Markets at Work: Hernia Surgery
The cash price for repairing an uncomplicated inguinal hernia at a practice in Denver was $740 for the surgeon, $928 for the anesthesiologist, $2,456.42 for the surgery center, and $140 for the surgical mesh used to strengthen the hernia repair. The total was $4,264.42. And although insurer contract prices remain a deep, dark, secret until the bill arrives, several people in Denver who were experts at pushing paper suggested that these cash prices were significantly below the usual network prices.
The total cash price at the Surgery Center of Oklahoma in Oklahoma City was $3,060, including mesh and a consultation with a surgeon who patiently answered a series of questions. The difference between the price in Denver and the price in Oklahoma City was roughly $1,200.
The cost of roundtrip airfare for two from Denver to Oklahoma City is currently around $450. Two nights at a medium priced hotel is about $200 including breakfast, a rental car for three days would run around $140. Figure another $100 for food, $200 to kennel the dogs, and $36 for airport parking. This works out to $1,126.
The market is competitive in that middle-of-the-road estimates of travel costs suggest that prices for the Denver practice plus travel are roughly the same as those in Oklahoma City.
Whether an individual patient chooses to travel depends upon the direct costs of the travel and the opportunity cost of the time (and aggravation) spent traveling. For people with certain kinds of jobs, the cost of missing work can be higher than the money saved by traveling. But for those with low time costs, the time to plan the surgery and the airfare in advance, a willingness to stay at a less expensive hotel, and the ability to bribe or pressure relatives into keeping the dogs, traveling can save some money.
It can also help keep Denver cash prices in line with low cost producers in other U.S. markets.
In fact, it might even be cheaper to pay for the doctor’s flight to Oklahoma to perform the surgery. It is a developing industry filled with potential. Soon Oklahoma will be advertising this and incentivizing patients to receive treatment in any facility of the state. Also, new hospitals can be built close to the airports and build hotels with nurses on staff to help guest-patients that undergo a procedure in the hospital next door. I don’t know specific percentages, but I guess that most surgeries are planned with advance, and that allows the surgery to be planned where the patient wants. It is a great business idea, that will be exploited if the disparity of prices continue.
Maybe even the insurance company would rather pay for the transportation cost to take the patient where the procedure is cheaper.
That sounds reasonable. Supposing that the patients keep a valid health insurance, the insurance company should pay for the cost of airfare/road trip.
If you could save more than a thousand dollars in a simple procedure as a hernia, imagine how much you can save in other, more complicated, procedures. This is a wonderful alternative for patients, if these prices were widely known. Sadly most of these prices are determined “under the table” and the patients know them when it’s too late.
The cost of travel would also have to factor in. Like stated in the blog entry, the cost of travelling and missing work could outweigh the savings the patient would experience.
This is a benefit that helps those who are wealthier, those who can afford a full “vacation” to get a treatment in another place. I believe that if you can afford all the implied cost that you mention (airplane ticket, hotel, car, etc.), you would prefer spend the thousand dollars more and be treated in your home state, close to your house and with the amenities you want.
I would be one to wonder if there is a difference in doctors or facilities, which would lead to a difference in quality of care. What if the surgeon in Denver is of higher quality than Oklahoma.
The facilities could be different as well. Specialization would factor in between the facilities.
I think that you are missing a cost in your calculations, and that is comfort cost. If in Denver you have family and friends that will take care of you, your own house where you can lay back and complain all you want about the pain, and your trusted doctor, you probably wouldn’t go to Oklahoma to have the surgery. At least I wouldn’t. I value more the company of friends and family, the peace of mind having my own doctor and the comfort of my house than $1000. For me it doesn’t worth it. The costs must be much lower, for me to sacrifice those comforts.
For simple, uncomplicated surgeries like the hernia repair example, I would think the cost of going to another state for a procedure would be too high, and the decision to stay in your home state would be the better option.
I could see if the procedure was heart surgery or for cancer, but routine surgery would only be costlier if travel was involved.
I would prefer to consider the quality of surgery. Wherever I go, the insurance company should pay for the bill because it is a part of treatment.
Health Care Blue Book reports “fair price” of $2,397 for facility, $999 for physician, and $651 for anesthesia, for a total of about $3,000.
John,
I think that the Blue Book’s “total fair price” adds up to $4,047. (https://www.healthcarebluebook.com/page_Results.aspx?id=77&dataset=MD&g=Hernia Repair)
And as it didn’t know my area, I have no idea how it arrived at that.
I believe that I was looking at some kind of national average. I can only imagine that prices for all goods and services around the Gorman mansion are higher than they are amongt the hoi polloi, right?
John, I just think that you added wrong. And region matters because prices vary across the US thanks to differences in demand, land rent, wages, taxes, regulation, and the like.
As I’m sure you know, all kinds of things in Colorado are high.
Especially with the new marijuana laws…..
The real question is why any of these prices are above what the health care providers would receive from Medicare. At our clinic in Maryland, we charge $1,900 for hernia surgery. This includes anesthesia, facility, and surgeon charges.
Why would it matter what they receive from Medicare? When you quite $1,900, are you referring to Medicare’s total reimbursement or a price you quote to cash-paying patients? Can you direct us to your clinic’s website where we can see this aggregate fee?