A recent report by the group Patient Rights Advocate (PRA) claims that healthcare price transparency could save as much as $1 trillion a year in healthcare spending. PRA has things backwards. Not only will savings fail to materialize, a federal mandate for transparency will increase federal expenditures on healthcare and will cost American lives.
Price transparency fails to save money
Price transparency can reduce costs in commercial activities but only when there are properly functioning free market forces, where there are only two parties to all transactions: buyer and seller.
Health care, unlike every other commercial activity, has three parties. The first party, the patient, is called the buyer but does not decide payment. The second party or seller is a nurse, doctor, pharmacist, hospital, any provider of clinical care. The third party, federal government and insurance, makes all the decisions, both financial and medical.
In contrast to other markets, in healthcare seller’s price is not what is paid. Payment is determined by the third-party insurance purveyor based on federal government guidelines called allowable reimbursements.
The healthcare market is “disconnected.” Buyer is disconnected from seller. Buyer is also disconnected from his or her money. Third party, not the patient, decides how patient’s money is spent. Seller is disconnected from his cost basis by fixed price schedules.
Most important, buyer (patient) is disconnected from 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.
Making prices transparent in the disconnected healthcare market will not save money because the usual free market forces are absent. Price variability is a signal that balances supply and demand. In healthcare, price is fixed arbitrarily by government. What will be made public is the charge, which bears no relation to payment or to 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 $2500. That is what the public would see, not the payment from Medicaid of $367 (“maximum allowable reimbursement”).
Healthcare 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 either monopsony or monopoly. When both are present, that is by definition central economic control, viz., 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 in increase spending.
Price transparency increases spending
Many people assume that regulations are free. They fail to consider the cost of the regulatory process, in particular the central economic control process. Any government order, whether called an advisory, guideline, law, regulation, or rule, invariably creates BARRCOME: bureaucracy, administration, rules, regulations, compliance, oversight, mandates, and enforcement.
When Washington passes a law such as price transparency, people must write and vet the law. Then federal agencies such as CMS, FDA and others, must establish the rules that implement price transparency, for both care personnel and institutions such as hospitals. 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 in to highly specific regulations. The first set of Affordable Care Act regulations comprise 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 when indicated.
Mandating price transparency generates BARRCOME, which triggers massive federal spending.
Price transparency costs lives
In 2022, the U.S. spent $4.3 trillion on healthcare, 18.3 percent of GDP. At a minimum 31 percent and more likely fifty percent of all U.S. “healthcare” 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 indicator of success of his economic plan. Many of those new jobs are for healthcare BARRCOME. These people do not provide care. They do require compensation paid by taxpayer dollars expended as “healthcare” 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 healthcare prices transparent is a fraud. It will not save $1 trillion. It will, in fact, cost billions. It will produce a false impression in public consciousness 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, 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; former Director, New Mexico Health Insurance Exchange; and author of the multi-award-winning book, Curing the Cancer in U.S. Healthcare: StatesCare and Market-Based Medicine.
