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Even hospitals don’t know what surgeries cost

Doctor operating on knee
A doctor operating on a patient's knee. Photo: Sven Hoppe/picture alliance via Getty Images

We spend a lot of time talking about how hard it is for patients to find out how much any particular health care service is going to cost them.

A bigger problem: The Wall Street Journal uses the example of knee replacements to illustrate that difficulty, but also raises a bigger, even more frustrating point: It’s hard for hospitals to figure out how much their own work costs.

The details: Gundersen Health System in Wisconsin “had no real idea what it cost to perform the surgery” and wanted to find out why it was charging a list price north of $50,000, WSJ reports.

  • That process entailed “an 18-month review” in which “an efficiency expert trailed doctors and nurses to record every minute of activity.”
  • They ultimately determined that the procedure cost $10,550 — a fifth of the price the hospital had set.
  • The review uncovered other quality and efficiency issues. Some days, there weren’t enough beds for patients after surgery, and doctors performed the procedure differently “for reasons that weren’t always clear.”
  • “Gundersen’s analysis found that the hospital had been exclusively using brand-name cement, premixed with antibiotics. The hospital slashed its cement costs by 57% by switching to a generic,” per WSJ. “It isn’t clear how the orthopedics department came to use the brand-name cement … [one doctor] said he was perplexed when the analysis uncovered it.”

My thought bubble: Good on Gundersen for trying to figure all this out, but Gundersen isn’t an isolated example. This is the system we have.

  • And even though most of us don’t pay the full sticker price for health care, our premiums and out-of-pocket costs all still flow from that top-line number — which, WSJ notes, is set “using a combination of educated guesswork and a canny assessment of market opportunity.”