster,” which is a fictional line listing of prices, which, according to the Time article, “gives them a big number to put in front of rich, uninsured patients” to make up for the losses in revenue from all other patients.
For the most part, health-care reform efforts have done little to address the two unanswered questions. And although reform efforts have triggered plenty of discussions about changing the rules on who pays for what and when, these efforts have done little to change the price or the cost of care, or make them more transparent.
The author of “Bitter Pill” makes an attempt to call out the “bad actors” in the industry, those who drive up the cost of health care—health-care leaders with generous salaries, pharmaceutical companies, device/product companies, trial lawyers, and profitable laboratory and radiology departments. But the article does not come close to capturing the other elephants in the room. Without confronting those issues, we will continue to fail to distinguish between the cost and the price, and any value within.
- Brill S. Bitter pill: why medical bills are killing us. Time website. Available at: http://www.time.com/time/magazine/article/0,9171,2136864,00.html. Accessed March 26, 2013.
Dr. Scheurer is a hospitalist and chief quality officer at the Medical University of South Carolina in Charleston. She is physician editor of The Hospitalist. Email her at email@example.com.