The sticker price was one of the triumphs of consumer-rights legislation and has made buying a car an easier—though never altogether easy—experience. What’s more, window stickers made automobile pricing rational and understandable. A customer who knows the base price going in will expect more value coming out. In economic terms, the sticker turned a failed market flummoxed by information asymmetry into something resembling a functioning, price-driven marketplace.
If there is ever an industry in need of a Senator Monroney today, it is health care, in which 1950s-era thinking still rules the day, and irrational and inexplicable pricing is routine. The health care industry plays a gigantic game of Blind Man’s Bluff, keeping patients in the dark while asking them to make life-and-death decisions. The odds that they will make the best choice are negligible and largely depend on chance. Patients need to have data, including costs and their own medical histories, liberated and made freely available for thorough analysis. What health care needs is a window sticker—a transparent, good-faith effort at making prices clear and setting market forces to work.
How bad is it? Uwe Reinhardt, a leading health care economist, described the pricing of hospital services as “chaos behind a veil of secrecy.” Chaos due to lack of predictability; veil of secrecy because many organizations take a proprietary attitude toward data.
Consider a recent study of the costs of routine appendectomies performed throughout California. Though the procedures were largely identical, the charges varied more than 100-fold—from $1,529 at the cheapest to $182,955 at the most expensive.
What accounted for this bizarre spread? Good question—but efforts to discover the answer turned out to be futile. Although the research highlighted how large the bills for these hospitalizations were, various costs were declared to be trade secrets. The providers (i.e., the hospitals) and insurers involved in the study would not share how much the insurers actually paid for the visits, only what the providers charged. To me, understanding the logic here requires a chain of reasoning that could appear only in Alice in Wonderland. We don’t just need an MSRP sticker—we need a medical Freedom of Information Act!
In business, as time goes on, weak industry participants will try to improve their status, and, of course, incumbents will attempt to protect their positions. Two common ways of imposing or maintaining market power are by forming coalitions or by outright acquisitions, and that’s what has happened in medicine. Consolidation among health care providers has resulted in a number of large organizations becoming even more powerful as they’ve started to use their size and reach. And they’ve wielded this power to keep a lid on some of the information that would make for better health care.
The past several decades have seen major strides in technology of all kinds. Improvements in semiconductors have allowed faster computation and communications, as well as the construction of databases that outdo themselves every year. In many industries, technology development has spurred further improvements in efficiency—a virtuous cycle. In health care, this process is happening at a much slower rate. It has taken decades to complete even relatively simple tasks such as digitizing medical records.
by Andy Grove, Wired | Read more:
