Top Doctors 2008: My Daughter’s $29,000 Appendectomy

I AM, IT seems, not the only Philadelphian or American flummoxed by the complexity of the health-care system. In fact, as medicine grows more sophisticated and complicated, we’re quickly approaching a crisis point in what experts call “health literacy” — our ability to comprehend everything from the instructions our doctors give us to our insurance claim forms. “It relates not just to understanding the medical terms, but to the consumers’ need to understand the system of health care and their responsibilities to pay for health care,” Madeline Bell, CHOP’s chief operating officer, told me one day on the phone. “So what you’re experiencing is that it’s a complex system, and you don’t have a high level of health literacy — because it’s not something that most people have. Even me. I feel I’m educated about it, but when I’m a consumer, I really have to take my time and understand all the components of it.”

I called Madeline a couple of days after talking with Deirdra. I wanted to ask her two things: First, how did CHOP go about calculating what I’d started thinking of as the “sticker price”? Second, how did CHOP and United Healthcare figure out how much CHOP should actually get paid?

The sticker-price portion, it turns out, isn’t particularly difficult to grasp. Madeline explained that CHOP looks at “acquisition costs” — that is, what it has to pay for things like drugs, supplies, workforce — then adds in data regarding what’s typically charged for a service — in short, the going market rate. That seemed logical enough. What I found curious, though, was this: United Healthcare wasn’t the only one who got a break on the cost. No one ever pays full price.

“That’s not how it works,” Madeline said, with a little bit of a laugh. “It sounds strange, I know. But it’s typical that hospitals have charges, then they’ll negotiate a contractual agreement with insurance companies. You won’t get a situation where the insurance company will pay the charges. That’s just how this system works.”

Now, I’ll admit to being a little bit of a wiseass here, but I couldn’t help wondering — and apparently I, uh, did this out loud — just why the hell a hospital would establish a price that no one on the planet was actually going to pay.

“Well, it helps us understand what our gross revenue is,” Madeline responded politely. “It’s just a system that’s been set across the board for health care. There are some systems” — she stopped, and it was clear that this was much more complicated than I was ever going to be able to understand. She explained, for instance, that sometimes what insurers paid was a percentage of the retail price, although sometimes it wasn’t. … “I think it’s just a long-standing system. I know it doesn’t make sense to the general consumer.”

Actually, it made perfect sense: The price is what it is because that’s what the price always was — well, except when it isn’t.

I moved on to my other big question: If sticker price is irrelevant, then how do hospitals and insurance companies figure out how much the insurers — and, by extension, all of us — actually pay? The answer turns out to be one that any mass-market merchandiser would understand: Typically, the more customers an insurance company has, the better the deal it gets from a health-care provider like CHOP. “For those insurance companies where we do a high volume of service, there will be more of a volume discount,” Madeline explained.

That our health-care system operates on the same economic model as Sam’s Club — with a family pack of appendectomies costing less per item than one solo appendectomy — was not particularly comforting. Indeed, it struck me as exactly the opposite of the way things should be. Doesn’t giving price breaks encourage people to use the health-care system more? Madeline told me that in some areas of the country, hospitals are experimenting with variations on the current model. One is what’s called “outcome-based payment” — where a hospital gets paid a better rate if everything goes the way it’s supposed to, with no infections, say, or a patient gets out of the hospital after a set number of days. The other burgeoning trend is insurance companies not paying for what the industry ominously calls “never events” — that is, the hospital doesn’t get paid if the patient dies when he or she wasn’t supposed to.

Honestly, I have no idea what to think about that.

I liked Madeline Bell, and I could tell she is genuinely sympathetic to how complicated all of this is to the average patient. She explained, for example, that CHOP was as open as possible with families when it came to helping them get a grasp on costs. “We give families the information they need to understand their bill,” she said. “The problem is, many times it creates more confusion.” After looking at Sarah’s 95 line items, I could understand that. That said, Madeline told me there are cases where delving into every one of the charges in detail is crucial: “There are some health plans out there that have lifetime maximums. And if you have a child who’s chronically ill, it’s important that you understand what your insurance company is paying for in your child’s care.”

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