All-in, what’s the cost of a hip replacement?

As consumers, our knowledge about the all-in cost of health care procedures is abysmal – and hospitals aren’t much better. Of course, there’s a perfectly good reason; most all of the cost is paid by an insurance company. A hip replacement, for example, costs anywhere from $11,100 to $125,000 so wouldn’t you expect people to go shopping? Because patients pay only a fraction of the cost, why should they care? Besides, it is difficult to get a total price for elective surgery.

It’s not as if prices are a mystery or can’t be obtained. There simply isn’t an incentive for providers to publish their costs which leaves consumers, employers and taxpayers paying higher monthly insurance premiums that are eating up our paychecks, profits and Medicare funding. Meanwhile, the cost of health care absorbs nearly $18 of every $100 in the U.S. economy, the highest per capita cost in the industrialized world.

Most hospitals don’t know the all-in costs, according to a 2013 study published in the Journal of the American Medical Association for Internal Medicine. Hospitals and surgeons charge separately so determining an all-in cost takes some diligence.

The study, conducted by a team from the University of Iowa, surveyed two hospitals in each of the fifty states as well as two in Washington D.C. They also polled the top twenty hospitals for orthopedic surgery as ranked by U.S. News and World Report. When asked for the all-in cost for a total hip replacement, 45 percent of the top-ranked hospitals were capable of providing a package price. Only 10 percent of the non-ranked hospitals could meet the all-in cost challenge.

Those top-ranked hospitals that could offer a complete-package cost ranged from $37,489 to $68,791 with a mean of $53,140. The mean cost for non-ranked hospitals with an all-in price was $41,666.

The aggregated data in the study showed that surgeons’ charges for doing this procedure at top-ranked hospitals ranged from $6,450 to $17,500 with a mean of $11,117. Surgeons at non-ranked hospitals charged about $9,203.

Not knowing or caring about prices carries a high cost. When consumers have very little skin in the game, the beneficial forces of competition don’t come into play. Imagine buying a car knowing that your out-of-pocket cost is only going to be $3,000 yet you can choose any car on the lot. What’s your incentive to buy anything but the vehicle that has all the bells and whistles you want? That reminds me of an abject lesson is in dissociative behavior. A friend driving his dad’s car was abusing the transmission. When I said “take it easy”, his response was “Hey, it’s not my car.” In health care, it seems we all say “Hey, it’s not my money.” but, of course, it is.

The intermediary in our current delivery model is the insurance carrier which picks up the rest of the tab. It has an incentive to control costs in order to price its insurance products competitively. But its negotiated rates with hospitals and physicians is so far removed from the consumer that we simply take for granted that insurance premiums must be fair and competitively priced.

That begs the question: How can we inject consumer incentives into the health care system as well as create transparency in pricing? Education and persistence.

One of the best available solutions to changing consumer behavior that lowers cost is the health savings account. By design, a health savings account (HSA) plan has a high deductible for which the consumer is responsible. For example, if a consumer has to pay the first $3,000 of annual health costs (with the exception of preventive care that is paid by insurance), studies indicate that utilization and costs decline. According to a 2011 study published by the National Center for Biotechnology, people having an HSA-eligible plan had:

• 17.4% lower total expenditures
• 13.6% fewer office visits
• 20.3% savings for those office visits
• 20.1% fewer emergency room visits
• 29.2% lower costs for pharmacy expenditures
• 27.9% lower expenses per drug

Until health consumers have skin in the game and clear, concise, all-in data becomes available for common elective medical procedures, it is unlikely that we will be able to bend the cost curve. You can change your own behavior and cost of health care, though, by enrolling in your company’s HSA plan or request that your employer offer this cost-saving opportunity.