The reason our nation suffers from extraordinarily high medical costs is that the customary business standard of “legitimate pricing” is not applied to the healthcare industry. To slash costs, Congress need only mandate that all hospitals, physicians and labs publish legitimate prices—like all other businesses. They can continue to set their own rates, but a different rate for each patient must be prohibited.
Under the current system, when patients ask the price of any service, they always receive the same answer: “What insurance do you have?” Billing is determined by how much can be extracted from each patient on a case by case basis.
So-called price transparency initiatives serve to perpetuate this system, in which patients are unable to determine their cost—as opposed to average prices or price ranges. Nothing in these transparency schemes alters the fact that prices can vary by a factor of 100 for the same service performed by the same provider. Ethically speaking, this is institutionalized fraud.
Legitimate pricing is essential to both meaningful price transparency and open markets. When legitimate rates are set, patients will be able to shop for good healthcare value and providers will be forced to compete. Healthcare costs will plummet, as will the cost of health insurance, which is simply a direct function of underlying medical costs.
Consumer protection laws are applied to virtually every other industry in the U.S. and require that prices be stated in a common format. Gas is uniformly priced in gallons. Food is uniformly priced in ounces and pounds. Thousands of pages of regulations specify precisely how an annual percentage rate is to be calculated and disclosed in all credit transactions (i.e., the price of borrowed money).
Healthcare providers must likewise be required to publish their rates in a uniform format such as industry standard CPT codes or a percentage of Medicare rates. Every citizen would be able to search any medical procedure online and see pricing for all providers within X miles. It should be as easy and familiar as checking the price of any other goods or services.
Real—legitimate—prices mean health insurance will function like homeowner's, fire or auto insurance. When a house burns down, the price of drywall and paint does not depend on whether the home was insured by State Farm or Allstate. Patients would buy health insurance providing a reimbursement level that they select, for example, 100% of Medicare rates. Consumers could shop every provider in the nation and easily determine their out-of-pocket costs. Networks will be obsolete along with the administrative burdens, tremendous costs and limitations on patient choice that they inflict.
High amounts of corporate debt have been incurred acquiring medical facilities on the assumption they could continue to impose predatory pricing. Disruption of current business models will lead to bankruptcies. Just as in all other industries, currently noncompetitive providers will be acquired at low cost and be operated by more efficient providers. Ultimately, the industry will adjust to a competitive environment and offer health services at far lower prices.
University of California researchers reported that a consumer-oriented incentive to generate competition, known as reference pricing, lowered hospital costs by more than 20% for the 1.3 million members (and their families) of the California Public Employees' Retirement System. The insurance plan stated the maximum amount it would pay for a group of common medical procedures, thereby incentivizing participants to shop prices to avoid incurring charges in excess of the plan's reference prices. Lower-priced hospitals saw market share grow 28% prompting many higher-priced hospitals to lower their prices.
Legitimate pricing would be a far more powerful stimulus to competition than mere reference pricing. It would compel wide-open free market competition and, in this author's opinion, virtually overnight, reduce U.S. health expenditures by a minimum of 33%. Disposable incomes and prosperity would boom. The U.S. deficit would shrink.
Reform is difficult because the healthcare industry spends more on lobbying than the defense, aerospace and the oil and gas industries combined. The American public understands our predatory pricing system is morally and economically unjustifiable and is demanding change. A “Petition to End Predatory Healthcare Pricing” and to require legitimate pricing has garnered more than 100,000 signatures this year.
To create instant transparency, empower patients and rapidly heal our nation's health cost misery, Congress must mandate legitimate pricing.
Steven I. Weissman is a practicing Florida attorney. During 2013-14, he served as interim president of Palm Springs General Hospital, an acute care facility in Miami-Dade County, Fla., an experience that motivated Weissman to become an energetic advocate for healthcare reform. He has written extensively on this topic and served as an adjunct professor at both the University of Miami School of Law and the Nova Southeastern University Graduate Management Program.