Haha Gotcha! Medical Pricing

by Devon Herrick,

By almost any measure, the U.S. health care system remains dysfunctional. If you apply some of its common practices to other industries, they sound ridiculous. Consider this hypothetical thought experiment. Suppose you made an appointment at a local dog kennel for them to keep your dog, Bowser, while you were on vacation. You asked if they could bathe and groom Bowser just prior to your return. As is standard practice, you probably had to sign a consent form agreeing to pay for the boarding and any additional fees insured. Maybe the grooming fees weren’t guaranteed ahead of time, but you were assured they were nominal and normal for the services. Among the forms you were asked to sign, there was some fine print that said should your dog become ill, the services of a veterinarian would be arranged at your expense.

During his stay Bowser seemed lethargic and a little anxious — and he wasn’t very interested in his food. Maybe you assumed this is normal for a dog left at a kennel for a week. But Doggie Spa & Canine Resort cannot take any chances. It called in a pet behavioral therapist to assess Bowser’s condition. The doggie shrink brought along a colleague for a second opinion. The pet behavior therapist recommended Bowser be walked twice a day to lift his spirits. However, another veterinarian — an orthopedist — had to assess Bowser’s gait to make sure he was healthy enough to be walked. A pet nutritionist analyzed Bowser’s diet and assessed his food intake. She sent a stool sample to a lab for analysis of food absorption. She ultimately decided that spoon-feeding Bowser might encourage him to eat.

Upon your return you pick up your dog expecting to pay for boarding, bathing and grooming. You know Bowser was well-taken care of, but the fees were much higher than expected. Within days of your return, itemized bills from vendors begin to arrive. The person who bathed your dog sent a separate bill from Doggie Spa’s bathing fee. A different bill from the person who applied the shampoo is in your stack of mail. Yet another bill arrives from the groomer. You discover the groomer also brought along an assistant groomer. She too submits a bill. The pet nutritionist and the lab both sent bills. A bill even arrived from another person who walked your dog twice a day while you were away. Spoon feeding Bowser twice a day for a week incurred 14 separate dietitian charges. Indeed, the pet behavioral therapist swung by Doggie Spa on his way home every night to make sure Bowser was doing OK — and you got charged for each visit. Worse, you discover some of the people who sent you a bill charged far, far more than the pet resort’s regular vendors. The on-call vendors called other vendors to assist. But these out-of-network vendors are not bound by Doggie Spa‘s standard rates, they can charge anything they want. You discover Doggie Spa actually encouraged these upcharges so it too could bill a separate facilities fees for them. Arranging for the dog activity therapist to assess your dog; that generated a separate charge for both the Doggie Spa and the dog walker.

Of course, this whole scenario sounds utterly ridiculous. You would never patronize a dog kennel that nickeled and dimed you that way — especially if their charges were outrageous and never discussed in advance. Yet, this scenario plays out every day somewhere in our health care system. A recent New York Times article discussed the case of a Peter Drier, who had surgery for a herniated disk surgery in his neck. Besides the regular surgeon, an assistant surgeon who was out of Peter’s network helped with the surgery. Whereas the in-network surgeon earned a discounted fee of about $6,000, the out-of-network assistant surgeon billed nearly $117,000. Had the patient been on Medicare, the assistant surgeon could have received no more than about $800. Being out of network meant the surgeon’s $116,862 charge was not subject to a negotiated discount. Gotcha! You owe an extra $116,862 not covered by your insurance.

The article used a few other anecdotes of patients hit with unexpected bills for services that seemed trivial. Fees for the “nurse” who walks you to the bathroom may be billed as physical therapy: $400. The device to help you dress? It’s considered occupational therapy: $679. That friendly doctor who poked her head in the door a couple times and asked how you’re feeling? Gotcha! That will be $1,000 because she’s out of your network.

None of this rant is to suggest these medical personnel didn’t provide a valuable service. Mr. Drier didn’t complain about his medical care, just the way it was billed. Some of the services could have been provided by a resident physician for free, but none were available. Other services were trivial and could have been provided by a nurse or nursing assistant. Some services seemed unnecessary — but were billed at significant rates.

Why does this occur? Because over the past few decades third-party payment has insulated patients from the cost of medical services they receive. Thus, the providers of care don’t have to compete on price. Had this hospital been competing for patients on the basis of price, it would have looked for ways to boost efficiency. Rather than look for ways to pad the bill, it would likely have offered a package price. Doctors would have likely contracted with the hospital to provide services. At the very least, fees would have been transparent and discussed ahead of time.

So what is the solution? We often say that patients need to control more of their own health care dollars. But in the hospital they are usually spending someone else’s money. At the very least, hospitals, doctors, patients (and their insurers) need to agree in advance on a statement of work with a fairly binding estimate. With the exception of nominal services, patients should not face a Gotcha! that surpasses six figures. Does this sound like too much trouble? It shouldn’t. Most transactions involving large sums of money (e.g. like selling a house) involve clear disclosure and a statement of what each party expects.

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