Mandating that medical providers post prices would create competition and lower costs all around.
Here’s a simple idea to help lower health-care costs: publish prices. A bipartisan group of state lawmakers in Colorado is pushing a bill to do precisely that. The Comprehensive Health Care Billing Transparency Act would allow Coloradans to see the true price of any health service they use—exams, procedures, prescriptions—before they undertake treatment.
If passed, the legislation would mandate that hospitals and other facilities disclose the base fees they charge for specific services “before applying any discounts, rebates, or other charge adjustment mechanisms.” Every bill sent to a patient would need to include an itemized list, which would allow patients to see if a service had been marked up. By making such information available upfront, the legislation would reintroduce competition to Colorado’s opaque health-care markets.
The bill is the brainchild of Denver businessman David Silverstein, who made news last year when he suggested that consumers stop paying their medical bills until providers show how they arrived at the prices being charged. Mr. Silverstein is the founder of BrokenHealthcare.org, a nonprofit that hopes other states will follow Colorado’s lead in legislating greater health-care transparency.
As profound a change as the Colorado bill represents, all it really would do is let consumers deal with health care the way they do any other product or service. Think about it: When you want to buy a car, you shop around, comparing the quality and price of competing models and the offerings at different dealerships. The same is true for practically everything else Americans buy: refrigerators, houses, office supplies, washing machines, computers, and on and on.
Why is health care the big exception? Because the prices are obscured. Particularly if you’re covered by health insurance, you never know the true cost of treatment. There’s no incentive to shop around. This isn’t merely a fluke of the system, but a well-executed scam. Just look at the gag clauses written into pharmacy and hospital contracts, which can prevent providers from telling you that it could be cheaper to pay with cash instead of using your insurance.
Keeping prices hidden provides no benefit to the patient. It serves only to help middlemen turn a tidy profit. When you use your insurance to pay for a prescription, a pharmacy benefit manager may get a cut of the fee. Your hospital probably has a similar deal with the “group purchasing organization,” or GPO, that supplies it with everything from saline to anesthetics to antibiotics.
Publishing prices upfront would allow patients to shop for value. In order to attract business, medical providers would have to step up their game by offering more for less. The itemized bills would prevent hospitals and other providers from adding “surprise” charges to medical bills.
If Colorado’s legislative effort succeeds, other states are likely to follow the state’s lead. Fortunately, Colorado is a particularly good place to begin. Price transparency can reach its full potential, since Colorado does not have a “certificate of need” law. In more than 30 states, CON laws require medical providers to get permission from the government before building a new hospital or other facility.
In theory, these restrictions are meant to prevent overbuilding and thereby keep health-care spending in check. In practice, they are anticompetitive and have helped entrench health-care monopolies. Since Colorado lacks a CON law, medical providers there would be free to compete once prices become transparent. They could form new physicians’ groups or open new surgery centers to offer patients more bang for their health-care buck.
Since the time of Adam Smith, it has been clear that competition in the marketplace lowers prices. When prices are obscured, the market fails. Colorado’s Legislature should pass this bill and mandate that health-care prices be available at the point of sale. This is especially important now given the growing number of Americans who are paying out of pocket for day-to-day care. As insurance premiums have risen under ObamaCare, enrollment in high-deductible health plans has jumped; they now cover 28% of workers, according to the Kaiser Family Foundation. Last year, the average American family faced a deductible of $7,983.
The more people are writing their own checks for the medical services they receive, the more they will be interested in shopping for value. There already are a few smartphone apps that help comparison-shop in health care, but so much more is possible. A first step is passing a bill like Colorado’s that makes prices publicly available and easily accessible.
By enacting the Comprehensive Health Care Billing Transparency Act, lawmakers in Colorado would be working toward lower health-care costs for their state’s residents. At the same time, they’d be advancing the cause of price transparency and setting an example for the nation. Free markets have the ability to make health care more affordable—if only government will let them.
This piece originally appeared in The Wall Street Journal
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Dr. Tom Coburn is the Nick Ohnell Fellow at the Manhattan Institute and a former two-term U.S. Senator from Oklahoma.
This piece originally appeared in The Wall Street Journal