Healthcare pricing: the Wild West

How much would you pay for eye surgery? $10,000? $18,000? $24,000? That’s the premise behind a recent StarTribune article, “Health care: You better shop around.” The story’s primary point is that patients are beginning to shop around for better pricing on healthcare procedures, and that providers are responding in numerous ways, from publishing prices on their web site to reducing prices across the board for their services. But let’s consider that starting question in another frame. How much, for example, would you pay for a car?

If you’re like most people, you might find yourself answering that question with more questions. Well, which car? How much money do I have? What do I need it for? None of us expects all cars to be the same. Would you pay $20,000 for a Kia? Sounds reasonable. Would you pay $50,000 for a BMW? Sure, if you wanted it and could afford it. For most consumers, we weigh price with the value we assign to the product or service we’re buying. We may think it’s reasonable that a BMW costs $50,000 (though we may not be able to afford it). But we would think it’s outrageous if a Kia cost the same. Why? Because BMW has proven itself over the years to be worth more than Kia, through its performance, its reliability and its brand cache.

So lets go back to the article. In it, consumers discuss shopping Minnesota health providers for eye surgery, and finding that a local Fairview hospital would charge $18,000 (for both eyes) and that the Mayo Clinic was charging almost $24,000 for the same surgery. The lowest cost provider was Minnesota Eye Consultants, charging $12,000 for the surgery.

What’s the best deal? Better phrased, what’s the best value? With insurance coverage, most of us would choose the Mayo Clinic over the other options, all other value points being equal (service, proximity, etc.). That’s because our financial exposure might be a $25 copay or $500 deductible. In that case, why not go with the Mayo Clinic – the cost difference is rendered moot. Of course, that’s what many people claim is driving the higher cost of healthcare, ushering in consumer-driven health plans. So now let’s say you have a high-deductible plan, and you pay the first $5,000 of any care. Does this change your decision? Well, theoretically it wouldn’t, because no matter which option you choose, you’re still paying $5,000.

But let’s suppose you’re paying for the surgery entirely out of pocket. (Assume it’s elective, for example). Now what do you choose? Do you automatically pick the lowest cost option, Minnesota Eye Consultants? Well, that all depends on the value of what you’re receiving. And that depends on how you define value. In the article, the Mayo Clinic defended its pricing by stating that their doctors perform the surgery in a hospital setting, saying it’s safer for patients in case of complications. Is that true? How would a consumer know for sure? And if it was true, is it worth paying twice the price as an outpatient solution (the option provided by Minnesota Eye Consultants)? Assuming there is a demonstrable difference in safety, how much would you value safety in terms of dollars when it comes to the health of your eyes?

The article tries to make the case that if patients dig deep enough, they can find better price options for their healthcare. This can be partly true, assuming they know how to differentiate between the value of the different offerings, not just the price. But what the article really helps demonstrate is that we’re really in the Wild West of healthcare pricing. No one – consumers, healthcare providers, insurers, government regulators – has a firm grip on the true impact of price on healthcare decisions. To use another metaphor, pricing in healthcare is about to send the industry on a wild roller coaster ride. Right now, we’ve climbed to the top of that first giant hill, and we’re hearing the final “tick tick tick” before we all plummet down the other side. (And just like on that roller coaster, some of us will be screaming in delight, and others in outright fear.)