Why is canine cataract surgery so expensive?

In Ontario, a opthamologist is paid $441.95 per eye for cataract surgery. In Ottawa, the cost of canine cataract surgery is about $4,000. (I cannot give you an exact price, as the Ontario Veterinary Medicine Association's suggested fee guide is not available to non-members).

Why do opthamologists charge more to repair a dog's eye than a human's eye?

Perhaps it just costs more to remove a dog's cataract than a human's. Dogs must be anaesthetised before the surgery can be performed. A canine intraocular lenses - the artificial lens inserted in the eye after a cataract operation - might be more expensive to manufacture than a human one. Plus the prices quoted aren't directly comparable - the human price is for the surgery alone, the canine price includes the cost of the lens, operating facilties, and care before and after the surgery. [Update: for Americans considering coming to Canada for cataract operations - uninsured patients can expect to pay about $2500 to $3500 per eye for human surgery.]

In a competitive market, all price differences reflect cost differences, as shown in the figure below.

It's a simple matter of supply and demand.

But health care markets are very different from the competitive markets of ECON 1000 textbooks. There are barriers to entry. Admission into veterinary schools is restricted, and foreign-trained professionals undergo extensive scrutiny before their credentials are recognized. Veterinary medical associations set "fee guidelines" - suggested prices for services. In some parts of Canada there are veterinarians who charge less than the guidelines suggest - but not where I live.

When a health care provider is insulated from competition, they may be able to charge above-cost prices - if that is what the market will bear. After all, a pet owner has little choice: either she pays the price quoted by the veterinarian, or foregoes treatment entirely.

The market for human health care, however, is different. Health care in Canada is best described as a "bilateral monopoly." Physicians and health ministries sit down together and negotiate a fee schedule. The price that is set will depend upon the bargaining power of physicians and health ministers. (Can physicians credibly threaten to move to the US if their pay does not increase? Can politicans credibly threaten to impose legal or other sanctions on non-cooperative doctors?) 

One thing that an economist can predict about the contract is that it will be efficient: the agreement reached will maximize the total benefits from cataract surgery operations. It is less clear how the benefits will be divided between physicians and patients.

But if governments have any bargaining power at all, they can use it to keep down the price of cataract surgery. In the presence of medical monopolies, government intervention can reduce prices and lead to increased social welfare.

Over the next 20 years, population aging will strain Canada's health care resources. Some might hope that private health care markets will reduce costs, easing the burden of care.

My experience of canine care suggests that private medicine has many benefits - caring, professional staff, excellent quality of care, short waiting times. But low cost is not one of them. 

 

Comments

[Don Lloyd]

For a case where the procedure is relatively rare, there is no reason to believe that cost has much of anything to do with the price. The more likely determining factor is the value of the procedure as perceived by the customer.

Regards, Don

[Jeff Graver]

A couple of years ago, I wrote some software on contract to generate a canine/feline intraocular lens on a CNC lathe (designed for lens manufacture). The lenses had to be very high powered for dogs (40+ diopters compared to 15-25 for humans) and even higher for cats. Because of this, a basic biconvex lens would be ridiculously thick, and some geometrical tricks were played to reduce the center thickness of the lens.

I'm sure the lens costs quite a lot more than an ordinary intraocular lens and it's a good guess that the supply is limited.

But the materials and geometries of intraocular lenses are getting much more complex really quickly right now. There is a growing interest in toric lenses, multifocal (diffractive and refractive) lenses, wavefront modifications, and a constant stream of new polymers. Implantation procedures are being simplified and explantation rates are going down fast. Much of the activity is going on outside of the US due to the FDA hurdle. But these new lenses will be much more expensive than stock lenses.

In spite of all this, I don't expect that human cataract surgery will soon cost $4K due to lens costs. So the lens isn't the only factor.

[Patrick]

Dunno the details of the market, but I would think you probably nailed it with your post on total vs. marginal utility in health care decision making (if I remember correctly it was inspired by a sick pet). Not long after reading that post, I was standing in a vets surgery receiving a diagnosis of incurable and rapidly advancing cancer. The poor old guy was done. No margin, just a cliff (or is it a wall?).

It's an all or nothing decision. There's no derivative. How do you bargain?

"How about $350 for making the eyes 10% better?".

"How about we gouge the left, you can sell it and fix the right one for half price? Deal?"

No. It's four large, take it or leave it.

Health care markets just don't work very well.

[Frances Woolley]

Jeff, thanks for that contribution.

Don, it's a bit of both. If the cost of cataract surgery hadn't fallen so much, canine surgery wouldn't even be an option.

Patrick, this was this post: health care lessons from the animal hospital.

As a pet owner or patient you're given a take-it-or-leave-it-offer. With a dog you can say, at some point, "his quality of life is not good, I'll leave it." With a human, that option is much less readily available. That's why I think the right to die is going to be the huge moral issue of the next 20 or 30 years.

By the way, Micky is definitely not getting cataract surgery. The stones referred to in that previous post are still not completely under control. You can lead a dog to water, but you can't make him drink....

[richard]

"Perhaps it just costs more to remove a dog's cataract than a human's. Dogs must be anaesthetised before the surgery can be performed. "

Perhaps a better comparison might be canine cataract surgery vs abdominal surgery in humans.

In Canada humans are generally covered by some sort of insurance plan (public and private). As you say, that results in negotiations over cost. I wonder if we had, say,90% of pet owners with pet insurance whether the same sort of negotiations would take place; vets might gain more procedures but the cost of those procedures might decline.

[Frances Woolley]

Richard - private insurers do effectively create treatment standards, e.g. dental insurance will only pay for so many x-rays, scalings, etc. So, yes, that does happen.

A few things about that:
- the maximum becomes the minimum e.g. "it's been 2 years since your last dental x-ray, time for another one." So the treatment norm becomes the maximum allowed by the insurance company.
- if there's one medical association and 5 or 10 insurers then the ability of the insurers to coordinate and negotiate is limited - depending upon the legal regime around competition policy.
- when insurers and medical providers are in conflict over treatment, the patient finds herself in an uncomfortable position. E.g. my dentist recommended a particular treatment. My insurer said it was unnecessary and refused to pay. Which one is acting in my best interests? What should I do about that tooth? Sometimes choice is just difficult and stressful.

[Frances Woolley]

On the comparison with abdominal surgery: the surgical fee (and there is, of course, aftercare, too, that is extra) for removal of an appendix is $336.60. Cataract surgery is one of the most profitable (human) surgeries out there right now. It is actually really interesting to look at the OHIP fee schedule - I am always stunned at low the fees for particular services are.

[Mike Moffatt]

It's not really any cheaper if you value time. I could have my dog's cataract surgery tomorrow. My grandmother waited six years to get hers.

[Shangwen]

Frances, you mention a critical difference in the post: the OHIP fee is for the surgeon's labor; the vet's fee is for all costs include direct care, Rx, and overhead. Although in Canada we rarely have very exact data on overhead and the input costs of additional care (nursing associated with the procedure, OR prep and cleaning, equipment depreciation, etc. etc.), my estimate would be that those amounts would be quite substantial, but are paid for with funds collected elsewhere. (However, it wouldn't be $3560.)

Secondly, unless you are looking at a private clinic like Lazik, the procedure fee is not the sole source of income. In many LHINs, regional health authorities, university hospitals, etc., the physician is paid a baseline salary or wage, in addition to billing income. The vet is almost certainly deriving all his income from his service fees and contribution added to overhead.

On a related note, there is a war of rhetoric in the US about whether or not rising health care costs are driven primarily by excess costs or excess demand, with people like Austin Frakt and Don Taylor arguing cost (consistent with PPACA), and Arnold Kling and John Goodman arguing demand. I have no idea why it could not be both.

Your post is a good reminder of how health care costs are driven by the labor theory of value and public choice dynamics, rather than by any notion of marginal benefit to the consumer.

[Shangwen]

"The maximum becomes the minimum". That sums up so much about health care!

[Frances Woolley]

Mike - my grandfather waited for a long time too. And rode his bicycle around narrow country lanes because he couldn't see well enough to drive.

That is something that has really changed, however. The time the surgery involves has fallen dramatically - some surgeons have got it down to four minutes. The procedure is so non-invasive that my father-in-law decided to travel home from the hospital on the bus to save the taxi fare after his cataract operation.

Shangwen - I looked up all of the various costs as well as I could, and my best guess is about $2500. Some of the cost data I have is a bit old (there's a 2010 study in the C J Opthamology that's based on 2002 hospital records) but since the costs in this area have been falling so rapidly I don't think that's a big issue. Monofocal lenses are $250 each (2008 OHIP study), hospital costs are about $1059 for bicameral surgery.

Cataract surgery is one of the few types of health care where I would say that people actually are able to make informed decisions about demand - there's a fairly high degree of certainty about the cost of the surgery and the likely outcome. Even there, though, there's all sorts of opportunities for physician induced demand - the big issue now is monofocal v. multifocal lenses. OHIP only pays for monofocal, but if you go to a private eye clinic you will be told the many many benefits of multifocal lenses.

As a regular reader you know my opinions on this. In Ottawa 7,000 people have just received notices from the public health department telling them that they might be at risk of HIV as a result of being treated in a clinic that did not properly sterilize its equipment. The estimated risk of contracting HIV: one in a billion. Do you think all of those 7,000 people will go out and get tested? Yes. Do you think any will have HIV? No. So is this cost driven or demand driven? I just don't even know if it's possible to come up with a coherent notion of demand when people have so little information about the costs and benefits of various options.

[Shangwen]

Frances - cataracts and their treatment are a fascinating example of a health care cost. They have some characteristics that also make them poor candidates for generalizations about health care:

Clinically:
- It's clear at some point that you have cataracts. Ruling other things out and confirming cataracts isn't costly or beset with uncertainty.
- They don't resolve themselves in 1/3 of people. They either worsen very slowly or quickly, but they don't just go away.

Medically:
- We know what works with cataracts, and we can do it efficiently and quickly.
- Consequently, there are no competing procedures that patients have to risk trialing, and no quackery; no one is seriously arguing that mango extract or energetic blinking will make cataracts disappear.
- It's clear whether or not the intervention has worked. The surgeon can see results in process, and the patient can confirm success within days.
- Since the disease doesn't resolve itself in anyone, there's no question of unnecessary cataract surgery. If you got it, you needed it.

That's an impressive, and probably incomplete, set of positive characteristics. You'd be hard-pressed to find a disease or treatment that successful, and where the question of value is so clear. For goods or services in most other industries, that kind of clarity might be normal, but certainly not in health care. Which is why cataracts should probably not get the kind of headline promotion they do when politicians and administrators want to brag.

[Mike Moffatt]

Wow - I didn't realize how much it changed. My last experience with a family member having the surgery was the late 90s.

[Frances Woolley]

Shangwen - agreed. And the flip side of this is: if we see indications that the "market price" of cataract surgery - i.e. the price charged to people not covered by OHIP - is way out of line with a ball-park estimate of the costs (sure, I haven't figured in the cost of malpractice insurance, but cataract surgery is relatively low risk) then what hope is there for getting markets to work in any other kind of health care?

[Morganwarstler]

It is an idiot tax.

[anon]

"But if governments have any bargaining power at all, they can use it to keep down the price of cataract surgery. In the presence of medical monopolies, government intervention can reduce prices and lead to increased social welfare."

This is a rather misleading sentence, since licensing requirements and restrictions on the number of veterinary schools and vets are government interventions in an otherwise competitive market (obviously, this also applies to medical schools and doctors). In an unrestricted competitive market, vets and doctors would voluntarily seek quality certification by schools and professional associations; they would also take out liability insurance, to assuage concerns about gross negligence. The result would be a market in which medical and veterinary services are priced appropriately, depending on the level of quality demanded and the amount of educational investment deemed necessary to attain said quality.

At best, one could argue that collective bargaining can offset a pre-existing government intervention. But this is only a second-best solution, since the supply of practitioners is still limited, so there is no guarantee that the posted price will clear the market.

[Frances Woolley]

Anon: "In an unrestricted competitive market, vets and doctors would voluntarily seek quality certification by schools and professional associations; they would also take out liability insurance, to assuage concerns about gross negligence. The result would be a market in which medical and veterinary services are priced appropriately, depending on the level of quality demanded and the amount of educational investment deemed necessary to attain said quality."

This makes no sense - see Shangwen's comments above about the nature of medical services. There is no reason to expect unregulated health care markets to produce efficient outcomes.

Moreover, the existence of professional associations precludes the possibility of competitive markets. Unless you know of a professional association -- anywhere, anytime -- that has not attempted to increase wages of incumbents by restricting entry.

[Kyle]

I posted a link to this on my friend's wall (who is a veternary opthamology resident) who responded with this:

"intresting! yes, dog cataract surgery is very different from human cataract surgery. in addition to the special lens, with the need for full anesthesia with paralysis, that cost usually also covers pre-op testing - we also do ultrasound, electroretinogram before surgery to make sure the retina is viable. as the canine eye is much more inflammatory and prone to post-op pressure spikes (glaucoma risk) than the human eye, dogs always spend 1 day in ICU (often more) getting meds/monitoring sometimes every hour on the hour. rechecks and meds are also more demanding - as the anti-inflammatory drugs are tapered down much more slowly."

[Frances Woolley]

Kyle - thanks for sharing this.

Some more details on the cost of human surgery:

On my Globe and Mail blog I provide a more detailed break-down of the costs of human cataract surgery. Monofocal human lenses are about $250 each according to a 2008 or 2009 Ontario report, surgery is $450 per eye as quoted above, and hospital etc costs are around $1000 for surgery on both eyes. This doesn't include the cost of mal-practice insurance. Sources http://www.health.gov.on.ca/english/providers/program/mas/tech/reviews/pdf/rev_cataract_20090929.pdf and
http://www.eyesite.ca/CJO/4506/i10-094.pdf
(I have no qualms about using old cost numbers because costs in this area have been decreasing so rapidly).

The point that I was trying to make in this post is that the price charged for medical services is in part determined by costs and in part by the provider's degree of market power. This is particularly evident when you look at the price charged to Americans for cataract surgery in Canada, i.e. $2500 to $3500 per eye. And also when you look at the variation in the costs of veterinary services across the country - we're thinking of sending our dog out to Vancouver for low cost veterinary care....

[richard]

"This is particularly evident when you look at the price charged to Americans for cataract surgery in Canada, i.e. $2500 to $3500 per eye"

I wonder if that is a reflection of the actual cost, or is it a cost priced to attract US residents at a profit (i.e. set lower than an uninsured American would pay in the US)?

"we're thinking of sending our dog out to Vancouver for low cost veterinary care"

Which I believe is related to a dispute amongst veterinarians in BC. As I understand it, some vets there have set up clinics staffed by offshore-trained vets who have failed or refused to obtain certification from the BC regulatory body. I suppose medical care in Canada could be made cheaper if we were to import larger numbers of foreign-trained MDs and bypass the regulatory framework.

Come to think of it, abolishing tenure (which is a form of regulation) might also drive down the cost of education. Guess it depends upon whose ox is being gored.

[richard]

"I suppose medical care in Canada could be made cheaper if we were to import larger numbers of foreign-trained MDs and bypass the regulatory framework. "

After I posted that,it occurred to me that, as vets already treat multiple species (as in 'real doctors treat multiple species'), perhaps it would be cheaper to provide vet students with a year of additional training in human medicine, then allow them to treat humans as well. One stop shopping!

[Frances Woolley]

richard - "abolishing tenure (which is a form of regulation) might also drive down the cost of education. Guess it depends upon whose ox is being gored." touche! On this one, though, the knives are being sharpened (see, e.g. Margaret Wente and Jeffrey Simpson in the Globe and Mail last weekend). The only grim satisfaction I have on this score is that having predicted (over drinks, on many occasions) that the end of a standard retirement age would lead to the end of tenure, and (in this blog) that the feminization of academia would lead to pressure for reduced salaries etc, I saw it coming.

I am sure the price of cataract surgery in Canada is determined by the price of cataract surgery in the US, and also the prices charged in competing medical tourism destinations e.g. Costa Rica, India, Cuba. Language, proximity, and reputation allow us to charge a fairly high price compared to other countries. I didn't check out the price in India, but medical tourism, esp. for surrogate motherhood, is a big deal there.

"perhaps it would be cheaper to provide vet students with a year of additional training in human medicine, then allow them to treat humans as well"

If any of Micky's vets were willing to treat me, I'd pay even without the additional training. They're good at diagnosis, and once you have the diagnosis you can look up anything else you need on a computer.

And, yes, the low cost of veterinary medicine in BC is very much tied to the "Indian vet" phenomenon. There are many concerns about the quality of care that these vets provide.

But dogs and cats provide people with huge physical and psychological health benefits - especially people who are vulnerable and isolated. The person who can't afford $50+ to have a blood test prior to the prescription of heartworm medication benefits from a dog's love just as much as the person doesn't think twice about the cost. Yes, animals should be spared suffering and pain. But if you're trying to survive on part-time minimum wage work, do you want a vet who says: "he's just a dog, it's not worth spending $1000 to treat his tumour, it's better just to put him down". Or do you want a vet who tells you about the $3000 course of medical treatment that will allow your furry friend to last another couple of years and lets you agonize about whether or not to afford it?

[richard]

"But dogs and cats provide people with huge physical and psychological health benefits - especially people who are vulnerable and isolated. "

True, but then we have students from poor families who can't afford university tuition. Should profs take a cut in pay in order to reduce tuition fees? Slippery slope.

Both vets and profs do their best to protect their incomes from the ravages of the 'free' market - just as most do when they have the opportunity. I don't have much sympathy for profs and others who have protected incomes when they complain about their vet bills. If society feels that pets are providing physical and psychological health benefits and wishes to provide a subsidy of some kind to those on low income for this purpose, then that's fine.

"once you have the diagnosis you can look up anything else you need on a computer."

Perhaps that is why my vet keeps saying 'I'll be back in just a minute'.