Archive for January, 2004

Of Chicken and Lobster Soup: Price Transparency and the American Hospital

Tuesday, January 6th, 2004

Hospital prices are seen as a bad deal already, even though consumers don’t even pay for them directly. More than ten years ago in a presentation to Tommy Frist (of HCA fame) a colleague and I showed a Conference Board survey in which hospitals ranked 49th out of 50 items ranked on being a good value. Chicken was seen as the best value in America, lawyers fees was ranked 48th of items surveyed. Mr.Frist the elder became upset, not because hospitals were near last, but because they were behind lawyers. We pointed out that the reason that hospitals are seen as such a bad value is that hospitals persist in sending the patient a bill. Who could justify $58 Tylenol or outrageous prices for simple lab tests? Some wag in Mr. Frist’s executive team said “Yeah, in the future we shouldn’t send the patient a bill, we should send them a chicken”.

Fast forward to 2004. The hospital reimbursement trends of the moment lead us towards consumer responsibility for payment, tiered networks and transparency in pricing. We are moving back to a health system where consumers are exposed to a larger share of the cost of each of the healthcare silos. While subtly disguised as “consumer directed healthcare” or “tiered networks” consumers will see how much the cost of a stay in hospital will affect them in the pocketbook. Well, that’s the theory.

On a wonderful, special trip to France last September, my wife and I splurged on an extravagant gourmet dinner in a fancy French hostellerie in St. Emilion. As we were seated at the table, the maitre d’ furnished me with a menu with prices on it, and my wife (presumed the economic ally discriminating inferior), with a menu with no prices. My wife offered that she might start with the lobster soup, I casually flashed the menu with the prices (“Not, for $43 a bowl” I suggested). After she enjoyed the green salad instead, we reflected on what this means for healthcare.

There is no price list in the American hospital. We patients are like the guest at an expensive banquet, with no clue of what the lobster soup really costs. We select things (on those rare occasions in a hospital when we have such choices) completely oblivious to the cost to the patient or the third party paying the majority of the bill.

Thus, it is argued, consumers need to pay at the point of care and be more frugal. OK, then, show me the prices in advance, when I am conscious, upright, rational, and informed. Hospital accounting is arcane and glacial at best, few hospitals know the true cost of clinical interventions, fewer yet have the information systems to communicate such data in real time to a fully informed patient on the edge of clinical expenditure.

How hard could this be? Car repair is as complicated as hernia repair and yet most Shell stations can give you a pretty decent estimate in advance and they call you before spending more if they find something else wrong. (Is it just me, or do you always need two new tires when you take your car in?)

A lot of this patient responsibility for payment is silly. But, if we are going down this road, please give us all a menu with prices on it. And live with the consequences: more green salad and chicken and less lobster soup.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in Hospitals and Healthcare Online January 2004.