Thursday, August 1, 2013

Obamacare Flaw: Lack of Cost Controls Due to Lack of Market Competition

We do not have a functioning market in health care.

Paul Ryan (R-Wisconsin), Candidate for Vice-President in 2012 Election

There is no market price health care competion, and there is no transparency either. This is true in spite of candidate Obama’s declaration ,”A democracy requires accountablity, and accountability requires transparency.” Yet, five years into his presidency,   these lofty words have not  produced lower costs.

Indeed, the opposite is true.   Instead of accountability, transparency, and promises of lower costs, we have:

·         Spikes in premiums in most individual and small group markets

·         Increased costs for providers  through fines, penalties, new taxes, regulations, and compliance mandates

·         A proposal for an Independent Payment Payment Advisory Board (IPAB), which critics claim is a rationing board

·         Guidelines, protocols, and algorithms designed to lower costs by weeding out “unnecessay” care

·         Implementation and carrying costs two to three times the original estimates

·         Hospitals, physicians, and other caregivers keeping their fees secret until the uncertainty over Obamacare clears.

·         With hospital and physician consolidation and market monopolies or domiance, higher rather lower prices

·         Little, if any market price competition, in most markets

What the secret of lowering health costs?   Maybe it's a simple as this: Making prices transparent  by posting these prices for everybody to see.  Because of a ideological adversion to market-driven phenomonon,   the Obama administration has not highlighted market pricings   as a means of driving costs down.   Not in a big way. but in a small way.   On May 8, 2013,  HHS posted on a government website what Medicare pays for 100 common procedures in hospitals along with hospital chargemaster prices.  But most health consumers do not read govenrment websites, and this posting is likely to have little effect.

The Surgery Center of Oklahoma,  a free-standing center owned by 40 surgeons and anesthesiologists,  took a different tack.    Four years ago, the center began posting prices for its procedures, which were often 7 to 8 times below prices of  hospitals in Oklahoma City and environs.  The local TV station broadcast the news.   Almost immediately,  visitors from other parts of the U.S. and Canada began to showup for surgeries.  People from other cities began asking for lists of the Center’s prices.

Openly  listing prices and broadcasting those prices on local media had a contagious effect.  Other hospitals began to list their prices.   As John Goodman, a conservative health care economist and father of  the health savings accounts concept,  noted,  “Once one hospital in a city does it, everybody has to do it.”   The Surgery Center's move to posted prices makes sense.   Health savings accounts with high deductibles may make patients price conscious, but it is hard to comparison shop if you can’t find  the prices offered by physicians and hospitals.

I have been aware of the Oklahoma City Surgery Center’s price posting policies for some time.  I wrote a blog post on it  on Novemeber 17, 2012 “Oklahoma’s Free Market Medicine, “ in which I concluded,” In Oklahoma City, population 1.3 million, an independent surgery centers charges far less than traditional hospitals.” 
Posting lower prices is the sine qua non for lowering  prices in a market-driven society. Walmart, which started in nearby Arkansas,  learned this early on, and is now the nation’s largest retailer.   Maybe a seemingly small thing,  posting your prices for all to see for surgical procedures,  is the start of something big and will spread to other cities and other health care sectors.

Tweet:   A surgery center in Oklahoma City, by posting its lower prices,   has become a destination for cost-sensitive health care consumers.

Source:  Tina Rosenberg,  “Revealing a Health Care Secret; The Price,",   New York Times,  July 31, 2013.

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