Is higher cost health care perceived as being higher quality?

Luxury goods are items that people purchase in disproportionately greater amounts as their income increases. That’s how economists think of them anyway. But for the average American, a luxury good means something else. We tend to think of luxury goods being things like designer clothing, luxury cars, and high-end restaurants. Our minds fill with images of Gucci, Burberry, and Luis Vuitton, or Mercedes-Benz, Porsche, and Ferrari.

One thing is clear to us: Items made by these manufacturers are expensive. That’s an objective fact. Another thing may seem clear to us, but it involves more of a cognitive leap: We assume that these items are of a higher quality than their non-luxury counterparts. In effect, what we are doing is making a strong association between the price and the quality of a good or service.

Granted, there are good reasons to make that association to a point, because price does correlate with the materials, labor, and so forth that go into making an item. But at a certain point, high prices tend to be used as signals or markers of exclusivity rather than indications of the true worth of an item.

For instance, on a recent trip to England, I contemplated purchasing a Burberry wallet as a gift for my wife. But, given the exclusive luxury pricing of the item, combined with the weak exchange rate, the wallet would have cost roughly $250. Was the wallet nicer than one I might pick up at Walmart for $15? Without question. But was it nicer than one I might pick up at Dillard’s department store for $50? Highly questionable. In the final analysis, then, I’d be better off to give her the $50 wallet filled with $200 in cash.

But plenty of people do buy that $250 wallet, and the question is why. The answer is that they assume that it is a higher quality item, that it is an exclusive brand, and that it will signal prestige to others, and that — through some sort of mental math — is somehow worth forking over the extra money.

Cut to health care. Does the same mentality apply? Is higher cost health care perceived as being higher quality? Is something better simply because it is more expensive? Based on the above analogy, you could answer yes, but only to a point. Beyond that, at some point, more health care spending is simply wasteful. But, how does it play out in practice?

Obviously, Americans spend a lot on health care, and it really comes down to two factors: prices and utilization. We’re looking at prices here. There are a variety of reasons why prices are a tad bit wonky in the U.S., including things like third-party payers and information asymmetry, but might patient perception also be a factor? The answer, according to a study funded by the Robert Wood Johnson Foundation, is yes.

Asked whether higher quality care comes at a higher cost, 48% said yes, while 37% said there was no relationship, and the other 15% didn’t know or said “it depends.” Framing the question in the negative, though, changed things. Asked whether lower quality care comes at a lower cost, only 29% said yes, while 46% said there was no relationship, and the other 25% didn’t know or said “it depends.”

So, we appear to have succumbed to the idea that if you want high quality care, it’s going to cost you more, while we also seem to recognize that you can pay a lot and still receive low quality care. What this should point out to us, is that the relationship between prices and quality in health care is limited, much like it is with other goods and services. Clearly, at lower levels, incremental increases in price are likely to reflect differences in quality, just like our wallet analogy.

The real question is: At what point does the additional cost simply become a meaningless signal, unrelated to additional gains in quality, and representing excessively wasteful health care spending? And, more importantly, how do we ever convince people of this?

Brad Wright is an assistant professor of health management and policy, University of Iowa, who blogs at Wright on Health.

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  • Patient Kit

    In the restaurant business, there is a definite limit to how much pricing reflects “better”. At a certain point, the main purpose of high-end restaurant prices is to ensure exclusivity and who will be seated at the tables around you. It keeps the riffraff like me and most Americans out.

    No matter how good the beef or vanilla ice cream are, there is a limit to how much a hamburger or ice cream sundae are worth. And yet, $777 hamburgers and $1,000 ice cream sundaes exist in America (which I, frankly, find kind of offensive given how many Americans go hungry). So, yes, I agree that more expensive does not automatically mean higher quality.

  • QQQ

    From my previous post……..

    Everyone’s concerned with “costs,” but so few seem to able to see the
    issue clearly. Everybody’s got their own bogeyman for the unsustainably
    rising costs of healthcare – Obamacare, pharmaceutical companies,
    insurance companies, hospitals, doctors, illegal immigrants, etc. But
    the real problem is economic and far more fundamental: The absurd notion
    that the way to finance all health care is through insurance, public or
    private.

    The purpose of insurance is to mitigate catastrophic risk by having a
    large group of people who share that risk, pay a relatively small amount
    into a common pool, which pays out to the few people for whom the risk
    becomes reality. One “insures” against unaffordable loss. The main
    reason we are in trouble is that most healthcare does not fall into this
    category of unaffordable loss that will hit only a relative few (even
    if some of it does). All of us need and “consume” healthcare, incurring
    regular and routine medical costs even if we never suffer catastrophic
    or prolonged illness. Insurance is a spectacularly inefficient way to
    pay for this routine care, and its use in this context introduces
    distortions and perverse incentives into the healthcare “market” that
    reverberate throughout the entire system.

    Insurance drives up costs not only by adding a huge administrative
    burden to every healthcare transaction, but by stifling competition, and
    encouraging over-consumption by divorcing the price of healthcare
    services from the patients who actually use them. There are good reasons
    why we don’t pay for auto maintenance with our car insurance, or most
    home repairs and improvements with homeowners insurance. If you doubt
    this, just look at the costs of those few medical procedures that are
    NOT covered by insurance, like LASIK or cosmetic surgery. They are a
    fraction of the cost of equivalently complex procedures that ARE covered
    – and they are going down as equipment depreciates and doctors compete
    for your business. This is what happens in a transparent, competitive
    market. But healthcare is anything but a transparent, competitive
    market! Try reading a hospital bill, or finding out up front the total
    costs of, say, an appendectomy. It is virtually impossible. Why? Because
    you may be the patient, but you are not the “customer” of healthcare
    providers – your insurance company (or Medicare) is. And until we put
    the customer back in the equation, there is no market discipline, no
    “competition” – and costs can only ratchet in one direction.

    Insurance is popular because it APPEARS as if “someone else” is footing
    the bill, but this is illusion; there is no free lunch here or anywhere
    else! If you, like most people, have employer-provided health insurance,
    all it means is that your employer is deducting the costs from your
    salary. It may not show up in your paystub, but from your employer’s
    perspective, it’s just part of your total compensation. Let’s suppose
    that your health insurance costs your employer $15,000 per year, but if
    there were, say, a $15,000 annual deductable, it would cost only $5000 a
    year. What if your employer were to give you the $10,000 difference in
    cash, and then YOU pay for routine medical costs out of pocket – would
    it be worth it to you? Transition to something like this is the only
    real solution to the cost problem. Most routine healthcare must be paid
    for the way we buy groceries, or gasoline, or housing, or any other
    necessity of life. Leave insurance for what it is meant to be:
    Protection against the cost of catastrophic illness. When the patient is
    also the customer, everything from the price of drugs and medical
    procedures, to the wait at your local hospital ER becomes subject to the
    same market forces as in every other consumer-facing industry. Until
    people recognize this basic economic fact, we have zero hope of
    containing healthcare costs.

    • Mike Henderson

      Excellent. The relationship between patients, insurance companies and physicians does not allow for effective, reasonable cost health care delivery.

  • Shirie Leng, MD

    Totally agree. The issue is complicated by the fact that the consumer doesn’t actually know what the cost of anything is, and don’t care because they’re not paying for it anyway. Nice piece, Brad!

    • SarahJ89

      Please stop assuming patients don’t care. It’s so offensive. The reality is that we have no ability to find out what things cost most of the time. One example: I can have an online doctor order a particular blood test which I take to a lab 35 miles from my home. The test costs $94 there. The same test costs $300 in the Quest Lab 20 miles from my home. The greedy “nonprofit” hospital on the hill really takes the cake. They charge $700 for the same test, then they send it down the hill to Quest to do the actual work.

      That’s one test. One test. How much time and energy do you suppose your patients have to devote to chasing down this information? It took me months to figure this out and it’s only because I have an interest in this sort of arcane information.

      Most people when faced with Mission Impossible simply give up, especially if they are ill. And the fact is, good luck prying a price out of a medical entity.

      So please stop with the insulting assumption that we don’t care. Your insult is misdirected. It’s in the vested interest of Corporate Medicine that we be shielded from the very information we need to have in order to make good decisions.

      • Mike Henderson

        Your post describes how things should be, and you are the exception to the rule.

        • SarahJ89

          So how do you suppose people are supposed to find out this carefully buried info?

          And how is it helpful to sneer at them as being unconcerned with costs over which they have no control and which is never communicated to them even when they ask? And I’ve asked, as have many friends of mine.

          What I’m saying is this is a systemic issue beyond patients’ control. Would it really be helpful to have people fretting about how much a test costs when they have no way of knowing that information? Would it not make more sense to lay that at the feet of the people running the rigged game?

          Most people are really concerned with paying their light bill, raising their kids and other survival issues. They do not have the time and energy to chase after hidden information so you can hardly blame them for being seemingly cavalier.

          • Mike Henderson

            I agree with all of your points. I don’t blame patients for not knowing how much things cost. Prices should be much more accessible and patients should be encouraged to understand. However, the current and pre-ACA pricing systems are not intended for patients. I think this is an obvious indicator that patients aren’t in the driver’s seat but are being taken for a ride by the system. Patient’s really aren’t in control of how they are provided health care. At this point, the ACA makes me think “the more things change, the more they stay the same.”

            Second, even if price lists of most providers (hospitals, imaging centers, labs, doctor’s offices) were easily available, they are difficult to interpret. When a provider is setting prices, cost is a relatively small factor – otherwise how do prices vary wildly? It is part of the game played by insurers against providers. Basically, there are dozens of plans by each insurer, which vary the amount they reimburse. Since providers have no control over what they are reimbursed and need to maximize reimbursement for every service provided, “prices” are greatly exaggerated. They really aren’t intending to get paid that much – however, if you are without insurance, will get billed the full amount unless they are smart enough to have a cash only price list. This is how insurers get people to believe they need insurance. It is because of the insurers that prices are astronomical to begin with and is very clever on their part.

            Third, it is truly difficult for providers to tell you upfront exactly what your charges will be – they really don’t always know until after everything is done. Keep in mind this process – there are charges, what the insurance company allows and then what your insurance plan obligates you to pay. What you will PAY after insurance, if you have insurance, is impossible for a provider to tell you. Insurers don’t give us their exact criteria and we can’t keep track of the details of every plan from every insurer even if they did. Physicians offices can only give you typical office visit and probable related charges will be, but don’t know really what you will need until after the visit.

          • SarahJ89

            I understand how the system works. It’s all hoss trading, really. The agency I worked for negotiated prices all the time.

            My issue is with the assumption, often couched in a derogatory manner, that patients don’t care about price. Most patients lack the ability to care in such a rigged system. It’s a matter of attitude, as expressed by the original comment of “the consumer doesn’t actually know what the cost of anything is, and don’t care because they’re not paying for it anyway.” It’s the assumption of fecklessness that is insulting and adds nothing to the discussion.

          • SarahJ89

            Most people I know understand they are paying for health insurance and are, indeed, paying for their health care however indirectly it may seem.

          • Mike Henderson

            From my perspective, it’s much more than just trading. Primary care physicians have little to no negotiating leverage with insurance companies. The contracts we sign empower the insurance company to do what is in their best interest – not yours or mine. When it comes to providing value, insurance companies tie us down. Physicians have very few options when it comes to innovating to provide better care at a lower cost.

            Getting back to the article, yes, patients do seem to equate high cost with good care, when from my perspective the two have little to do with each other.

          • SarahJ89

            Sadly, sadly, in my area the local “nonprofit” hospital has bought up all the practices. They are the ones doing the hoss trading. The doctors have little control and never had much leverage in financial negotiations. Some are bought off with various blandishments to keep them quiet. Few or none wanted to be bought, but EMR is so expensive one by one they capitulated.

            And yes, most people pretty much across the board in life confuse high price with value and/or quality. It’s annoying in tech products, can be life threatening in medical care.

          • Patient Kit

            I’m fine with getting rid of the insurance companies completely if it means going to a single payer system with all doctors on salary and all Americans guaranteed access to good medical care. I am not okay with getting rid of insurance companies to convert to a direct pay system.

            What I hear primary care doctors who favor direct pay for primary care only saying is they want to get rid of insurance hassles for themselves. Their patients will still have major insurance and cost hassles for everything but primary care.

          • Mike Henderson

            So far as cost and quality goes, I believe based on experience (experience isn’t everything though) DPC would improve both. Keeping the insurers or government involved makes keeping cost and quality in line very difficult to impossible. Using Medicare as the closest thing to a single payer system, mediocrity at a high cost would be the result, at least with primary care. Medicare reimburses around cost, depending on how fast the production line flows. Providing the best primary care that patients need would be below cost.

            Since you don’t have any experience with DPC, how do you know what the advantages for patients or doctors are? What you can’t see is from the medical side how things really work currently and perhaps are just not aware of how things could be. I think your primary concern is about access and assume quality and cost would be the same no matter if insurers or the government were in control.

          • Patient Kit

            I don’t pretend to have all the answers to fix our dysfunctional system. I’m here to learn and discuss and share my personal experience with healthcare in this country and see whether we can come up with any answers together.

            To that end, I’ve been reading a lot about DPC. I’d actually never heard of that model until I started participating on KMD a few months ago. In general, I ask very specific questions about it and either get no answers or I get sales pitch talking point “answers” that don’t actually answer my questions. Doctors, who are enthusiastic about it, seem frustrated when I and other patients don’t react to the idea with glee. And now the latest two OPs about DPC have escalated to assert that DPC is “better for ALL concerned” and “blue collar concierge is good for EVERYONE”.

            One thing I do know is that I do not trust the free market to make our healthcare system better. To me, the root of all that is wrong with our system is the corporatization of healthcare and the fact that it is first and foremost a profit-driven business.

            Maybe a government-funded single payer system won’t work in this country. I don’t know. But I’d rather try that than continue down this road of healthcare becoming a bigger and bigger business. Maybe the excellent care I got this year while on Medicaid has made me unreasonably hopeful that a government single payer system does not, by definition, have to be bad or mediocre.

            At least we agree on one thing — insurance companies are a huge chunk of the problem.

          • Mike Henderson

            My question isn’t to see if you have the answers. The question is what experience do you have with DPC? You have an equivalent experience already with your auto insurance. In the past, I and others have explained how different things would be if auto insurers controlled your car like they currently do your health. So far as auto insurance goes, you already participate in “DMC” (Direct Mechanical Care). You pay for your fuel and oil changes when and where you want. You go to the auto mechanic that you trust and get the services you deem necessary for a price you are willing to pay. You get to decide what type of tires are put on – all season, snow tires or studded based on the driving conditions you experience and what is important to you. When your auto insurance company takes over that control, then the mechanic’s job is to run up the bill with things you don’t need, but you now can’t control that. In fact, it is even easier for mechanics to provide inappropriate care which you will end up paying for. Premiums go up, but the insurance company likes that as their cut gets bigger too. Do you really want your auto insurer to cover tires, windshield wipers, fuel, and washing? What if your insurer wanted the cheapest summer tires they could buy, but yet charge you an exorbitant price, when you are concerned about driving in the winter? That is the analogous situation I see as a physician – patients are getting taken advantage of, harmed and overcharged and yet they don’t know the difference. You believe your care to be very good and it could be, but for many other people, it can certainly be better.

            The current system isn’t free market – that requires a level playing field. I don’t trust the current system either. The insurers have the “market” cornered and are more like a monopoly, having undue influence over patients and physicians. You are very correct that medicine has been taken over and not for the benefit of patients. My aggravation with insurers and the government is that I feel driven to provide mediocre care inefficiently. Eventually they will wear me down and burn me out – it is extremely stressful providing medical care one considers substandard. I can’t be flexible to spend time with patients, coordinate care, or innovate to provide better care at a lower cost. I have to do it the way the insurer/Medicare sees fit. That I can tell, Medicare cares even less about patients – if I had to choose between insurers and Medicare, the insurers would win. Medicare is politically motivated – do we trust politicians to run healthcare more than physicians? Your comments seem to indicate yes.

            I disagree that your questions haven’t been answered. Perhaps your valid distrust of the current system is interfering. DPC allows physicians to work for you, the patient, not the insurance company. As a general rule, who do you trust more – the physician whose has spent time with you over many years, and listened to you or the insurance company?

          • Patient Kit

            Actually, I haven’t owned a car or had auto insurance for at least 30 years. This is usually jaw-dropping info to many Americans but it’s true of millions of us New Yorkers. We do live without cars. That said, I do understand how auto insurance works and if that is the analogy that best explains DPC, I like the idea even less. I absolutely do not want a health plan that only covers catastrophe. I want comprehensive coverage, not catastrophic coverage. For one thing, define catastrophe. Is it only things that require hospitalization? Because many serious and expensive medical procedures are done outpatient these days. Nobody has explained to me how specialists get paid in a DPC/catastrophic ins model. It has also been pointed out to me that many people with new cars have service contracts for the first few years. I do realize they don’t pay for gas.

            On the trust issue, I do still trust doctors much more than business people or politicians. But I don’t trust doctors as a group in any kind of blanket way like I used to. I trust docs one by one and they have to earn my trust. I don’t trust doctors as a group to make healthcare more affordable in general, in part, because one of the things doctors are saying constantly is that they want more money. More money sounds like a major priority for doctors to me.. Trust is huge. And it’s not automatic.

            I realize that our healthcare system is not currently free market. What I’m saying is that I don’t trust that the free market would fix things and make healthcare better.

            I do hear your frustration as a doctor. To me, as a patient with a serious dx, our healthcare system is terrifying. And I’m not at all sure that our healthcare system will ever get any less terrifying.

          • Lisa

            People need insurance because the cost of medical services they can’t afford to pay for the services out of pocket, even when you consider how much the discounted amount covered by your insurance is. I also disagree with you that it is impossible for a provider to tell you what you will pay for a given service after insurance. I’ve always been able to get that information and it is not that difficult. I have been able to get that information from in network and out of network providers, btw.

          • Mike Henderson

            Medical costs are exorbitant, due in large part to insurance company inefficiency. Thus people “need insurance.” That’s a downward spiral.

            How does a physician’s office know prior to the visit what your “out of pocket costs” will be? They would have to know what will be done at the visit, what the insurance company allows, amount of deductible met and what your financial responsibility is based your insurance plan.

      • http://clearhealthcosts.com/ Jeanne (clearhealthcosts)

        Opaque marketplaces cannot serve any users well. That’s one reason why airline ticket sales, car sales and real estate sales — once all opaque — are now transparent.

        The health care marketplace, too, is heading for transparency.

        Think what would happen if prices became available suddenly for everything? Then the quality metrics, themselves also lacking, would have to come to the fore: is that $6,000 MRI really 20 times better than the $300 one? Who says and why?

        We’re journalists: we’ve collected a range of cash and self-pay prices for common, “shoppable,” procedures at our NYC startup, clearhealthcosts.com. We have also just launched a project in California crowdsourcing health-care prices with the two big California public radio stations, with funding from the John S. and James L. Knight foundations. The reaction has been remarkable. People are in flames about this topic.

        http://clearhealthcosts.com/blog/2014/07/listen-sound-culture-change-people-shopping-health-care/

        • SarahJ89

          This is great. I’m convinced if patients had the tools they need to actually rate doctors accurately they would do so. And… some of the division between doctors and patients would be mitigated. Never lose sight of the fact that the more we squabble with each other the less we’re squabbling with insurers, drug companies and other leeches upon our medical wallets.

          • Mike Henderson

            Making patients happy is easy – give them what they want whether it harms them or not. Don’t tell them the truth, tell them what they want to hear. Pretend to listen. Order lots of tests, procedures, referrals and, for some, medications – the more expensive the better. Finally, and subtly, get rid of the more difficult patients. Patient ratings are easy to game. This may sound quite cynical, but really, this is how to keep patients happy. I post this not to condone it, but to demonstrate how to manipulate patients and how wrong it would be. I can see why patients think rating physicians is a good thing, but from my perspective, would encourage truly bad physician behavior.

          • SarahJ89

            I refuse to fill out those silly rating forms. As long as the information we need to make accurate evaluation is withheld, there’s no point. Bedside manner can be overrated.

            Worse than that, as you point out, it’s a game that’s rigged and easy to play. In the end though, it usually degrades the game player, even if you win. Would you not be happier in your work if you could be honest? Do you really like pretending to listen? I somehow doubt it.

            I value honesty about all else. I may not agree with or do what a doctor wants me to do–it’s my body and my life and only I can weigh up risks, benefits and consequences therein–but I do better with someone with whom I disagree but who is honest than someone who tells me what I want to hear.

            I really do not want tests unless the results will actually change something. Medications I avoid as much as possible, but am religious about taking once it’s clear something is necessary. I’m probably annoying because I ask a lot of questions, questions many nurses have told me “no one else asks.” Part of this is sheer curiosity. I love to know what’s happening physiologically–cytology was my #1 favourite course in university. Alas, there’s no time for that sort of thing any more.

          • Mike Henderson

            I don’t play any of those games. I tell patients they don’t need antibiotics for viruses and only orders tests for which I have a reason and will change my recommendations based on the results. I don’t practice shotgun medicine, refer for every little thing or pretend to listen. When they ask about “alternative/complementary care,” I tell them what I think. Some of it is okay to try, but remember it’s “alternative” for a reason. With rating systems such as they are, my concern is that this will tempt some physicians to be dishonest as a direct result.

          • SarahJ89

            I wish I could take cytology and hematology again because the knowledge base has changed so much. They were just unraveling the double helix when I took cytology. I miss all that. I agree it’s where the action is, which is why I ask my “unanswerable” questions.

            Nothing drives me nuts faster than having someone offer antibiotics when we’ve established something is viral. (Actually, I no longer bother going when it’s viral. It’s not as if magic’s likely to happen at the doctor’s office.)

            I had a doctor I liked a lot. He’s a great person, a real stand-up guy willing to go bat for his patients. We live in a small town so you really get to know people. He’s a very popular guy and a really wonderful person.

            But… he got into homeopathy. Big time. I was horrified! He started an independent practice with a unique name. He liked being in independent practice, but eventually capitulated because of the cost of EHR. The hospital bought him out, set him up in a wildly popular complementary medicine practice. Then they franchised the name of his practice and opened two or three little medical lemonade stands with that name.

            I often wonder if he realizes he’s been bought off. He’s happy as a lark. I stopped seeing him because he became convinced I had Lyme (nope, it was hypothyroidism). I don’t mind sugar pills ala homeopathy (in combination with allopathic treatment). That’s harmless. But I draw the line at needless and/or long term antibiotics. That crosses the line right over into dangerous. And he was really pushing it.

            My suburban friends think I’m a wild-eyed hippy. My more alternative friends think I’m hopelessly middle class. I must be doing something right.

            I don’t live anywhere near a school big enough to teach cytology so maybe I’ll just pick up a basic text to review. I miss the Kreb’s citric acid cycle. {;>)

  • doc99

    You can have cheap. You can have fast. You can have good. But you only get to pick two.