At the intersection of health care and free-market decisions, there are no road signs.

More and more, physicians are trying to figure out how to set a price point for services not covered by insurance. This isn’t easy for us, as we have mostly accepted insurance as payment for services, typically without questions or consideration of value. However, as the list of uncovered services grows, such as laser cataract surgery and premium IOLs, we need to learn how to set prices that reflect value and cover related costs of service — while we overcome worry about how patients may react.

ECON 101 MAY NOT APPLY

Typically the first step in researching price setting is to ask peers what they are charging or by “price shopping” by calling other practices. This figure is then compared to costs of equipment or materials, along with the additional time necessary for a successful outcome. However, there may be a better way to reach a price point by understanding basic economic principles and how they apply to health care. But be warned: Traditional economic principles are thrown out the window.

For instance, price elasticity. This is the measure of responsiveness to the demand for goods or services after changes in price. Say a patient who is eligible for femtosecond laser-assisted cataract surgery is deciding whether to include astigmatism correction with his cataract surgery because this correction is an out-of-pocket cost for the laser. If it costs $100, perhaps 75% would choose this technology; if $7,000 then likely fewer than 5% of patients would elect laser.

This is an extreme example, but what happens when the initial price is $1,200 and then increased to $1,400? According to traditional economic principles, fewer patients would choose laser. Yet my own experience and that of other physicians demonstrates that the price elasticity curve looks very different in health care.

IT’S NOT A CAR

When shopping for a car, a consumer often visits many dealerships, considers compromising on luxury features and relies on past experiences to reach a decision. Economists describe such behavior as consumers wanting to maximize their utility — getting the greatest value possible from spending the least amount of money. However, how people reach a decision on health-care spending is different. People exhibit a higher tolerance with a price point, perhaps due to the emotional component and the desire for the best outcome. This will significantly stretch the price elasticity for patients. The Rand Health Insurance Experiment proved that increased health-care costs do decrease usage.¹ For example, patients might delay a cataract evaluation if their deductible were doubled. However, this study also showed that once patients needed surgery, they were willing to pay more for maximum utility.

So in my example, once a patient decides to have surgery, he or she would be more likely to pay out-of-pocket costs for laser for astigmatism management. However, a patient would need the proper information to understand the benefits of laser over traditional surgery.

HOW WE DECIDE

Providing such information is our job. The patient comes to us for expertise and recommendations. Medical decision-making is within a physician’s comfort zone, but recommending elective components of surgery with an out-of-pocket cost often is not. Keep in mind, though, that if consumers do not have sufficient information, they will underestimate value.

In my practice, my costs for laser cataract surgery increased over time, causing my price to rise 15%. I balanced this with an increase in my time with patients to better inform them about use of the laser. This increased clinic time allowed my price to rise without a drop in demand. In order not to increase my exam-room time, I trained my techs to cover some of my conversation about cataract surgery during the work up to allow me to spend time on a laser discussion.

Following the findings of the Rand Study, during my consultations I first had patients decide if they wanted to have surgery. If they did, I discussed the laser technology or premium IOLs. I am comfortable discussing risks and benefits of surgery, and will even make a recommendation to my patients. However, I do not discuss price or ask patients if they want to have laser surgery. My surgical coordinator addresses these issues after my exam.

Of course, random or excessive fee increases have diminishing returns. When I discuss laser for cataract surgery, I make it clear that I still offer traditional surgery and I do not claim the laser is safer. I share my experience with the benefits of using this technology. I then balance the conversation by stating I have done traditional surgery without a laser for over 17 years and am comfortable with this type of surgery too.

The purpose of this column is not to have you increase your noncovered fees. It is to help you understand the economics of health care to aid you in your decision-making process when setting fees. OM

REFERENCE

1. Rand health insurance experiment, 1974-1982. tinyurl.com/yajpmc96 . Accessed Nov. 16, 2017.

Scott LaBorwit, MD, is a principal at Select Eye Care, with locations in Towson and Elkridge, Md., and is an assistant professor, part-time faculty, at Wilmer Eye Clinic of Johns Hopkins Hospital, Baltimore. His e-mail is Sel104@me.com.

Disclosures: Dr. LaBorwit is a consultant to and speaker for Alcon.