For more than two decades, federal and state lawmakers have tried to prod, even force, health care providers to list their prices. Congress has passed a few laws targeting hospitals, but many haven’t complied. But the real obstacle to pricing progress is that under our current health care system most patients don’t care about prices.
To understand why, consider how you behave when an employer or friend treats you to a very nice restaurant. You are likely much more interested in what’s on the left side of the menu than the right side, where the prices are. That’s because somebody else is paying the bill.
In the vast majority of cases, when a person goes to a doctor or hospital or walks up to a pharmacy counter, someone else — an employer, health insurer or government — is paying most or all the cost. That system once spurred former Sen. Phil Gramm (R-Texas) to claim that if he paid for groceries the same way we pay for health care, he would eat better and so would his dog.
One aspect of the insurance problem Mr. Matthews discusses is rarely mentioned: Health plans have little incentive to tell patients actual prices they pay for goods and services, even if patients might want to know them. Health plans make money on the spread between premiums and their negotiated prices. While they might save a little $ if patients chose less expensive providers or drugs, this is unlikely to be significant for the reasons Mr. Matthews cites. Pricing information, however, is quite valuable to competitors, who could leverage this data to negotiate lower priced deals with health systems, doctors, pharma companies, etc. Over time, price transparency would turn many healthcare products and services into commodities, and market forces would pressure health plans to reduce premiums to reflect these lower costs. As market pressures mounted, health plans would have an incentive to abandon their current broad-based plans and retreat to being actual insurance companies for catastrophic conditions, like property and casualty insurers.
In reality, all players in the health care value chain – insurers, providers, suppliers, and intermediaries – benefit from opaque pricing, except the consumers and employers who are paying the final bill.