A new Health Justice Monitor commentary
on how the free market doesn’t work for health care.
Price Chaos at U.S. Hospitals
By James G. Kahn, MD/MPH
Summary
The New York Times found huge price variations reported by hospitals across private insurers, generally far above Medicare prices. This causes inefficiencies, inequities, and financial distress for patients. These problems would be eliminated with a single set of negotiated prices.
Excerpt
Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why.
New York Times | By Sarah Kliff and Josh Katz | Aug 23, 2021
This year, the federal government ordered hospitals to begin publishing a prized secret: a complete list of the prices they negotiate with private insurers.
… [M]any hospitals are simply ignoring the requirement and posting nothing.
But data from the hospitals that have complied hints at why the powerful industries wanted this information to remain hidden.
It shows hospitals are charging patients wildly different amounts for the same basic services: procedures as simple as an X-ray or a pregnancy test.
And it provides numerous examples of major health insurers — some of the world’s largest companies, with billions in annual profits — negotiating surprisingly unfavorable rates for their customers. In many cases, insured patients are getting prices that are higher than they would if they pretended to have no coverage at all.
Commentary
Excellent analyses and reporting by the New York Times highlight three very important facts about the now mandatory reporting by hospital of prices by payer:
1. Most hospitals are ignoring the reporting requirements, either failing to report altogether or providing mostly empty or unnavigable data sets.
2. For the limited price data available, variations are astoundingly wide across insurers, and self-pay patients may do much better than insurer cost-shares.
3. The insurer prices are far above prices paid by Medicare – which are based on actual costs.
So what we have is price chaos. A profound morass of prices determined by myriad individual negotiations.
Why do we care? Because this chaos has severe consequences.
It causes inequity – vast differences across individuals.
It causes financial distress – for the unfortunate individual whose cost share is thousands of dollars.
It causes inefficiency – setting those prices and implementing them takes a significant portion of the hospital and insurer operating budgets.
It’s profligate for the system – prices far above actual (Medicare) costs.
There is a huge financial conflict of interest that harms patients – hospitals and insurers jockey to gain profit, and patients lose out.
It also confirms, yet again, that the free market doesn’t work for health care. The price is hidden, so how can the consumer be price sensitive? Indeed, there is no unitary price for a specific product – a fundamental principle of market theory. Kenneth Arrow is turning in his grave.
There is another way, as other countries demonstrate.
A single payer, with a single set of negotiated prices.
No inequity, distress, inefficiency, profligacy, or excess profits.
–James G. Kahn, MD/MPH
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