Steve Cohen’s article on hip replacement prices in the WSJ struck a chord for several reasons. We had a family member just get a new hip. Transparent prices are critical to have effective markets. Medical prices have always seemed very odd, especially for procedures that are pretty standard.
We often talk about expertise here and we plead guilty to lack of expertise on medical pricing. Part of this post is to remind ourselves to find out more.
We want to discuss the oddity of medical prices. In Steve’s article he says that he had both hips replaced and
[T]he hospital had charged $175,000 for my right hip and $180,000 for the left. The insurance company had paid discounted rates of $75,000 and $77,000.
The physicians and other professionals involved in these surgeries have amazing skills but the procedures are pretty standard with a variety of specialists making sure that the surgeon can be efficient. We saw it in person for eye surgery and we were impressed by the capitalism at work in all the specialization. Because of part of the specialization was to administer drugs we don’t remember all of the details but we were queued up like planes on a runway and rolled down to operating room for take-off.
The point is they need a full queue to maximize profits with all these specialists. How does it benefit them to announce a price that is more than double the actual price? We are sure that there is a reason for the difference but we don’t know what it is. Our assumption is that essentially all of these procedures are covered, in large part, by insurance. Perhaps it is a faulty assumption. When we went in for our procedure we met with the financial person who looked at our insurance and said we don’t need to talk about prices other than this small blue bag you need to bring (we are not making this up). It cost us a few bucks. Perhaps the high list price is actually used but our priors are that there is a bureaucratic explanation. We are open to suggestions and plan to look ourselves.