Up Close and Personal: Our $2.7 Trillion Cottage Industry

I recently had the experience of intensively studying an industry as a consultant — then subsequently (and unrelatedly) becoming a client of that industry.

The industry, as you probably have guessed, is health care.  There are things you learn when you are a patient that you never see when you’re not. (I’ve heard doctors report this as well.)

In the past year I spent a few hours as a “client” in each of two major New York hospitals.  The net results from a clinical perspective were excellent, and I’m relieved to report that in both cases their work is now finished.

One of these hospitals was ranked near the top in NYC hospital quality by the US News and World Report polls, the other somewhere down in the low 40’s.  But my observations apply to both.

Systemically speaking, hospitals as seen from the inside seem almost artisanal in nature.  Very hands-on, customized, laid-back — and, well, expensive.  It’s as if you were a guest in the city’s best private club, where no expense or courtesy is spared.

This has both positive and negative consequences.  On the one hand, the leisurely pace and attention are welcome, especially when one is in a state of discomfort and/or anxiety.  The most obvious negative — the cost of doing things this way — is often hidden, at least until later.

The quest for cost

Inside “the club”, of course, money is never discussed.  It’s just not done — and if you try, you don’t get very far.  In one case I asked my doctor’s office assistant what the cost of a routine, elective outpatient surgical procedure was going to be.  I was honestly trying to decide if it would be “worth it” at this time.  I was told that I would not pay more than 20% of the cost, due to my excellent private insurance plan coverage.  “Sounds good…but 20% of what number?”  was my obvious question.  “Well, let’s see,” she responded, clearly taken aback by my question. “The surgeon’s fee is $7500, the anesthesiologist is probably about $1500…then there is a hospital fee, I don’t know what that is.”

My positive feelings for my doctor notwithstanding, I couldn’t stop myself from mentioning that $5000 per hour sounded like a lot.  “Of course you won’t pay 20% of $7500 — it will be based on whatever your plan has negotiated with the surgeon.  It could be much lower. You’d have to call your plan to find that out.”

Not wanting to give myself sticker shock, and only having so much time in my day to spend on this, I did not pursue her recommended option.  When weeks later the Explanations of Benefits (“the tab”) arrived, she was shown to be nearly 20% low on the professional fees — which were actually $9000 for the surgeon and a little over $2000 for the anesthetist.  But the part she didn’t know — the hospital charge, was over $26,500 — more than twice the combined fees of the three doctors involved.  My afternoon in the hospital cost $37,900 “list price”, of which my insurance plan paid the “discount price” of $17,200 (a discount of nearly 55%).

Hospital costs a

Her advice to me not to worry about it too much, though, was sound.  The cost to me was nothing.  (Thanks, excellent health care plan!)

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    COMPETING IN THE KNOWLEDGE ECONOMY is written by Timothy Powell, an independent researcher and consultant in knowledge strategy. Tim is president of The Knowledge Agency® (TKA) and serves on the faculty of Columbia University's Information and Knowledge Strategy (IKNS) graduate program.

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