America spends more on health than any other developed country with it seems little to show for it in terms of superior health outcomes. When one tries to find out the actual reason for this high spend as surgeon and author Atul Gawande attempted to do in his essay in the NewYorker titled The Cost Conundrum many a blind alley confront you. However a logical place to start would be the costs of inputs into the medical system.

While items like wages and salaries are potentially easily found, once we enter the realm of the ‘hospital complex’ things gather increasing amounts of secrecy. I talked recently with a hospital CEO in Oregon about this and he freely admitted he had no idea as to the actual cost of a hip replacement in his hospital but with a quick telphone call he could tell me the price. One therefore has a twinge of sympathy for the unsuspecting patient who actually wants to know how much their surgery will cost

In the US the ‘starting price’ for surgery is the billed or advertised rates which on rare occasions are found in hospital web sites but are also found by covertly contacting the hospital directly.

After this things get tricky because it seems that the value system for surgery in the US is not the price of the operation per se but discount off the price. That is the focus is on the extent of the discount one can negotiate rather than what the starting price actually is. While this may sound bizarre there is plenty of evidence that suggests the large insurers in the US (the BUCHA group) obtain on average 50% discount on the billed or advertised rate.  Hospitals knowing that insures want a 50% discount off the ‘billed rate’ are therefore incentivized to make sure the billed rate is a large number so the price they actually end up with, they can live with.

On the flip slide and potentially more worrying is that if hospitals are negotiating with insurers on percentage discounts and not on actual price linked to the procedure’s base cost (which they don’t know) then potentially they are underselling their procedures by a significant amount. This means a focus on increasing volumes to obtain the same return. The inevitability of increasing hospital debt and bankruptcy then seems a factor of time.

In such a system the underinsured or uninsured patient or even small self insuring businesses do not stand a chance; they are rabbits in the headlights with no bargaining power in a pricing system not based on logic or accountancy; where the starting price bares no relationship to cost (because no ones seems to know the cost) and is purely a point to negotiate down from; if you have the power to negotiate. If you don’t have this power then Surgery USA is off limits.

In many other developed countries that have private fee for service surgery, the surgeon themselves can provide you with an accurate price guide that relates to the cost of the provision of that service. The costs are known and hence the prices are known.

Why does America have to be so different?