By Deane Waldman, M.D.
A recent report by the group Patient Rights Advocate (PRA) claims health care price transparency could save as much as $1 trillion a year, but PRA has things backward.
Not only will savings fail to materialize, a federal mandate for transparency will increase federal expenditures on health care and cost American lives. Health care, unlike every other commercial activity, has three parties. The first party is the buyer—the patient, who does not decide the payment. The second party is the seller—a nurse, doctor, pharmacist, hospital, any provider of clinical care.
In contrast to other markets, the health care seller’s price is not what is paid because there is a third party, the payer, who will ultimately make financial and medical decisions. Payers are the insurer or the government, and the price they pay is often based on guidelines called allowable reimbursements.
The health care market is “disconnected.” The buyer is disconnected from the seller. The buyer is also disconnected from his or her money. The third party, not the patient, decides how the patient’s money is spent. The seller is disconnected from his cost basis by fixed-price payment schedules.
Most important, the buyer (patient) is disconnected from their constitutionally guaranteed medical autonomy. Not only are financial decisions made for the patient by the third party, so are medical choices, thus taking away medical freedom.
Price Transparency Will Increase Prices
Making prices transparent in the disconnected health care market will not save money because the usual free market forces are absent. Price variability is a signal that balances supply and demand. In health care, the price is fixed arbitrarily by the payer. What will be made public in the interest of transparency is the charge, which bears no relation to the payment or the seller’s cost of doing business (CODB).
Publishing fixed prices cannot function as a signal that balances supply and demand. It will also give the public a grossly inflated picture of what providers are paid. This author’s average charge for a cardiac catheterization in a critically ill newborn baby averaged $2,500. That is what the public would see, not the payment from Medicaid of $367 (“maximum allowable reimbursement”).
Health care is both a monopsony—a market with effectively one buyer, the federal government—and a monopoly, a market where one party controls the supply—again Washington, by mandating insurance benefits. Free market forces do not function when there is either a monopsony or a monopoly. When both are present that is by definition central economic control, as in the Soviet Union.
Because of third-party disconnection, patients have no incentive to economize. Without such incentive, spending continues to rise without surcease, as history proves. Because of third-party disconnection, sellers (providers) do not compete for patients’ business. Thus, sellers have no incentive to provide timely service, especially when their compensation is below CODB.
Mandating price transparency will not save money. In fact, it will increase spending.
Regulation Increases Price
Many people assume regulations are free, but they cost money. Any government order, whether it is called an advisory, guideline, law, regulation, or rule, invariably creates bureaucracy, administration, rules, regulations, compliance, oversight, mandates, and enforcement (BARRCOME).
When Washington passes a law such as price transparency, people must write and vet the law. Then, federal agencies such as the Centers for Medicare and Medicaid Services, the Food and Drug Administration, and others must establish rules for implementing price transparency that personnel and institutions will use.
These rules must be made consistent with each other and with state and local laws they impact. Conflicts must be resolved. Then, the rules, which are general, must be turned into highly specific regulations. The first set of Affordable Care Act regulations comprises more than 10 million words.
After establishing timelines for completion and compliance, an oversight process with necessary personnel and structure must be created. Finally, an enforcement system must be developed, including penalties for noncompliance. Officers are hired to oversee compliance, investigate fraud, and apply penalties.
Mandating price transparency generates BARRCOME, which triggers massive federal spending.
Price Transparency Costs Lives
In 2022, the United States spent $4.3 trillion on health care, 18.3 percent of GDP. At a minimum, 31 percent and more likely 50 percent of all U.S. “health care” spending went to BARRCOME. That amount, approximately $2 trillion, reflects an amount of care Americans were denied when Washington diverted funds from nurses, doctors, and hospitals to pay its minions.
In the past, President Biden hailed job growth as an indicator of the success of his economic plan. Many of those new jobs are for health care BARRCOME. These people do not provide care. They do require compensation paid by taxpayer dollars expended as “health care” spending. By diverting funds from care, bureaucratic job growth produces medically dangerous wait times for care that result in death-by-queue.
A mandate to make health care prices transparent is a fraud. It will not save $1 trillion. It will, in fact, cost billions of dollars. It will produce a false impression in the public’s mind of what is actually being paid for their care. Worst of all, federally mandated price transparency will cost American lives.
Deane Waldman, M.D., MBA (firstname.lastname@example.org) is professor emeritus of pediatrics, pathology, and decision science, University of New Mexico; former director of the Center for Healthcare Policy at Texas Public Policy Foundation; and former director, New Mexico Health Insurance Exchange. A version of this article appeared in RealClearHealth on October 24, 2023. Reprinted with permission.