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Comment by conorh | Hacker News Reader

My wife is trying to work on price transparency at her practice by offering bundled rates for the surgery she does. She has worked with all the various providers - anasthesia, pathology, the hospital etc to come up with a cash rate that she publishes on her website for the surgery. Most of the parties are very open to it but also extremely worried about outliers. Patients that end up costing 10x what was expected due to complications. For her this is a minuscule risk, but in her negotiations it has been their main worry.

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> Patients that end up costing 10x what was expected due to complications. For her this is a minuscule risk, but in her negotiations it has been their main worry.

And that's probably one of the biggest reason hospitals don't want to talk about actual costs. If you tell someone it's going to cost $X for removing their appendix, but they have a heart attack on the table it's not going to cost $X any more.

Doesn't make lack of transparency right, but in this scenario, I can sort of see why.

That is the entire purpose of insurance. One of the line items should be <procedure insurance>.

But a hospital doesn't do 1 surgery, they do thousands. So that one 10x doesn't really change the average cost very much. This is just an excuse by the hospital.

Exactly. Every other industry in existence is able to package up and manage the outlier risk, but somehow, here, it’s “different”.

That doesn't make much sense. You can have a price for whatever complication occurred. Does the insurance/billing code system not already have a method for listing emergency/ad-hoc complications & procedures? It must have that otherwise there would be no way to bill in those cases currently.

e.g an emergency during surgery would normal get XXXX billing code so just publish what you charge for that XXXX billing code.

It does genuinely make it hard to price something if it almost always costs $3000, and very rarely $1M.

You might be interested in the below podcast if you haven't already heard it:

Entrepreneur and Anesthesiologist Keith Smith of the Surgery Center of Oklahoma talks with host Russ Roberts about what it's like to run a surgery center that posts prices on the internet and that does not take insurance. Along the way, he discusses the distortions in the market for health care and how a real market for health care might function if government took a smaller role.

https://www.econtalk.org/keith-smith-on-free-market-health-c...

https://surgerycenterok.com/blog/

ha! I just put a link this to further down thread. It was a great podcast, right?

It was and I've gone back and relistened to it because it is such an important topic--this whole thread is people opining on how things are bad and how this and that should change--that Oklahoma anesthesiologist is going out there and doing something about the problems he saw in the economic model of medicine.

Edit: anesthesiologist replaced surgeon

Also mentioned in an earlier post: https://news.ycombinator.com/item?id=27517126

Have the providers buy insurance to cover those rare 10x cases and add that insurance fee to the cost of the procedure.

The patient gets an "out the door" price and those most qualified (doctors and insurance companies) can argue about the actual cost.

Even if the costs ended up exactly the same, the patient would not be stressed by the "surprise" bills and out-of-network nonsense.

What about patients that end up costing .1x?

There’s risk of expensive patients but that should be easier born by the practice than the individual.

I suggest she talk to anyone who runs a buffet restaurant since there are ways to plan around.

> What about patients that end up costing .1x?

I imagine X here is more of a lower bound than anything else - which is where the problem comes in with up-front pricing.

It's like up-front "how long will this feature take" quotes from developers. Doable, but very difficult to truly accurately estimate.

Doing this on historical data - where the range likely ends up more like .8x to 10x - would be the only sane way, vs trying to come up with it from first principles.

And for the same reason that software estimates suck.

The lower bound is quantifiable: if everything goes as expected, and this is all the work, then project time is the sum of each piece's time.

But the upper bound is unknowable. If a thing that we don't know about happens, how long will it take to solve, if a solution is possible? And what portion of the project will it involve?

But that's really a gripe about PMs not understanding compositions of multiple normal distributions.

I never got the impression that price differences are a function of billable hours but instead some vague notion of complexity. I don't think that 10x billed surgery consumed anything close to ten times the hours and materials.

This would be akin to developers saying "Yeah it only took me 40 hours but it was harder then I thought so pay me for 400."

My first guess for the cost of a 10x surgery is something like "they didn't recover smoothly so what could've been outpatient is now a 4 day hospital stay that involved a lot more people and resources."

I can't say for sure, though - I've always gotten very detailed itemized breakdowns of all the cost, hospital stay vs surgeon vs anesthesia vs... but I've never compared them against someone else's bill for the same procedure.

Setting aside the why of the additional expense, the car mechanic model is very similar: you get an estimate, then you get the phone call telling you the additional things they found out, and the new estimate, asking for permission to do or not do the additional things. Though in the case of a surgery where you're knocked out, getting "incremental permission" like that wouldn't really work. You would just have to know the range up front.

But what if the range is so wide to be somewhat useless?

A good mechanic will tell you "it's $800 to fix the transmission, if the rotors are bad it'll be $1300." and if he finds is estimate is way off, that's his fault so he will take that on the chin and do right by the customer. Same for contractors who work on your home, sometimes you accidentally bid under cost and learn a lesson for next time.

Hospital estimates in the rare case they are provided only seem to get revised in one direction, that seems like having cake and eating it too. If the high school drop out painter can live by his estimates, so can the national hospital chain full of Harvard Business School graduates.

Most providers have a pretty good idea what the lower bound will be, its the upper 5% they may have no idea about.

Pathology maybe usually $100 for a tissue exam, but I've seen a routine mole biopsy need $1,500+ (wholesale) exams after referral to an academic center because there was something off that required further workup. This happened 1 time in 10 years.

Anesthesia knows that a breast augmentation will usually be no less than $X, but if the patient has an anesthesia reaction and decompensates and needs 4 hours of one on one time with an MD its going to be a lot more. Very, very rare.

You get the idea, its often not possible to know until you do the procedure. Even more when surgery is involved because imaging is not 100% and you may wind up with a much more complex procedure than you bargained for once you cut someone open, or a complication like a perforated bowel during colonoscopy, etc.

Finally, most of these people don't talk to each other -- so the pathologist has no idea what the surgeon is charging and neither of them the hospital nor radiologist.

That makes sense that there’s variability, many products have this. Not every single transaction needs to be profitable, only the aggregate.

If pathology is normally $100 and yet some cost $1500 then factor that into the cost based on the probability. Or insure against it. Etc etc.

These aren’t novel problems to the medical space, it’s just that there aren’t normal pressures forcing them to handle it.

Apple charges $79 for an insurance claim to replace my iPhone whether it costs them $1 or $1000 to correct. Imagine if they had an asterisk that sometimes it cost lots more than $79.

Someone else linked to the Surgery Center of OK [0] that has “solved” this problem. There’s a great episode of econtalk with Keith Smith [1] where they talk about this. Including examples almost exactly like how you call out.

[0] https://surgerycenterok.com/

Yet, this is somehow not a problem in any other country. That amount of outlier cost is priced in, like many other businesses.

That sounds like something an insurance company could fill the void. Other industries have insurance charged for each job based on what the job entails. Surgery should be no different.

The issue with US health insurance in general is that (a) it's not understood by the public as insurance, but rather as access to group rates, & (b) it's utility is proportional to the number of counterparties it covers (more doctors, more useful), which opens it up to a huge amount of abuse (doctor you've only done 3 transactions with over the past 5 years is vastly inflating fees on all).

What should probably happen is something akin to the housing market: backstop consumer insurance companies with re-insurers (semi-supported by the government) who buy and back compliant policies and providers.

Allowing consumer insurance companies to bound their risk and offer more reasonable rates.

I think ACA has a provision in there for catastrophic cases falling off the insurers' books onto someone else's, but it's been awhile since I read through it.

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