Hospital Care That Is Priceless

Something is wrong in the hospital marketplace. Government data released recently show that some hospitals in Dallas charge five times as much as other hospitals for the same procedures! This follows on the heels of a Time magazine/ CNN report, showing that hospitals routinely charge ridiculous prices for items and services: prices that bear no reasonable relationship to real costs.

But then we learn that no one is actually paying these prices, except some poor sap who happens to be uninsured and has to negotiate with the hospital on his own. Even so, there is no way you and I can know what we are going to pay in advance. We can’t get what we would get in every other market for repairs (a dented car, a damaged roof, etc.): an estimate. Even if we did have an estimate, we would have no way of knowing what competing hospitals charge.

There is just one problem with the flurry of news about hospitals. No one is pointing out that all these problems are the result of government intervention in the marketplace. They are not the result of a free market for medical care. In health care, we have so completely suppressed the market—for year after year, decade after decade – that few people ever see a real price for anything.

Employees never see a premium reflecting the real cost of their health insurance. Patients almost never see a real price for their medical care. Even at the family doctor’s office, it’s hard to discover what anything costs. This is detailed further in my book, Priceless: Curing the Healthcare Crisis.

Although many would like to think that our system is very different from the national health insurance schemes of other countries, the truth is that Americans mainly pay for care the same way people all over the developed world pay for care at the time they receive it—with time, not money.

On the average, every time we spend a dollar at a physician’s office, only 10 cents comes out of our own pockets. The rest is paid by third-party payers (insurance companies, employers, and government). As a result, for most people, the time price of care (waiting to get an appointment, getting to and from the doctor’s office, waiting in the reception area, waiting in the exam room, etc.) tends to be greater—and probably much greater—than the money price of care. When patients aren’t spending their own money, doctors will not compete for their patronage based on price. When doctors don’t compete on price, they won’t compete on quality either. The services they offer will be only those services the third parties pay for and only in settings and ways the third parties have blessed.

In a very real sense, there are no prices at a typical hospital, or even in a physician’s office. Medicare pays one rate, Medicaid another, BlueCross yet a third. In some cases the rates are negotiated. When the government is the payer, they are typically dictated.

The result is a hospital marketplace that has no resemblance at all to a free market.

In my next blog, I’ll illustrate markets in medical care that can work and work well—especially when third-party payers are not involved.

[Cross-posted at Psychology Today]