What are a hospital's costs?

http://nytimes.com/2015/09/08/health/what-are-a-hospitals-costs-utah-system-is-trying-to-learn.html

by zabramow • 11 years ago

56 77 11 years ago

After working in healthcare myself for a while, I've always wanted to see it be a service that was paid for by the customer directly (at least hypothetically). This concept of not knowing costs would be completely unacceptable in any other industry, but it seems that people are reluctant to price things partly out of a fear of being able to do cost-benefit analysis on care and thus on human life. Direct billing would force hospitals and other care givers to be able to give cost estimates up front, and then market forces would help bring costs down as providers would compete and patients could shop around. I'm aware that this might not be optimal in all situations (eg emergency care), but runaway costs and opaque cost-benefit relationships are not helping things.

I remember hearing that 20% of total healthcare costs are spent in the last 2 weeks of people's lives, and perhaps having more transparent costs would help avoid these costly, frequently unpleasant, and ineffective interventions.

Of course, transitioning to this would be impossible overnight, but it's an interesting thought experiment. There would still be the option for catastrophic insurance, but otherwise it would be interesting to see market forces play a role.

organsnyder• 11 years ago

The problem with asking patients to shop based on price is that the penalty for making the wrong choice is much more devastating than with just about any other good or service. I did a ton of research when I bought my car, but even then the price of making a sub-optimal decision was limited to a substandard experience or waste of money. When choosing a surgeon, however, the cost of a wrong decision will be perceived to be much higher—shoddy work there could be life-altering/ending.

Of course, shoddy workmanship on my car could also have devastating results (and safety was a big part of my decision process, especially since my father might not have died in his car accident if he had side curtain airbags), but it's not considered with the same level of urgency.

Also, I'm extremely wary of pricing schemes that disincentivize preventative care and early interventions. Many illnesses are much more treatable—at much lower cost—if they're caught early. While we also need to be careful to avoid unnecessary expense, we don't want to discourage people from seeking care at the early signs of trouble.

That being said, I do agree that transparency in healthcare costs is very much needed. However, we need to be careful in considering how market forces impact personal healthcare decisions.

msandford5• 11 years ago

You make some good points regarding quality, but there are a great many things where that doesn't matter. Yes if it's a major medical issue where a life hangs in the balance quality matters tremendously. But a huge range of medical care is about quality of life or other more minor things.

I also think that if prices were available to people they might choose the preventative care themselves versus waiting until things are so bad that a major and costly intervention is needed.

People talk about externalities as if they're the devil when it comes to climate change, but when it comes to medicine nobody bats an eye. Right now the consequences of people smoking, eating poorly, drinking too much, etc are generally externalities for individuals because either their insurance eats the cost or the public does. I'm not suggesting that people should be forced to bear that cost entirely on their own without insurance, but with no pricing available GPs have one less tool to "scare straight" their patients.

I think what's especially galling is that the hospitals do have all the pricing information available in a database that they use to turn patients charts into bills. It's just not published publicly so patients can't make a slightly more informed decision on the front-end, they only see it AFTER care has been provided.

bmelton3• 11 years ago

There's a balance to be struck, for sure, but cost transparency as an alternative to complete and total cost opacity is a move in the right direction.

My daughter fell at lacrosse practice and hurt her wrist. We had an x-ray, which proved inconclusive with the swelling, another x-ray after the swelling subsided, which also resulted in an inconclusive result, followed by an MRI which indicated a bad sprain, for which we ended up getting a very cast-like splint.

This is basically the same as what we thought from the initial x-ray, as even then the doctor was advocating for a splint in the absence of an obvious break.

If costs were more apparent, we probably would have had an x-ray once, and then gone with the splint, but price opacity and insurance obfuscated the costs enough that we naively opted for the more diagnostic approach, which proved to cost a lot more than just having gone with the splint initially. As a developer, I'm inclined towards the "know what you're fixing before building patches" approach, so the diagnostic approach was logical to me, but had I known that the end result was basically the same either way, I could have saved myself the cost of an x-ray and MRI and just skipped to debugging.

greggman• 11 years ago

I don't understand how paying directly or not has anything to do with choosing a surgeon. Plently of socialized medicine system you get zero choice. Some 1/2 socialized, you still have to pay if you want a choice in surgeon.

I'm not against socialized medicine I asking how do you think not having "market forces" fixes the problem you're suggesting

fluidcruft5• 11 years ago

One problem is that medicine is very counter-intuitive in terms of evaluating practitioners. Metrics that consumers think they would want to look at are very deceiving once you start digging into what's really going on. The reality is that often the best doctors work on extremely challenging cases that have both high costs and poor outcomes. Some doctors build practices that filter to select the easy cases (i.e. those with a large mismatch between allowed charges and actual resource needs). This allows them to push discounts do their patients aggressively because of the overall pool of cases they've selected. I haven't seen of any reasonable way of handicapping metrics that actually works, and frankly I would be extremely wary of anyone that claimed to have the answer. Honestly, I have no idea how you go about evaluating this situation as a consumer.

protomyth3• 11 years ago

"The problem with asking patients to shop based on price is that the penalty for making the wrong choice is much more devastating than with just about any other good or service."

Yet we do it with our sight when choosing laser surgery. I get the feeling that better institutions would win out and care would improve.

I think preventative care is a separate issue. The government, instead of passing that horrible bill (and yes, I read every page and cussed at every will be decided later line) could have just subsidized a yearly examination, 2 teeth cleanings, expanded health saving accounts, and attached a "disaster clause" to all insurance where the government picks up any cost for an incident over $100,000 (changes the cost of insurance by providing a cap).

emodendroket6• 11 years ago

Consumers have a lot of "skin in the game" right now between being uninsured, or having significant co-insurance, or high-deductible/catastrophic plans, etc., but they do not generally have the information to make informed decisions about their own care. Some research suggests patients with these kind of plans do spend less, but largely by foregoing preventative care: http://commonhealth.wbur.org/2012/05/consumers-health-costs

As for the cost-benefit thing, do you think insurers are not doing it?

VLM5• 11 years ago

Two interesting problems.

One is that a free market might result in "better" purchaser decisions, but a free market requires a meeting of the minds and some patients won't have minds, temporarily or permanently, and those that do have a staggering power imbalance of one uneducated untrained individual vs a thousand person highly trained organization. We're not talking about two commodity traders exchanging with each other. This is before we get into "state of mind" and panic, someone having a heart attack can't focus on contractual negotiations quite like the guy across the table not currently having a heart attack. And then there's the timeliness issue, and geography...

The second, is medical care cannot be treated as a commodity. I was horrified at the "taylorism gone wild" in the article where one surgeon used twice the bandages as the other, and therefore is bad. In the real world that will be implemented as "well, yes I know your tumor was a completely different size and shape than his tumor, and bandages cost almost nothing compared to a human life, but we have beans to count and quotas to stay under so you'll just have to bleed to death because it would take too many bandages to save your life" or "well yes half his patients are permanently crippled and none of hers do, but she uses twice as many band aids, so we'll have to downsize her and keep him, to stay under our bandage budget". Without a commodity of interchangeable identical product, you can't have a free market or at least not the gains of a free market. Its interesting that the medical system admits as such... there are specializations of patient disease clusters, but despite the best efforts of centuries of work we still can't specialize beyond a very shallow level, we have cardiologist specialists not specialists in 25% arterial blockages of the left ventricle, even though its "obvious" that if it were implementable, specialization to that level would be very helpful. This is before we get to the issue that you get what you count, so if you count meaningless metrics you'll get excellent meaningless metrics, not health care.

A better model for the economics of health care would be fine art. Or maybe education. Notice how the money spent correlates strongly with how much money is available, and has little correlation with results, at any level beyond bare requirements. Or how attempts at taylorism style management provide laughable comedy results. Health care does seem to "fit" better with fine art or education, than with accounting or a manual factory assembly line.

zeveb3• 11 years ago

I was horrified at the "taylorism gone wild" in the article where one surgeon used twice the bandages as the other, and therefore is bad.

It didn't say that it was bad; it just noted it as a fact. Perhaps Dr. Jones's patients need more bandages because of the types of patient he sees (which might indicate that he's really good at what he does); perhaps his incisions are larger (which would be bad); perhaps he just wastes bandages (which is also bad). All measurements can do is demonstrate a difference: good management is required to discern the reason for the disparity, and determine if it's a positive or negative indicator.

mikepurvis2• 11 years ago

It seems so right from an Adam Smith invisible hand point of view: offer choice, allow people to shop around, and costs will go down, right?

The US has already been running this experiment—the results are in, and it's a huge loser. Everything you need to know is in this chart:

https://en.wikipedia.org/wiki/File:Total_health_expenditure_...

It turns out that everyone pays a lot less when you treat healthcare infrastructure like roads, dams, the power grid, or any other infrastructure— it has certain high fixed costs which build and sustain it (financed from the general tax base), and apart from that, it should be available for use by everyone.

merpnderp4• 11 years ago

What we have isn't really insurance, but health care supplements. Insurance is for unforeseen events. But US health insurance pays for regular checkups and procedures.

And I'll take our more expensive health care over any other system any day of the week. Because when the day comes when 1 of the 2 primary killers in the US comes for me (cancer and heart disease), no country in the world has better outcomes. And the US does it for a much more diverse, much larger, and unhealthy population. Cancer and heart disease outcomes are the best proxy for how well a health care system operates.

logicchains• 11 years ago

offer choice, allow people to shop around, and costs will go down, right?

Just wanted to point out that tough medical licensing regimes actually make it quite hard to shop around. This paper provides an interesting analysis: http://econjwatch.org/file_download/54/2004-08-svorny-reach_.... Or, for the short-of-time, a shorter, more biased summary: http://www.forbes.com/2009/08/25/american-medical-associatio...

zeveb3• 11 years ago

It seems so right from an Adam Smith invisible hand point of view: offer choice, allow people to shop around, and costs will go down, right?
The US has already been running this experiment—the results are in, and it's a huge loser.

No, we've really not been running that experiment: we don't offer much choice, we don't really allow people to shop around, and most importantly, the vast majority of people aren't paying directly for their own care.

The U.S. most definitely does not have a free market in health care, and hasn't for decades.

merrywhether2• 11 years ago

I agree with the other comments: we don't have a free market now and health coverage comes with huge amounts of moral hazard for both providers and patients.

Veterinary medicine is something operates in a truly free market environment, and it seems to work towards efficient outcomes, so I'm curious if the same could be done for humans.

refurb2• 11 years ago

I work in the healthcare industry and have a good friend who works at a major hospital. You know what I've learned?

Hospitals have no clue what it costs them to serve an individual patient.

The lowest level where they understand costs is at the service level (e.g. ER, cardiac lab, stroke center). It's one of the reasons why you see all the wonky prices from hospitals: they just "create" prices for individual procedures until it covers their aggregate costs. It doesn't really matter to the hospital if procedure A is $1K and procedure B is $5K. As long as Arate + Brate > costs, they are fine with it.

emodendroket6• 11 years ago

Well, yes, that's what the article says, but highlights one hospital working to change that.

protomyth3• 11 years ago

There is a clinic in Houston that was profiled earlier that did price per procedure and knew their costs. They were not a Medicaid / Medicare provider which might have made a difference.

rayiner2• 11 years ago

The idea of pricing out hospital procedures as if they're widgets or oil changes is ridiculous to begin with.

emodendroket6• 11 years ago

I don't know that anyone is suggesting that.

I'd also argue a routine diagnostic procedure, like a blood test, is pretty comparable to a mechanic doing an oil change.

mistermann• 11 years ago

Is calculating statistical aggregates over a long period of time ridiculous? Many service based procedures have uncertain length, flipping a coin to arrive at a price doesn't seem like a great solution either.

msandford5• 11 years ago

Depends on the procedure doesn't it? You might not price open-heart surgery that way since you want a great doctor, price be damned.

But what if it's not so serious, and not an emergency? People have rotator cuff issues that they take years to get fixed regularly. Or a hip replacement? That's rarely an emergency but rather a solution to long term pain that's not painkillers.

I think the other thing a lot of people would like to see is some kind of doctor and hospital report card so that you could compare on price AND quality. Which would be great as it'd force the terrible surgeons who regularly do such a bad job (accidentally or on purpose) that their patients have complications, die, etc out of that line of work.

Obviously there would have to be some kind of risk classification system so that doctors and hospitals that take on high risk patients wouldn't be punished for doing so, but I think that some kind of "hot or not" style risk assessment system could be developed whereby doctors spend 15 minutes a day reviewing risks anonymously for other doctors and each case gets rated 5 times and that determines the risk score to hopefully remove all bias.

bkmartin• 11 years ago

Care to elaborate? In medicine, just like almost everything else, you will find a "standard" for each type of procedure. Do they sometimes take more or less time? Yep, but that all plays into the standard over time. So when you have an outlier of the standard you can evaluate what went wrong or what was different to better understand the variables that play into these elements of variance. Medicine is a science. The more we treat it that way the better... you cannot just throw your hands up and deem it ridiculous.

JustSomeNobody• 11 years ago

Why not?

Flat rate mechanics have a book that says repair X takes Y many hours. If it takes the mechanic less, the shop benefits. If it takes more, the shop loses. But in the end, only Y many hours are billed.

Why can't it work similar for hospitals?

datashovel4• 11 years ago

Forgive me if I'm mistaken, but isn't a "procedure" something that is well documented set of steps to be taken to remedy a person's ills or assess what is actually wrong with the patient (ie. mri, xray, etc) ?

Sure, like with anything, there may be some unknowns that cause some variations in the implementation of the procedure, but it's likely a valid (in most cases) way to track performance and control costs. If some hospital is regularly charging 2 standard deviations more than other hospitals for same procedures, that seems it would be a red flag.

Or if a doctor is regularly taking 2 standard deviations longer to perform same procedures as the rest of his/her peers, that's a red flag.

zeveb3• 11 years ago

The idea of pricing out hospital procedures as if they're widgets or oil changes is ridiculous to begin with.

That seems pretty silly. There are plenty of procedures with marginal effect on survival and/or quality-of-life, and a health-care consumer will have varying preferences for them.

A rich man might be willing to spend an hour in an MRI if he's sprained his ankle; a poor man might prefer to keep his money and walk it off. Neither is wrong: they just have different preferences.

For that matter, given a choice between a $15 pill of Tylenol and dealing with an ache, I'd take the ache every day of the wee.k

refurb2• 11 years ago

First off, why?

How on earth could you possibly makes a cost vs. value trade off if you don't know the cost? You might have a hospital with better outcomes that charges 1/2 of that of another hospital with worse outcomes. Unless you know the cost, you'll never make the system efficient.

Medicare already does it. There are ~700 diagnosis codes that capture everything you might need to do to a patient admitted to the hospital. The diagnosis codes are linked to a dollar amount that is supposed to cover everything (except labor which is a separate payment).

CWuestefeld• 11 years ago

This is absolutely true. But the question is why are they stuck at that rudimentary level?

My wife is at the center of this. She recently left a job as "Director of Budget and Reimbursement", and now works as "Directory for Regulatory Affairs" for a healthcare financial consultancy. So she's been the one directly responsible for the way the hospital accounts for its costs (or fails to do so).

The primary problem, at least from her perspective, is that they're effectively forced to do it this way. Medicare, and Medicaid which largely rides on many of -care's definitional coattails, is a monopsony player in the market. When you hear people claim that Medicare is more efficient than conventional commercial insurance, that's significantly because they offload much of their administrative burden onto the healthcare providers. Every hospital has a department of several FTEs whose job it is to track a defined set of metrics, including various cost parameters, patient demographics, etc., and report them to the government (the so-called "Medicare Cost Report" that my wife and her department spent a month or so on every year). That is, getting paid by the source of the largest part of the hospital's revenue entails tracking and reporting the way Medicare wants you to do it.

So that right there forces hospitals into watching their costs according to a scheme effectively mandated by the government. Thus, they're not tracking the data in a way that would give relevant cost accounting data in the way you expect it.

There's your proximate cause. But it still begs the question, "why don't they also track costs in a rational fashion, actually reflecting reality?". Part of the answer is that their margins are so low that they simply can't afford a second set of accountants and the procedural overhead that it would require.

That's not a wholly satisfying answer, because hospitals are the only industry I'm aware of that still makes extensive use of secretaries. You'd think that if they need to be so conscious of costs, they'd be looking at the kind of personnel expenses that most of private industry has figured out how to streamline. Conversation with my wife hasn't yielded any insight beyond that.

phkahler3• 11 years ago

> As long as Arate + Brate > costs, they are fine with it.

I've been advocating that we require them to charge the same price for a given service to all patients regardless of insurance or anything else. To clarify, we should not dictate the price, just that one provider charge the same price to all its patients. I never would have thought they couldn't even figure out what those prices need to be.

Any business that doesn't even have a clue about these things is clearly rolling in dough and probably corruption.

ashark• 11 years ago

I've had the same thought. It'd add clarity (as in, an actual answer to "WTF will this cost me, after insurance?"), reduce complexity ("well, we have different rates depending not only on which insurance provider you have but on the specific plan you have", and associated personnel to manage that and similar BS) and, most importantly, it'd incentivize insurance providers to work collectively to drive down prices—I suspect they'd avoid free-riding by forming associations for which a given hospital accepts all or none of the member insurances.

Or we could just have single payer. But if we can't have that, I think the above would be a fair bit better than the mess we have now.

milspec• 11 years ago

That's great for marginal costs. What about fixed costs?

The lobby needs to be mopped. The parking lot needs light. The lawn probably should be kept from turning into a forest. The heat should run in winter, and the cooing in summer.

Which hospital users get stuck paying for those things? What is your fair share?

rgoddard2• 11 years ago

Another cause of this is that services are generally not priced on a case by case basis. Hospital inpatient claims are priced based off of DRGs (Diagnostic-related group). An insurance company is not charged on a line-by-line basis. Rather the entire claim is submitted to the insurance company, who will process the claim and assign a DRG to that claim based off of the procedure codes, diagnoses and other factors. It might also assign a severity level. Based off of the DRG and severity level and the negotiated fee schedule a price will be assigned. This price might be a per day amount or a price to cover the entire span.

So you have an added layer of abstraction between what the service is costing and what the hospital is being paid. This system was put in place to simplify the pricing procedure so that it did not have to be done on a case by case basis. But it limits most hospitals to only really caring to this higher level of detail.

patio11• 11 years ago

The group began with head and neck cancer, treatment of which turned out to involve 160 processes requiring measurement. To assess outcomes, it asked patients which they thought were most important. Head and neck cancer patients wanted to be able to talk and to swallow. (Survival, which many doctors had thought was a top priority, was not something patients raised; many assumed they would survive.)

That parenthetical note is perhaps the clearest illustration I've ever seen in my life on the communication and expectation gap between experts and non-experts.

existencebox• 11 years ago

I was looking in the article for a followup to that statement, but there was none. The reason I raise an eyebrow is simply that even in the absence of a communication gap, talking+swallowing as top concerns seems like a reasonable response.

What matters more to you, being alive, or having a tolerable quality of life? Are we sure that there's a misunderstanding that death is a likely outcome (I could believe it; but I would also be slightly surprised, since "cancer==death sooner or later" exists even as a trope in mainstream media) as opposed to just a prioritization over things that matter so long as you're alive?

Anyway, this was quite a tangent from the original article content, just something I was mulling over given your comment.

masklinn2• 11 years ago

Are we sure that there's a misunderstanding that death is a likely outcome

There isn't a misunderstanding that death is a likely outcome, there commonly is a misunderstanding of survival time. Gawande's book covers the subject of differing expectation between doctors and patients when discussing harsh treatment, patients think it'll give them months or years, doctors think weeks.

If that isn't explicitly put on the table — and it usually isn't — you can get drawn-out "medical fights" where the patient's quality of life is more or less negative.

masklinn2• 11 years ago

Atul Gawande's "Being Mortal" has a chapter or two on expectation gap, the realisation of how large it was made my stomach drop.

And do so once more when Gawande described how the expectation gap still existed when doctors become patient (both he and his father are doctors, after his father fell with cancer he first succumbed to the expectation gap as he was preparing a book on the subject).

It's a great, eye-opening book.

edit: http://www.pbs.org/wgbh/pages/frontline/health-science-techn... covers some of it

gozo• 11 years ago

In my experience that is to some extent a logical assumption though. Most doctors will "fix" you to the best of their ability, it's the life quality issues you really have to fight for.

mzs• 11 years ago

It is why my wife did not choose the first two surgeons. For her being able to smile was most important. Then to see was the second. For both of those she wanted to have into old age. Losing hearing and balance immediately were of no concern. She just assumed a total resection and good recovery.

stevedt• 11 years ago

I was in the ER with what I expected was (and turned out to be kidney stones). I was stunned when the doctor's first question was something like "what is your expected outcome of this visit?".

I mumbled something like "make the pain go away and not come back".

rgoddard2• 11 years ago

One of the difficulties of improving the overall healthcare system is there are very few ways of making systematic improvements. This article talks about a single hospital. They demonstrated a method which works, but this only improves one hospital. For a real change to occur this would need to be repeated at a large number of hospitals on a hospital by hospital basis. The US healthcare system is incredibly fractured with large regional variances. The question is how to improve the system as a whole not on a piece by piece basis.

raarts• 11 years ago

The journey of a thousand miles begins with one step.

-- Lao Tzu

What are a hospital's costs?

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