Why Do U.S. Colonoscopies Cost So Much

Elizabeth Rosenthal’s piece in yesterday’s New York Times is generating backlash. ”In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000″ we are told. But a map of the 50 states shows that the U.S. prices several thousand dollars or more and varies widely from state to state. A reader at Austin Frakt’s site responds this way:

In this article, the primary problem was not that we pay more for colonoscopies, we’re buying different things! The colonoscopy was a little more expensive, but the real difference in Europe was that we also buy an anesthesiologist and a surgical center along with it.

An email I received from a doctor had this to say:

Twelve years ago, when I had my first colonoscopy, it was in my local GI doc’s office, a private practice in Manhattan. It cost a few hundred dollars, took an hour, and I was back at work within two hours total.

Two years ago, when I tried to make another appointment, he said that the regulatory burden had made it impossible to continue performing colonoscopies in his office. He referred me to a trainee he had worked with, one who happened to be in my med school class. This doctor works at a medical center and was happy to provide me with his service there…The charges for the colonoscopy at the medical center were about 10 times the charges from ten years before, largely because of the additional overhead, anesthesia (which I didn’t want or need but which they require), and so forth. I also had to sign a document stating that I wouldn’t drive for 24 hours after the procedure. So I was stuck missing a day of work and spending another night in the hotel.

So why are colonoscopy charges ten times higher than they were ten years ago? And why are my own costs for going through the process also about ten times higher (considering the number of hours of lost time in the office, travel, hotel, etc.)? It’s not because of anything physicians have done. It’s because of regulatory changes that prevent small practices from practicing and that reward the higher overhead facilities (medical centers) for, frankly, having higher costs.

Comments (27)

Trackback URL | Comments RSS Feed

  1. Dewaine says:

    I wonder if the added regulatory burdens are highest for this procedure relative to the industry or if colonoscopies are an indicator of a health care wide phenomenon? Obviously health care costs have been going up in general (which is an extraordinary burden), but imagine the economic cost if it is this bad industry wide?

    We need to rethink ubiquitous regulation. High costs discourage people from getting examinations, leading to higher incidence of advanced illness and, ultimately, serious injury or death. Are these cost inflating regulations really saving lives? Would anybody think about the children?

    • Dewaine says:

      From NCPA in 2004,

      “About 4,000 more Americans die every year from costs associated with health services regulation (22,000) than from lack of health insurance (18,000).”

    • Sam says:

      True but let’s not forget that regulation to some extend is actually necessary. The trick is to assess what types of regulations are truly necessary and which ones do nothing to improve quality.

      • Dewaine says:

        Which ones are necessary? If people think that some precaution is necessary they will demand services that make it.

  2. Tom says:

    Another example of how overt regulatory systems burden private practice and increase prices.

  3. Kyle says:

    Overhead is one of the major problems associated with VA care. Defrayed costs from dissolving major hospitals and applying that money to HSAs for private treatment would help. Instituting regulation on PCPs is sort of like not seeing the forest for the trees.

  4. Roget says:

    I’m very curious about the state variance, are they a function of col variance?

  5. August says:

    Comparing the US to other countries is also difficult. Many national healthcare systems fix the prices they pay or a procedure regardless of its actual cost.

  6. Baker says:

    Bad regulations are limiting choices and raising costs. Surprise!

  7. Buster says:

    This is an interesting anecdote. I wish I knew how prevalent it is. I’ve seen diagnostic imaging centers that throw in the radiologist services — but others don’t. Why would a state regulate medical services until only expensive hospital can perform them? Maybe well-meaning patients protections turned into regulations that hurt the patients. Maybe hospitals lobbied for these restrictions.

  8. Linda Gorman says:

    Why regulate to protect hospitals? Hospitals lobby like heck to minimize competitive threats and have huge influence with state legislators.

  9. Dennis Byron says:

    Maybe the Times answered its own question of June 2 without realizing it when it stated:

    “A major factor behind the high costs is that the United States… does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid…”

    Coincidentally CMS released information on June 3 on what Medicare pays for a selection of outpatient procedures (but not including colonoscopies). The answer is that it pays 20% on average of the clinic/hospital’s “charge.” Guess who makes up for the difference?

    (Please no one go off on the tangent about all the problems with hospital chargemasters. We get it.)

  10. Bob Hertz says:

    Given how much overhead a hospital packs into its
    “charges,” I actually approve Medicare only paying 20% of those bloated charges.

    The best solution is for Medicare and all other insurers to pay the average charge of a free-standing clinic.

    And if a patient is sent to a hospital for a test that can be done perfectly well at a cheaper site, then the hospital must inform the patient of any balance billing, in writing, well before the procedure takes place.

    Greedy hospitals should be driven out of much outpatient care. Their ‘facility charges’ are pure price gouging, and I know because I have had to pay them.

    • Dennis Byron says:

      Bob

      Like I said “don’t go off on a tangent relative to hospital chargemasters.” If I am reading the CMS press release correctly, I believe these are the charges of your “cheaper sites,” not your “greedy hospitals.” (Maybe a mix of the two.)

      “Cheaper site” does not have a good ring to it when you are having a surgical procedure (although I’ve had two this year at “cheaper sites.” You’re welcome.)

    • Dennis Byron says:

      Bob

      I double checked and I am wrong. the new CMS data does cover hospitals doing outpatient procedures, not surgical centers doing the same procedures.

      Back to my original point. Forget the meaningless silliness of the hospital chargemaster. U.S. costs to private insurers are higher because payments by the government are based on artificially low prices that do not cover the cost of the procedure. The difference is put on to other patients.

    • Al says:

      It would be even better if Medicare used the marketplace a little more. But, what can we expect given the factor that at least in my area the total hospital costs for colonoscopy are about double that of the outpatient privately owned surge-centers. The administration and Obamacare seek to prevent surge-centers from opening up and reduce the numbers that are already built. Apparently saving 50% of costs is not something on the mind of the Obama administration.

  11. diogenes says:

    So, this is what the NCPA defines as proof? The NY Times details the financial incentives for doctors to ratchet up the price of colonoscopies and the retort is an email blaming some unnamed regulation. It’s not regulation, it’s not the evil federal government, its simply greed and doctors who have figured out how to milk the system.

  12. Buster says:

    @diogenes

    Of course doctors have an incentive to find creative (or non-creative) ways of boosting charges. The same is true of suppliers of goods and services in other areas of our economy.

    However, the reason medical prices have escalated to the extent that have is due to a variety of factors other than “greedy” physicians.

    Excessive regulations have made competition more difficult for small (low overhead) providers. Barriers to entry (i.e. medical licensure and certificate of need laws) also limit competition. Another problem is that insured patients lack incentives (and the tools) to compare costs. If patients themselves were paying most of their bills, they would balk at these types of charges.

  13. civisisus says:

    And who do you idiots imagine is crafting these burdensome regulations? Have you heard of ‘regulatory capture’? It’s rife in health care.

    Your paranoia about A Big Bad Government Bogeyman apparently blinds you to the fact that these regulations are mostly concocted by those who are ‘regulated’.

  14. Bob Hertz says:

    Dennis, let me tell you where I was going in my harsh criticism of hospitals and their charges for outpatient care.

    Let us say using very round numbers that a free standing clinic can do a colonscopy for $600 and make money.

    A hospital loads in overhead and their net payment has to be $2,000.

    Medicare pays $500 for the procedure.

    At that rate of payment, the free standing clinic can make do.

    But at that rate of payment, the hospital complains that Medicare is not covering their costs.

    My reaction is that I am glad that Medicare is not covering those costs for something that does not need to be done in the hospital in the first place.

    I could have this all wrong, do not hesitate to tell me if I do.

    • Dennis Byron says:

      Bob Hertz

      Hi Bob

      I agree with your argument that in a perfect world Medicare should pay an amount for procedure X equal to the cost of the least expensive but most effective way of performing that procedure — including overhead — plus some reasonable uplift for profit. Whether or not procedure X takes place in a hospital or a surgical center or in a doctor’s office.

      Of course, to do this when the procedure is a colonoscopy you then have to distinguish
      – a pure screening colonoscopy from
      – a colonoscopy for a person with recent visible bleeding from
      – a colonoscopy for a person who just had a barium enema from
      – a colonoscopy for a person who flunked a stool test from
      – a colonoscopy for a person with a history of polyps in previous colonoscopies from
      – a colonoscopy for a person who previously had colon cancer from
      – a colonoscopy for anyone of the above (I’m sure I’ve left out some other possibilities) who can’t handle anesthesia or who needs special anesthesia or who has a heart condition or who is over 80 or who is….

      Do you really want the bureaucrats at the “DMV” figuring all that out? So far, among all these important considerations I outlined above, the three things that the “DMV bureaucrats” that run Medicare have decided in their wisdom about colonoscopies are

      1. You can have one every 5 years (not four, not six?) 100% paid by Medicare Part B
      2. If you have a family history of colon cancer (I assume that’s how they decide), you can have one every 2 years (not 1, not three) 100% paid by Medicare Part B
      3. If you have previously had a sig, you can have as soon as four years later (not three, not five) 100% paid for by Medicare Part B

      Of course you can have one any time you want but if you don’t fit these DMV rules, you pay 100% of the cost.)

      And — drum roll please — if they find a polyp or a suspicious patch during the otherwise approved test, Medicare Part B will only pay 80% of the cost. (It might make sense to add a charge for biopsying the polyp or patch but that’s not what they do.)

      And I admit this is piling on — instead of the DMV bureaucrats at Medicare — do you want the IRS making these decisions about your health?

  15. John Fembup says:

    The linked Times article seems to use the terms cost and price as virtual synonyms. The author has a lot of company in so doing – but it’s still very misleading.

    Costs and prices are different. In our so-called system the differences are neither transparent nor rational and as a consequence most prices fail to transmit useful information to patients. Physicians and hospitals are in the same boat as to equipment or supplies they must buy.

    People expect their insurance – public or private, doesn’t matter – to subsidize their care to the point no one needs to worry about either the cost or the price. So if costs or prices go up why, just increase the subsidy. Problem is, higher subsidies just feed the beast, and do nothing to rationalize either prices or cost.

    I don’t claim to know what to do about that but I know from my own life experience that careless use of fundamental terms confuses the discussion and hinders a good definition of the problem. If you can’t define the problem, you reduce the chances of solving it. Aside from the Times article above, an obvious Exhibit A is defining “health care costs” as our problem then writing a massive piece of insurance legislation and calling it the “Affordable Care Act.”

  16. Bob Hertz says:

    Thanks for the insights, Dennis.

    Whenever and wherever Medicare allows higher fees for complex cases, there is a lot of upcoding, and why not? Medicare is a self-reporting system with no ceiling on total expenditures.

    In my limited study of Medicare claims, diagnostic tests like colonoscopies eat up about $25 billion a year in total payouts. That is 5% of total spending, actually a little less. It will not sink us if we overpay, and it will not save us if we underpay.

    My own preference would be to have a flat payment for colonscopies based on the average time and personnel requied….ie. 2 hours and a staff of three means $700. End of discussion. Once again, I intensely dislike the way hospitals pile on overhead onto simple outpatient care.

    And do not get me started on over billing by anesthesiologists, a greedy pack if ever saw one.

    • Al says:

      Bob, when the payment is fixed and the resources or time is greater than normal I always worry about the sickest patients being continuously pushed to the back of the line.