Let's start with the conservative free-market nirvana, where buyer and seller each armed with perfect information come together in a voluntary transaction. But from the get-go, the patient-as-consumer faces a knowledge asymmetry almost impossible to overcome. Americans' general deference to physicians isn't just a cultural trait, it simply reflects the expertise and training regarding diagnoses, possible treatments, and likely outcomes doctors possess and their patients do not. For some cases and for some conditions, the layman can narrow that yawning information gap. But WebMD or no, it can't be eliminated. "Health" is not a commodity. Those who believe that choosing a health care product or service is no different than buying a car, television, or cell phone might feel differently after, say, developing colon cancer.
But even if the diagnoses, treatments and cures for heart disease, diabetes or depression could be purchased in a free market, in the United States the buyer simply doesn't--or--can't know what price he or she will pay. As Stephen Brill documented in March ("Bitter Pill: Why Medical Bills Are Killing Us"), hospital prices for drugs, supplies, and procedures are completely opaque. The answer from the so-called "charge master" about what anything costs depends on whether the patient is insured or uninsured (the latter often forced to pay multiple times more than the former) and who the insurer is. As it turns out, that mystery pricing is one of the hallmarks of the American model that spends $2.8 trillion a year (over 17 percent of GDP) on health care, more than Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia combined:
As we examine other bills, we'll see that like Medicare patients, the large portion of hospital patients who have private health insurance also get discounts off the listed chargemaster figures, assuming the hospital and insurance company have negotiated to include the hospital in the insurer's network of providers that its customers can use. The insurance discounts are not nearly as steep as the Medicare markdowns, which means that even the discounted insurance-company rates fuel profits at these officially nonprofit hospitals. Those profits are further boosted by payments from the tens of millions of patients who, like the unemployed Janice S., have no insurance or whose insurance does not apply because the patient has exceeded the coverage limits. These patients are asked to pay the chargemaster list prices.
If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.
And in that "marketplace," prices vary widely from state to state, city to city and even block to block. Data compiled by the Centers for Medicare and Medicaid Services (CMS) in May found that "hospitals charge Medicare wildly differing amounts--sometimes 10 to 20 times what Medicare typically reimburses--for the same procedure," with the 3,300 hospitals analyzed showing wide variation "not only regionally but among hospitals in the same area or city." Making matters worse, the accelerating trends of mergers and private equity investments in hospital chains have spawned the use of unnecessary procedures and "code-inflation" to extract greater profits from patients, insurers and the federal government. And as the Washington Monthly and the Washington Post documented, the American Medical Association and its secret Specialty Society Relative Value Scale Update Committee (RUC) quietly set the prices Medicare and private insurers will pay physicians based on sometimes dubious assessments of how long a given procedure takes. So whether we're discussing colonoscopies, hip replacements, asthma inhalers, or ER visits, the only certainty is that the cost to Americans will be higher--sometimes orders of magnitude higher--than those faced by the citizens of Germany, Spain, Canada, Japan, or in just about any other major national economy.
But even if our American patient-as-consumer had access to transparent pricing information and knew everything doctors know about his or her treatment, health care would still not constitute a free market for a simple reason. In most cases, the transaction between the patient/buyer and the provider/seller is coerced. That is, when you're sick, you can't simply walk out of the market. You have to buy care from someone--or else. (Recent studies have the put the number of uninsured Americans who needlessly die each year as high as 45,000.) Worse still, because you can never know in advance about a bank account-draining illness or accident or condition that could require regular or lifelong care, insurance is the only path forward.
The element of coercion--that patients in emergency situations or not usually have no choice but to purchase treatment--is why the rhetoric of Rand Paul and his ilk is so cynical and dangerous. Lasik surgery, the GOP's favorite example of their ideal health care system at work, is entirely elective. Of course, you'd never know that from listening to the ophthalmologist Senator from Kentucky:
"Insurance doesn't cover Lasik surgery, the surgery to get rid of glasses," Paul remarks. "So it started at about $2,000 an eye, maybe even $2,500 an eye, and it's down in some communities to under $500 an eye because competition works and people call on average four doctors to get the price and see how much it's going to cost."Give that a try the next time you go for chemotherapy, kidney dialysis or, say, rupture your spleen. Rather than spending time doing the medical equivalent of window shopping, it would be better to remember the advice of Dr. Paul Krugman:
There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn't work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.