Explaining Runaway Healthcare Costs: On Lunch Clubs and Lap Choleys

Have you found yourself ‘splaining to friends and family why the healthcare system is so damn expensive? I’ve been teaching health policy for a couple of decades, and I’m surprised that my two favorite stories haven’t yet surfaced in all the discourse. Here they are, in the hopes that they help you, or someone you love, understand why medical care is bankrupting our country.

Let’s start with the Expensive Lunch Club, a story I first heard from Alain Enthoven, the legendary Stanford health economist. It goes like this:

You’ve just moved to a new town and stroll into a restaurant on the main drag for lunch. None of the large tables are empty, so you sit down at a table nearly filled with other customers. The menu is nice and varied. The waiter approaches you and asks for your order. You’re not that hungry, so you ask for a Caesar salad. You catch the waiter looking at you sideways, but you don’t think too much of it. He moves on to take the order of the person sitting to your right.

“And what can I get for you today, sir?”

“Oh, the lobster sounds great. I’ll have that.”

You’re taken aback, since the restaurant doesn’t seem very fancy, and your tablemate is dressed rather shabbily. The waiter proceeds to the next customer.

“And you, ma’am?”

“The lobster sounds good,” she says. “And I’ll take a small filet mignon on the side.”

Now you’re completely befuddled. You tap your neighbor on the shoulder and ask him what’s going on.

“Oh, I guess nobody told you,” he whispers. “This is a lunch club. We add up the bill at the end of the meal, and divide it by the number of people at the table. That’s how your portion is determined.”

You frantically call back the waiter and change your order to the lobster.

“If the waiter makes a 15% tip on the total bill and you ask him to recommend a dish,” Enthoven asked our health econ class, a glint in his eye, “do you think he’ll recommend the salad or the lobster?”

“And if most of the lunch business in town is in the form of these lunch clubs, do you think you’ll find more restaurants specializing in lobster or in salad?”

I have always found this story to be the best way of explaining how the fee-for-service incentive system drives health inflation – and how it isn’t just the hospitals, or the providers, or the patients who are the problem. It’s everyone.

The second story involves one of the great innovations in the annals of surgery: laparoscopic cholecystectomy, or “lap choley” for short. As you may recall, the old procedure for removing a gall bladder involved an “open cholecystectomy,” a traditional “up to the elbows” surgical procedure. It was a nasty operation: patients stayed in the hospital for a week, recuperated for a month, and ended up with a scar that began in their mid-abdomen and didn’t end till it reached Fresno. The surgery was exquisitely painful, and had a high complication rate and a non-trivial mortality rate. And it was hecka expensive.

In the late ‘80s, along came lap choley, in which the surgeon makes a few inch-long slits in the abdomen, then inserts narrow mechanical arms that can cut and sew while allowing him to monitor the patient’s innards through a tiny camera. With this revolutionary “keyhole” procedure, patients had shorter hospital stays (1-2 days instead of a week), a much shorter convalescence, and a far lower complication rate (and negligible mortality). And costs were reduced by about 25 percent.

This was innovation – the new procedure was safer, less painful, and far less expensive. So what do you think happened to national expenditures for surgical management of gallstone disease after the advent of lap choley?

You know the answer. During my training in the 1980s, we were taught that you only removed a gall bladder containing gallstones when it was infected (“cholecystitis”), unless the patient was diabetic (the much higher complication rate of cholecystitis in diabetics justified prophylactic cholecystectomy). We told all the other patients with known gallstones to avoid fatty foods and to come to the ER promptly if they had severe belly pain, developed a fever, or were mistaken for a pumpkin. Most of these patients ultimately died with their gallbladders still in their abdomens, not the pathology lab.

But lap choley led to “indication creep” – the surgery now seemed benign enough that we began to recommend cholecystectomy for anybody with “symptomatic gallstone disease.” Since everybody ends up with an ultrasound or CT at some point in their life, we find lots of gallstones. Symptomatic? How many people do you know who never have belly pain? Do you? (Perhaps you need your gall bladder out.)

So, whereas technological innovation usually lowers costs in other industries (Exhibit A: Moore’s Law), in healthcare it often raises them as the indications for expensive procedures change faster than the unit price.

Is there a way out of the lap choley conundrum? Perhaps comparative effectiveness research will help – it might tell us precisely which patients will, and won’t, benefit from lap choley. All the usual issues must be navigated.

The expensive lunch club and the story of lap choley are two reasons why our healthcare system consumes 16% of our GDP. Sure, there is waste, greed, and fraud in healthcare, but I find the stories helpful because they illustrate how the actions of perfectly reasonable doctors, patients, and administrators will lead to inexorable inflation if the system isn’t changed in fundamental ways.

That increasingly seems like an awfully big “if”.

14 Responses to “Explaining Runaway Healthcare Costs: On Lunch Clubs and Lap Choleys”

  1. jfsucher July 27, 2009 at 2:46 pm #

    Bob,

    I’m not so sure that either of the anecdotes are very good.

    First, I need to take exception to the inaccuracies in your laparoscopic cholecystectomy story. By the 1980s cholecystectomy had a very low morbidity and mortality and surgeons had perfected performing this operation via a single small 6 cm subcostal approach (the so-called “mini-cholecystectomy”). Laparoscopic cholecystectomy did not really appear until the 1990s and although it came with a lower pain profile and shorter convalescence, it in fact was less safe. There was a dramatic increase in biliary complications associated with the early laparoscopic approach. It gained traction because patients demanded it! It was the burgeoning era of “LASER surgery”. Although we don’t use a laser for this operation, patients routinely asked to have their gallbladder out via the “LASER” operation (A wise old surgeon once told me that LASER stands for the “Latest Attempt at Securing Extra Revenue”. I thought that was clever).

    Second, the end of the lunch-club story is misleading in that it makes it sound as if physicians (the waiter) is completely controlled by his/her personal financial interest. I am concerned that the public is continually bombarded with this idea that we physicians are only interested in the business of medicine and not at all concerned with the patient. I understand that financial interests play a role in this health care debacle. However, it is self-defeating to continue to spread this one-sided monologue that we have no morals or ethics. I am dissapointed to wake up every day, only to hear how unethical we supposedly are. Bob.. is there anyone out there that will tell the public and our politicians that we actually do care… that we actually struggle every darn day to help people.. that the majority of us still make decisions based on what is best for our patient and not for our pockets! Will you do that?

    Thank you,

    Joe

  2. exodus July 27, 2009 at 7:59 pm #

    Actually, both stories are right on the money. That being said, it is hard to get fellow physicians to see things from a systems standpoint because of a) absence of systems thinking and health policy content in the medical school curriculum b) conflict between anecdotal (‘patient’) perspective that most physicians are used to and population health perspective adopted by policymakers and health care executives

    The lobster saga is a classic illustration of the phenomenon of moral hazard. Providers and patients are inclined to make the maximum use of available resources if they are not exposed to any downside risk. Wikipedia provides an excellent primer http://en.wikipedia.org/wiki/Moral_hazard

  3. Keith July 27, 2009 at 10:52 pm #

    I also agree that these 2 stories tell us much, and tell us the truth. jfsucher has legitimate concerns, but (in the case of the chole story) there has been “indication creep”, and I have yet to see evidence that this creep been of great benefit.
    As for the lunch club story, we need not interpet this as implying venal intentions on the part of physicians. While I also agree that we physicians have the best of intentions, there is plenty of evidence to show that we are affected by monetary concerns. I often point to the early Medicare studies by Dorothy Rice that showed whenever Medicare rates to physicians were cut, the physicians adjusted the volume of work upward to offset the rate cut. An important finding was that the physicians didn’t try to “maxmize” their incomes, but they did try to “optimize” their income.
    Conversely, one of my old mentors, John Bunker, did a study a number of years ago that showed that physicians would usually agree with having the same things (treatments, tests, procedures) performed on their families as they would on their patients–the point was that they didn’t treat patients any differently than they did their family members. Many of us took those findings to mean that even when physicians did things that didn’t have good evidence-based support, they were at least able to rationalize their actions as being in the best interests of the patient (and, hence, their families)

  4. GertrudeCNA July 29, 2009 at 12:13 pm #

    Here is a third category of cost multiplier. The example is my own situation.

    I am a state licensed CNA now working as a home health care worker. I enjoy this work, and I work on a self-employed, 1099 basis. I make two-thirds of minimum wage for 24-hour days. The rationalization for that is that I must be sleeping eight hours, although I do need to sleep where I can hear my client if there’s a problem. Under my category of work, I am not entitled to overtime. I report my income, pay self employment social security, and carry a professional liability policy that I pay for myself. I used to have health insurance, but could not keep up with the payments an am currently uninsured.

    Why do I accept that? My client has a long term care insurance policy that pays for me. The reimbursement rate is about double what I am getting, however the ‘nurse registry’ that placed me gets the payment and forwards me my portion. They did make the connection, and I don’t begrudge them a fair fee.

    But if I’m so smart, why don’t I simply arrange my work without a nurse registry in the middle? Two reasons.

    First, almost anyone reading this has probably has seen some consumer advice article this past year or two warning against the dangers of ‘hiring direct’. (We don’t report our income? Despite our state licensing requirements on this, our background might be suspect? Perhaps most importantly, there is a direct-hire liability exposure that somehow can’t be resolved easily with insurance? Agencies take care of this by taking on the responsibilities of an employer?).

    Second, as an individual, I can’t be a Medicare-eligible provider, which is the basis some LTC policies use, because although I can meet the functional requirements (RN affiliation, liability insurance, qualifications) I can’t meet the commercial ones (staffed commercially zoned office, 10 client minimum requirement).

    So, I have to take the deal I’m offered.

    Why don’t I provide my care in a nursing home, rather than a home care setting? Nationally, the average pay is $10 per hour (not bad, right?), but the coverage would have to be at a minimum 10, more typically 15, and frequently over 20 patients. I can’t do that. Depending on their conditions, I know I can only provide my level of care to about five. I won’t compromise on that. (Besides, I think that these are a failed model for care, and that we are going to see a continued decline in nursing homes despite demographics. But they do have a better lobby than home health aides, so who knows). 16% of CNA’s at homes are uninsured, by the way, and only about half are insured through their employer.

    Anyway, despite working for lower than minimum wage, I do believe the overall cost of my services as a care provider can be further reduced.

    Now, as to my having no health insurance:

    First, I challenge any uninsured person like me to try to get an appointment with a primary care physician, or a specialist for that matter, with cash in their hand to pay, but no insurance policy. So guess what? (Those few of us too proud to use the emergency room for routine care can go to a handle of ‘free clinics’ in poorer neighborhoods, which I’ve found to be exploitative in other ways).

    Second, I am still paying off bills for when I last had an insurance policy with a high deductible, which was what I could afford. I realized later that the physician who referred the bone density test, which were a stretch, probably didn’t realize that I would be paying for those myself, and that I would still be struggling with them a year later. Should we have had a cost-benefit discussion? Perhaps, at least in this case.

    So is there a solution? From my example, I can see some things that could be fixed but are not being addressed, and others that might be addressed but are much more difficult.

    If someone can solve my problems though, it might be a good start for addressing the larger ones.

  5. Andrew_M_Garland July 30, 2009 at 6:37 pm #

    Mr. Wachter, you concluded: “I have always found this story to be the best way of explaining how the fee-for-service incentive system drives health inflation”

    That doesn’t follow from either story.

    Shared payment is the problem with the lunch club. The new guy faces an average cost he can’t control. Say he can get a salad for $5 or a lobster for $25. The change in his personal cost is just $2 [ ($25-$5)/10 ]. He would rather have the lobster for $2 more. This does not depend on the restaurant charging “fee for service”.

    If he can, he will avoid the restaurant unles he loves lobster. He pays just $2 more for the lobster, but of course pays $25 overall. Everything works well if each customer is billed separately. But, our health care reformers insiste that we all pay the average costs together. They want to force us into lunch clubs just like that one, and have already gone far in doing this.

    The second story about cheaper, safer lap-chole’s is not necessarily driven by the greed of the doctors. The patient has already paid for the operation in his mandated insurance. He will get the operation if his immediate inconveniences and pain from the surgery is less than his discomfort.

    The lap-chole may even be cheaper than repeated office visits, ER visits, workups, and imaging costs. After all, the doctor will be sued if he misses an infection, thinking it is only a minor inflamation. Like the lunch club, the patient cannot control his average costs, and the doctor cannot control his testing costs and liability, so everyone goes for the operation.

    Maybe there can be a voluntary schedule of “evidence based medicine” and “evidence based malpractice” that would give a lower premium to willing customers. Such customers would give up the right to the most expensive treatments for mild disease. Of course, they would have to trust the definition of “mild disease”. I don’t trust the government to do that.

    Andrew_M_Garland
    EasyOpinions

  6. davisliumd August 1, 2009 at 4:54 am #

    Great stories. Pity the lunch clubs I was involved with in med school was at fast food restaurants.

  7. adblouky August 1, 2009 at 1:18 pm #

    As a private practitioner I have a bit different perspective on your lunch club analogy:
    “Hi, I’d like the lobster please”.
    The waiter says, “Excuse me but I’ll have to see if I can get pre-certification on your menu preference”. He exits the room and returns in an hour and a half. “Those reviewers drive me crazy! To think I’ve been waiting on the phone all this time. Anyway, she pulled up on her computer terminal your menu choices under the code of V455.6: “Hunger, routine, incident to ADL”. She said that lobster was not covered by this code. She said you may have either “PBJ sandwich with generic peanut butter, Jiffy or Peter Pan specifically excluded (Peter Pan was covered last month but we received a bulletin recently saying that restaurant coverage on this item would no longer be allowed), or baloney sandwich using white bread only (in order to qualify for whole wheat you must have a positive hydrogen breath test. Be informed that we consider hydrogen breath tests experimental so you’ll have to pay for that one out of your own pocket).
    “Neither of those choices sound very good to me. I’m really in the mood for lobster. I’m going down the street”.
    “Good luck, sir, but if you exercise your ‘private payer option’ at the other restaurant that place will be prohibited from allowing any other form of subsidized clients, and since their clientele is over 80% subsidized, they wouldn’t possibly risk exclusion or even possibly a fraud and abuse charge for providing you a dietetically unnecessary service”.

  8. JaniceMcCallum August 1, 2009 at 3:37 pm #

    Although one can quibble with the precise analogies, I think both of these stories help create context for understanding the escalating costs in our current health care system. With respect to the lunch club story, a further factor that complicates the application of this story to the real world is the level of income inequality in the economy. If everyone at the lunch club likes lobster and can afford to pay $25 for the lobster (even though some may be quite happy with the $5 caesar salad), then the lunch club will remain attractive to all. But, when a segment of the club wants to order Dom Perignon to go with the lobster and is willing to pay for their share of the champagne because it increases their enjoyment of their lunch, then the pooling and averaging of costs becomes untenable for the folks on the lower end of the income spectrum. With too much inequality, it becomes sensible to open a new restaurant that doesn’t sell Dom–and maybe sells no wine at all. Those who can afford the 4**** experience and don’t mind spending the equivalent of a month’s take home pay for most people for a single meal will still have the option of spending for the “extras”. But, it’s very likely that the majority who dine at the lower-priced restaurant will be just as healthy (maybe healthier) and just as satisfied with their dining experience. (I don’t want to take the restaurant analogy too far, b/c one could raise the issue of quality/fast food quality, etc.). My point is: the level of income inequality is an important factor driving the escalating and unaffordable (for large segments of the population) costs of our current health care system. Robert Fogel at U. Chicago has written about this and Robert Shiller from Yale addressed it on the Charlie Rose show on Thursday July 30 (charlierose.com/view/clip/10530 approx. 31:00 minutes into 37:20 minute interview).

  9. MKirschMD August 4, 2009 at 9:13 pm #

    The ‘Lunch Club’ is a mere appetizer compared to what occurs in our emergency rooms, as detailed at current posting at http://www.MDWhistleblower.blogspot.com. In my 25 yrs of practice, this is the best example of medical mission creep and excess in existence. If you don’t have a disease when you enter, you surely will have one by the time you leave.

  10. tholt August 13, 2009 at 3:01 am #

    The lap chole story is the tip of the iceberg. A big chunk of the rest of the iceberg is medical imaging and other ancillary tests. 20 years ago every patient referred to a cardiologist needed an ECG. Now they need an echocardiogram and some form of testing for coronary artery disease or dysrhythmia before they are even seen for consultation. 20 years ago the orthopedic surgeons required a plain radiograph before seeing the knee injury. Now they need an MRI. In other words I order the tests and make the diagnosis with these ancillary tests and they have all the information they need before they even see the patient. This is probably more expensive because not all of these patients need all the tests that are ordered to make a diagnosis and treatment plan. And some of these tests will lead to additional unnecessary and possibly dangerous tests and treatments.

    On the other hand I often find that I can manage the patient without consultation if the tests are normal. It does provide improved diagnostic certainty for many patients. This makes patients and doctors happy.

    The way that physician greed enters the scene is when the physicians realize how much money they can make if they own these MRI and CT scanners and ultrasounds.

    The lunch club definitely applies to prescribing pharmaceuticals. Lobster is the latest brand name statin, PPI, antihypertensive or antibiotic. Salad is the similar generic. Tiered drug formularies make people choose rationally, as if they are buying their own lunch.

  11. Chris W. August 13, 2009 at 9:58 pm #

    See David Goldhill’s article in the September 2009 Atlantic Monthly.

  12. Texas Insurance Guy October 24, 2009 at 4:33 pm #

    I love the analogies. I’m always looking for creative ways to help illustrate these complexities to potential clients.

  13. Eric May 25, 2010 at 2:00 am #

    There are simple solutions to this problem (Lap Choleys becoming Lunch Clubs).

    1. Decrease compensation for the procedure

    Put that saved money into

    2. Increase compensation for a nutritionist, nurse, doctor, or surgeon (don’t be judgemental, they too should be well compensated for talking to patients appropriately) to talk to the patient for 15 minutes about eating and how this causing the problem. If the patient does not show up for another ER visit for the next year, the healthcare professional gets some money. If for two years, the healthcare professional gets some money. Five years a little more and 15 years a little more. At the end of this time, they(person/hospital) should have been paid more (but barely more…enough for incentive, but not to bankrupt GDP) than performing the procedure.

    The patient benefits because they have to see the doctor less…and this type of care is what you would want if you were a patient in a country where more people die of surgeries than car crashes!

    We need a ‘yes we can’ attitude for hard changes.

    Let’s cap this oil/cash leak.

    We need to decrease compensation for procedures and make other interventions cost effective. This includes paying surgeons for 15 minutes of counseling that can keep patients out of the ER for 15 years. It makes economic sense. You don’t even have to pay surgeons as much. It takes them about an hour to do a lap choley. So pay them more over 15 years if the patient never shows up in the ER again….this makes sense from a nosocomial infection standpoint and will decrease unnecessary procedures. Eventually, this will be outsourced to a non-surgical professional (likely associated with the hospital), but it has to make sense for hospitals to not do procedures and do the tough talk of keeping people healthy. The way old fashion docs use to do.

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  1. Competition in healthcare: the risks. | Abetternhs's Blog - February 19, 2012

    [...] Indication creep and prevention creep. Technology has made surgery to remove gallbladders much safer and cheaper to perform. The overall cost however has increased as the threshold for performing these operations has significantly fallen and people who would previously lived with their gallbladders intact have them removed by enthusiastic surgeons. There is a longer discussion of this phenomenon in the Journal of the Americal Medical Association [...]

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