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Reducing Bloated Health Care Costs Through Price Competition

Reducing Bloated Health Care Costs Through Price Competition

An enemy intent on ruining the US economy and sabotaging our public health could do no better than burden us with our current system of health care. The crushing costs of our health expenditures almost double per person those of other developed countries, with health outcomes that fall somewhere between mediocre and lousy.

There is no single cause for our medical fiasco and no single cure—especially since all solutions face the opposition of extremely powerful economic and political monopolies. The gargantuan waste built into our health care system richly feathers the nest of a medical industrial complex consisting of hospitals, doctors, the pharmaceutical industry, device makers, insurance companies, universities, businessmen, lobbyists, and politicians. All will strongly resist any changes that threaten a goose laying such golden eggs.

But there is one solution so obvious it may have a chance of success. How about using the Internet to introduce price competition? 

Medical pricing is so bloated because it is not transparent, not competitive, and is subject to monopolistic manipulation. The transparency and convenience of Internet posting could create competitive markets with rationalized pricing. 

Much of the wasteful extravagance of US health care comes from the secrecy that surrounds its pricing. You wouldn't think of buying a car or a house or even a bar of soap without knowing what is the price and calculating its value to you.

But try getting a straight answer about how much it will cost for a stay in the hospital. And once discharged, try to make sense of (or challenge) the hundreds of mysterious items charged to you that will add up to tens of thousands of dollars for even the briefest of stays. And how can you bargain against the frequently outrageous price tags for drugs or medical devices if you feel they are necessary and you are offered no alternatives?

The prices in our health care system are way out of control (and bear no relation to cost or value) because they are secret and set by monopolies that have no competition. The usual free market forces of supply and demand don't work when the suppliers have all the pricing power and the consumers are kept in the dark and are helpless to negotiate or find a better deal.

The predictable result of this remarkably unfree medical marketplace is ridiculously high and unjustifiable profit margins. Cancer injections and orthopedic devices that cost only hundreds of dollars to produce are sold retail for tens of thousands of dollars. Hospital bills are padded and vary  dramatically from facility to facility (and within facility by type of payer) in a way that has no relation to the cost or quality of services rendered. Expensive and unnecessary tests and treatments are the rule of the day.

Many other things would also need to change for us to have a truly free market in medical care. But the simplest and most obvious first step would be the routine Internet posting of comparative prices, quality measures, and consumer reviews.

The Internet has reduced the price, and increased the convenience, of shopping for just about every other product in our economy. When I want to book a plane or hotel, I turn to Kayak and get a quick comparative rundown of what's available and how much it will cost. When I want to buy a book, I can quickly find its price and customer reviews on Amazon. Why not have the same resource if I need a CT scan, prostate surgery, or a diabetes workup?

It is long past time to use the Internet to inform and empower consumers and reduce the monopoly pricing power of suppliers.     
 

The comparative prices charged by different providers for every medical procedure or service should be posted. And providers should be forced to post their prices as a precondition for inclusion in insurance plans.

The value of creating a transparent and competitive medical marketplace would seem to be the most obvious of policy no brainers—and a clear case of public benefit vs vested interest. 

 
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