Health Care Pricing, Doorbells and Peanut Shells

by Tom Robertson

Executive Director, Vizient Research Institute

Imagine running into your next-door neighbor in the parking lot of the local electronics store and discovering that you both are there to purchase one of the new motion detection video doorbells. You enter the store together, chatting about the weather. When you reach the doorbell display, your neighbor grabs two identical packages, hands one to you, and you proceed together to the checkout counter. Your neighbor engages in some small talk with the cashier, who rings up the price—$199—slips the doorbell into a small bag and nods to your neighbor who waves to you as he leaves. Handing the cashier your doorbell, you reach into your pocket for your wallet and then stare at the cash register in disbelief. The price of your doorbell: $928.

Worried about spending two weeks in close proximity during a camping trip, two friends in Austin, Texas, decided to get tested for COVID-19. They went to a drive-through testing location together and received identical tests—both with negative results. One of the two friends paid cash while the other thought she should use her health insurance benefits. The facility charged the patient who paid in cash $199. His friend, who paid with insurance, was charged $6,408. The insurance company negotiated the bill down to $1,128 and told the patient that she owed the provider $928. After comparing notes and discovering the discrepancy, the insured patient negotiated her charge down to match the charge to her friend, but had they not been tested together she would have had no idea of the enormous variation in prices. A spokeswoman for the provider explained that charges to insurance companies are higher because insurers often pay less than half of the amount billed. That explanation fell short of explaining the 32-fold difference in charges between the two friends who were tested together.

The disparity of charges for identical services depending on the source of payment is difficult for patients to understand, and even more difficult for providers to explain. As ambulatory charges attract increased scrutiny, even those of us who are close enough to the process not to be surprised are occasionally caught off guard by the sheer magnitude of some prices. A year ago, I had a kidney removed; and as a result, I now have semi-annual computed tomography (CT) scans to ensure that I am cancer-free. Believe me, I value the technology and I am pleased to pay for the clinical expertise, but I had to look twice when I opened the bill. The scan was performed in the office building where my primary care physician practices; the charge was $15,953.

As health systems prepare for a new normal coming out of the pandemic shutdown, any number of things that always were, may not be again. For example, virtual visits may continue to replace many face-to-face encounters. With more patient interactions occurring away from facilities, we may see fewer ancillary services per encounter. The temptation to charge higher prices for the volume that remains may be strong, but there is a limit to how high prices can rise. More than $6,400 for a virus test and nearly $16,000 for an outpatient CT scan may be exceeding that upper limit.

It’s difficult to pin down the origin of the idiom “the elephant in the room.” It appeared in a 1959 New York Times article in which an issue was compared to an elephant in the living room, which is too big to ignore. Some trace it all the way back to an 1814 story by a Russian poet in which “The Inquisitive Man” goes to a museum and notices all sorts of tiny things but fails to notice the elephant. Whatever its origin, the term has come to conjure the existence of something that is obvious to everyone but is deliberately ignored.

It may be uncomfortable to talk about health care prices, but it’s increasingly difficult to ignore the peanut shells in the parlor.