Thursday, November 29, 2012

Consumer Self-Pay Lowered Lasik Costs – Can It Solve Our Health Care Cost Crisis?

Today’s Managing Health Care Costs Indicator is $500

Many often turn to the dramatic decrease in the cost of lasik surgery when advocating for increased patient cost-sharing in health care. Jeff Jacoby, a reliably conservative columnist in the Boston Globe, invoked this metaphor when reporting on the angst of neurologists over fee schedule decreases for nerve conduction studies they perform.   He suggested that making patients pay would lower the cost more effectively than Medicare (government) edict.    This, despite the fact that Medicare inflation rates have consistently been lower than inflation rates in markets not ‘disturbed’ by the government.

It’s true. Lasik prices plunged from over $2500 per eye to about $500 per eye over less than a decade.   The Sunday comics even had ads for Lasik surgery for a few years! 

But Lasik surgery is fundamentally different than much of the rest of health care.

1.       Lasik surgery is entirely elective.  No one NEEDS it!
2.       Lasik surgery is never an emergency. Hence, it’s much more “shoppable” than most health care
3.       Lasik surgery is highly automated – the computers actually do a substantial amount of the work. Therefore quality is more uniform than most health care
4.        There is very high fixed cost for the Lasik laser  -and the low variable cost makes it more likely that providers will price this at “marginal” cost –leading to large discounts.  That’s not true of cognitive services.  Ten extra visits with a neurologists cost almost ten times as much as a single visit given the large variable cost of the neurologist’s labor. Ten extra Lasik surgeries cost only a small amount more than a single surgery – since the cost of the ophthalmologist and technician is a relatively smaller portion of the total cost.
So – there is good proof that more “skin in the game” leads to lower utilization and some proof that consumer price sensitivity lowers prices.    However, we can’t expect the cost of the rest of health care to plummet like Lasik surgery prices.   

1 comment:

Adam Wootton said...

Very interesting points Jeff. I had not considered all of those elements in using market forces to decrease costs.

The low marginal cost of visits for Lasik surgey is a great point.