Amid all the Afghanistan news, a key medical-cost report out last week is getting little attention. It deserves greater dissemination and discussion. Congress must hold hearings and then act concretely. Our country’s entire pricing system for medical treatments not only affects millions of families, but is a dead weight on our economy.
The report, “Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why,” ran in the Aug. 24 issue of the New York Times. It presents examples of data tabulated by researchers at the University of Maryland-Baltimore in collaboration with Times staffers. A follow-up report can be found here. Be aware that the links to New York Times articles may require a subscription or registration to create an account. The data come from prices for medical procedures grudgingly posted by hospitals and other providers. It includes info on how to look up prices yourself and a way to submit your own experiences to the researchers.
These disclosures stem from a federal Centers for Medicare and Medicaid Services Trump administration mandate and strongly supported by Biden’s. But it has been like drawing teeth from a hippo. Hospital associations fought in court and lost. Hundreds simply have not complied. Many of the prices posted are posted so opaque that only experienced researchers can tease out correct details. The agency has sent out some 170 letters to recalcitrant firms with small results. There is a penalty for noncompliance, but this is tiny relative to hospitals’ revenues.
Once tabulated, available information shows wide ranges of prices hospitals charged between different insurers and to the uninsured. There is no apparent rhyme or reason; insurers that pay lowest rates to one hospital may pay the highest rates at others.
Furthermore, the entities that buy services from the big insurers — companies, labor unions, state and local governments — have not been able to get access to hospital-specific rates paid through coverage they buy. Non-disclosure agreements between providers and insurers often ban this.
The economics here is pretty simple and extremely important. Markets, while not perfect, are a vital mechanism to provide incentives for producing goods and services that people need and want. No country with high living standards exists in the world in which market forces don’t play key roles in economic activity.
At the same time, for markets to function well, several conditions are needed. There have to be many buyers and many sellers. No individual on either side can have any price-setting, or monopoly power. All buyers and sellers need very good information about all the prices, quantities and qualities offered or bid for by everyone else.
The products must be uniform, such as 87-octane unleaded gas or A-37 structural steel. There can’t be “barriers to entry or exit.” It needs to be easy to set up a hospital or insurance company from scratch. There can’t be external effects where an action by either a buyer or a seller harms or helps a third party with no say.
Obviously these conditions never are fully true for any product or service. Nevertheless, markets frequently are the best option or the least-bad one. Moreover, government can act to remedy many faults.
Farming, for example, nears “perfect competition:” There are many sellers, and often several buyers. Products, like No. 2 corn or 3.2 percent butterfat milk are standardized. And while good information to both sides often isn’t uniformly available, the U.S. Department of Agriculture publishes crop and livestock prices from myriad locations daily or weekly.
Similarly for Wall Street, the Securities and Exchange Commission requires exchanges to post current prices of trades. Regulators make banks release their current financial positions.
And yes, the controlling monopoly is as crucial and hot a political issue today as it was a century ago. But antitrust has scarcely been enforced for 40 years. This also is hugely important in health care, but is a separate topic.
So for health care, what’s behind all the different prices, hundreds of thousands of ones negotiated by insurers with hospitals? One factor is “price discrimination” — an action by which two different buyers, with differing “demands,” can be sold exactly the same product at two different costs. This increases profits for the seller but also can promote economic inefficiency. The practice is omnipresent in many markets — think senior citizen discounts at restaurants, lower air travel prices with restricted tickets and haggling over auto prices.
There’s much haggling between health insurers and providers at great administrative cost for both. It is also something that does not occur in this sector in any other high-income economy, whether Singapore or Switzerland. But unlike the sale-purchase of hog bellies in Chicago, there long was no requirement to disclose prices to anyone.
The result is such a devil’s brew of arcanely-defined medical procedures that no one can get an overall understanding of the actual fees. A single hospital knows the ranges and averages of its fees, but not necessarily those of other providers. A single insurer similarly can tabulate what it is paying but does not know exactly what competitors are.
Yes, Cigna, Aetna, UnitedHealth and the Big Blues have a pretty good idea of the overall situation. So do hospital providers Allina, Healthpartners, Sanford, Mayo and so on. Yet to use a Biblical term, they still “look through a glass, darkly.” Price information is not transparent.
Nevertheless, situations of big players on both sides are orders of magnitude greater than the needs of individuals or households that lack coverage or face large deductibles or encounter many uncovered procedures. As aged, retired member of the military, I have Rolls-Royce coverage, but I spent months trying to get my clinic to say what it would cost to get a mole removed, cosmetic surgery not being covered by either Medicare or Tricare.
The upshot is that this lack of information is an important source of the enormous inefficiencies in U.S. health care, and one that causes injustices. It is a millstone we tied around our own necks.
Congress needs to act. Minimally, it should put teeth into the price disclosure mandate and appropriate funds for enforcement. Information must be made readily available on the internet or at the reception desk of any hospital. The next step would be to sharply curb, if not eliminate, variations in pricing by both providers and insurers. Then much more can be done over time. But sharp improvements in the details and clarity of current price reports is a necessary first step.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
Real World Economics: Pricing disclosure is necessary key health reform - TwinCities.com-Pioneer Press
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