swab sticks and cotton balls in jars

Transparency, now: that’s what one doctor acquaintance says about health costs. Doctors are increasingly upset by health care pricing. When I heard not long ago from a California surgeon who had learned of our work via our PriceCheck project in California, I asked him if he wanted to do a written interview for our blog telling us what he knows and what he’s learned. Dr. Stephen Rakower, M.D., F.A.C.S., a longtime surgeon in California,  developed an interest in health-care pricing after retiring from full-time active practice. He lives in Southern California, has an M.D. from the University of Pennsylvania and has held academic appointments at several medical institutions. Rebecca Plevin, health reporter for our partner, KPCC/Southern California Public Radio in Los Angeles, wrote a blog post about Dr. Rakower that you can read here

By Dr. Stephen Rakower

1. Tell us about yourself.

I practiced surgery for close to 40 years and had a very active practice in all phases of general and vascular surgery, in both academic and community environments.

2. How did you become interested in health care pricing?

Recently I saw a bill for an ultrasound and CAT scan performed on a relative of mine. I was shocked by the charge.

When I inquired about the cost, which I thought must be a mistake, I was told that the pricing was correct. This led me to survey local radiology providers within a ten mile radius in my community. I learned that there was an enormous disparity in costs between institutions providing IDENTICAL services. Across the community, one institution might charge ten times what another charged.

In one glaring instance, two radiology facilities separated by about 50 yards within the same building, were separated by about 600% in pricing for CAT scans and ultrasounds. (Editor’s note: The charges Dr. Rakower collected are on the two spreadsheets below. At his request, we deleted the names of the institutions.)

In my surgical practice I ordered several thousand CAT scans and ultrasound studies for my patients and never thought there was disparity in pricing between different radiology providers.

3. As an experienced doctor, what do you think the best description is of the problem in health care pricing?

There are several aspects to the problem and its solution. It is not generally appreciated that

Ultrasound price differences

there is a disconnect between PRICING and PAYMENT. That is, the bill sent to the insurance company and the amount paid by the insurance company may bear no relationship to each other.

If a bill is sent to the insurance company for an insured patient, the insurance will pay its part but the residual still must be paid. In some instances the provider has agreed in advance with insurance that the residual will be limited. In other instances the patient must pay the full residual.

Different insurance companies agree to different pricing schemes with providers. The consumer has no idea of this.

In general the bill sent to the insurance company is a silly, exorbitant amount which is discounted by the insurance company, leaving the patient to pay the difference. The poor soul without insurance is expected to pay the non-discounted pie-in-the-sky bill.

The steps in the process which could be changed:

  1. What is the initial fee for the service?
  2. How much will my insurance company pay?
  3. How much will I be expected to pay after the insurance pays its part?

The answers to these questions will differ between providers and insurance companies. Uninsured patients should also know in advance what they will have to pay, and they should know to shop and negotiate for the service.

There will be opposition to providing transparent answers to these questions. This opposition must be overcome so that medical costs can be transparent.

I believe that physicians, like all professionals, should be free to charge whatever they wish. If they choose to align with insurance companies, they will be paid according to contracts they sign with those insurance companies. If they choose not to align with insurance companies, they will not be able to electively treat patients insured by those companies.

The free market will determine whether this is a good idea for each individual. If the physician does contract with insurance companies, there will be a balance due after the insurance company pays its portion.

In many cases the balance is never paid or is small, as is typically the case when a physician contracted with Medicare treats a Medicare patient. In other cases, a patient with private insurance might have a balance due of several thousand dollars after insurance pays its part to the physician. This is true even for a routine radiology procedure such as a CAT scan.

The public doesn’t know this and the medical community is also in the dark. The public believes that insurance will cover the entire cost of medical care, and this is just not the case. This can be fixed by transparent pricing made available to both insured and uninsured patients before the care is given.

Nobody should be shocked by a bill. Everyone should know, in advance, what he will be responsible for.

Imagine confidently ordering a hamburger in a restaurant without prices on its menu and receiving a bill for $1,000 because that’s the whimsical charge. If you don’t have restaurant insurance and just ordered on faith, you would owe $1,000 for that hamburger. If you do have restaurant insurance, your residual bill will vary between insurance companies.


4. Is there any one specific case or case(s) that you think best describe the problem?

See above.

5. What do you think the best, simplest, most effective solution to this problem might be?

This is a simple question with no easy answer. There is a disparity between billing and payments. The residual bill is always unexpected and the amount due can be shocking.

I would call for absolute transparency in costs, similar to what one sees on a restaurant menu or

CT scan price differences

at a gas station. The consumer should know in every instance what his out-of-pocket expense will be. He should be able to compare this out-of-pocket expense and make an informed decision.

Certainly a consumer may be willing to pay more for better ambience in the office, more office staff for smoother management, less distance to travel, perhaps more modern equipment, perhaps more medical interpretive expertise.

Regardless, the decision should be the consumer’s. Exorbitant rates should not be imposed on the consumer. Rather, the consumer should make an informed choice based on all of the variables put at his disposal with no hidden information.

Finally, the consumer should not have to be a skilled detective to glean the necessary information. The information should be immediately available and put forward by the provider, anticipating the obvious questions.

6. Anything else we should know?

If the cost of care can be made completely transparent, the provision of care can revert to the pursuit of excellent care as it once was practiced. Unfortunately, today there is a competition between providing the best care and receiving the best payment. This is a balance that should never be sought, but if it must be sought, the patient should know in advance what he is buying.

This guest post was written by Dr. Stephen Rakower, M.D., F.A.C.S., a longtime surgeon in California, who developed an interest in health-care pricing after retiring from full-time active practice. He lives in Southern California, has an M.D. from the University of Pennsylvania and has held academic appointments at several medical institutions.

Jeanne Pinder

Jeanne Pinder  is the founder and CEO of ClearHealthCosts. She worked at The New York Times for almost 25 years as a reporter, editor and human resources executive, then volunteered for a buyout and founded...