What My Child’s Ski Accident Taught Me About Consumer-Driven Healthcare

It is hard to think straight when your child gets hurt. It happened to me this past weekend. My 12 year-old son, Jacob, crashed and injured his knee while skiing at Lake Tahoe. We were hoping that RICE (Rest, Ice, Compression, Elevation) would help his knee get better, but it did not. When the pain did not go away, we took Jacob to see his pediatrician.

The pediatrician spent 30 minutes manipulating Jacob’s leg and declared that she had no idea what was going on. She referred us to a pediatric orthopedic surgeon and told us to get a knee X-ray. Since our pediatrician is affiliated with a large hospital — the California Pacific Medical Center / Sutter Health (“CPMC”) — she referred us to CPMC Radiology, located in the same building.

The CPMC Radiology patient intake coordinator seemed surprised when I asked her about the cost of the X-ray procedure. “Our family has a high-deductible insurance plan, so I like to know the cost,” I explained.

She typed and clicked for a long time on the computer and then handed me a hand-written note that said: “Estimate number for X-ray $347“. The word “estimate” was underlined and she repeated several times that this was just an estimate and it could be less or more, or a lot more than this number. With my child in pain next to me, and the X-ray technician hovering over us asking if we want to proceed, I decided that it was not a good time for price shopping.

When we got home, I found a Treatment Cost Estimator on our health insurer’s website. It told me that 3 minutes (0.5 miles) away from CPMC Radiology there was a Radnet Medical Imaging Center, where I would have paid $74 – $126 for the same exact X-ray – a savings of 60-80% off CPMC Radiology’s price!

Lesson Learned

The following day we went to a pediatric orthopedic practice affiliated with CPMC. They referred Jacob for a knee MRI. The referral was again to CPMC Radiology. When I inquired whether this referral can be directed to Radnet instead, the RN managing referrals asked me why. When I told her that Radnet was going to be a lot less expensive, she seemed very surprised. She has not received this request before, and said that she needed to investigate the issue further, but it would probably be OK. It would, however, make it more difficult for the provider to review the MRI results, and the provider would have to create a clinical note to provide to Radnet for them to get insurance authorization. The insurance authorization may also take longer and is not something that she would be able to assist us with since it is for a vendor outside of CPMC. Would I still like to go with Radnet?

The reason that I requested the referral to be sent to Radnet is simple — estimated cost for a knee MRI at Radnet was $450 – $550. Estimated cost for the same procedure at CPMC Radiology was a whopping 4-5 times higher: $2,200 – $2,300.

Given that a knee MRI procedure is essentially a commodity product, how is it possible that two outpatient facilities 3 minutes apart can have such a dramatic difference in price? How can this happen in San Francisco, which has one of the most educated and tech-savvy healthcare consumer populations in the world?

The answer is that consumer-driven healthcare is a fundamentally flawed idea.

Brief History of Consumer Directed Health Plans

Consumer Directed Health Plans (CDHPs) also known as High-Deductible Health Plans (HDHPs) coupled with a Health Savings Account (HSA) are the centerpiece of the consumer-driven healthcare strategy. These plans were embraced by our policymakers in early 2000s as a way to incentivize American healthcare consumers to pay attention to the cost of their care. The thinking went like this — if patients were required to pay more out of pocket, they would be more likely to price shop. Low-cost providers would come to dominate healthcare delivery, and this would turn the tide of unsustainable healthcare cost inflation.

As a result of government policies promoting CDHPs, between 2006 – 2018, the percentage of American employees enrolled in CDHP plans increased by 10 times from 3% to 30% of covered employees. [1]

However, while more Americans are now exposed to greater out-of-pocket healthcare expenditures from CDHPs, the percentage of American healthcare consumers who are price-shopping across healthcare providers remains extremely low — estimated as low as 3% [2].

The net result of these changes is that healthcare costs are continuing to grow at 4-6% per year, while American consumers are paying a lot more out of pocket for their healthcare. According to the Commonwealth Fund research, the percentage of American adults with employer coverage who are spending more than 10% of their income on out-of-pocket medical expenses more than doubled between 2003 and 2018 from 6% to 14% [3].

What Went Wrong

There are three main problems with the concept of CDHPs / consumer-driven healthcare:

  1. It places unreasonable burden on the healthcare consumer. The key assumption underlying consumer-driven healthcare is that consumers behave as rationally in a healthcare setting as they do when buying groceries. This is a flawed assumption. Unlike a typical grocery buyer, a healthcare consumer is usually making the purchase decision in a vulnerable state of mind. They are often in pain and confined in one way or another to their treatment setting. The pricing data is not readily available. Furthermore, hospitals, having spent a lot of money acquiring primary care practices, put in place sophisticated plans and procedures designed to eliminate “referral leakage.” They are doing all they can to prevent patients going to other non-affiliated providers. This means that healthcare consumers are fighting very powerful forces aligned against them when trying to price shop. This is why CPMC Radiology is able to charge their patients 4-5 times more than another radiology center located three minutes away.
  2. It perpetuates the current disjointed and poorly coordinated fee-for-service healthcare delivery model. We know from multiple studies and other countries’ healthcare systems that the lowest costs and best outcomes are achieved in integrated care delivery systems. In contrast, consumer-directed healthcare model asks each consumer to assemble their own care delivery system. This is not only overly burdensome for the consumer, but it also results in consumers going to multiple disconnected providers for care, paying per procedure and thereby perpetuating the current disjointed, uncoordinated and prohibitively expensive fee-for-service system.
  3. Individual consumers may pay less now, but all of us will pay a lot more later. In addition to the two issues mentioned above, there is significant evidence that CDHPs incentivize consumer behaviors that have short-term financial benefits, but very expensive long-term consequences. For example, last year, 40 percent of Americans reported skipping a recommended medical test or treatment, 44 percent said they didn’t go to a doctor when they were sick or injured, and 33 percent did not take medications as directed because of cost. [4] These results are consistent with the findings from RAND Health Insurance Experiment (HIE), the largest health policy study in U.S. history. This study showed that faced with higher out-of-pocket costs, consumers indiscriminately reduced the use of both necessary and unnecessary medical care. However, this type of “deferred care” will end up costing all of us a lot more in the long-term. If they live long enough, most American healthcare consumers will end up on Medicare, and they will likely be sicker when they get there. So ultimately, all of us American taxpayers will pay a lot more for healthcare ailments that could have been prevented with earlier intervention.

In case you are wondering, we ended up going to Radnet for my son’s MRI. We paid $473.13, a savings of roughly $1,800 versus CPMC Radiology. That makes us one of the roughly 3% of Americans who are price shopping (and saving) across providers.

Is that really the best that we can do for the American healthcare consumer?

(c) 2019. Anatoly Bushler

Last updated: 02/27/19


[1] https://www.mercer.com/newsroom/mercer-national-health-survey-employers-finding-new-ways-to-hold-the-line-on-health-benefit-cost-growth.html

[2] https://www.healthaffairs.org/doi/10.1377/hlthaff.2016.1471

[3] https://www.commonwealthfund.org/sites/default/files/2019-02/Collins_growing_cost_burden_testimony_02-13_2019_0.pdf

[4] https://www.westhealth.org/press-release/survey2018/

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