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Getting People to Ask the Magic Question

As Jonathan noted yesterday, the left doesn’t want to admit that the entitlement system built up since the New Deal is collapsing under unrelenting and ineluctable fiscal and demographic pressures. But there is another reason that the medical part of the system is in such a mess: the utter lack of market forces to bring down prices and inspire innovation and efficiency.

The New York Times has an article this morning on the wildly varying prices for standard medical procedures, such as an appendectomy:

Hospital charges are all over the map: according to the report published Monday in the Archives of Internal Medicine, fees for a routine appendectomy in California can range from $1,500 to — in one extreme case — $182,955. Researchers found wide variations in charges even among appendectomy patients treated at the same hospital.

“We expected to see variations of two or three times the amount, but this is ridiculous,” said Dr. Renee Y. Hsia, the study’s lead author and an assistant professor of emergency medicine at the University of California, San Francisco. “There’s no rhyme or reason for how patients are charged or how hospitals come up with charges. There’s no other industry where you get charged 100 times the same amount, or 121 times, for the same product,” she said. Though she is an emergency room doctor herself, Dr. Hsia said, she has no idea what the hospital charges for various procedures. When patients ask her, she has to tell them she doesn’t know.

The reason this is possible, of course, is that hardly anyone pays directly for medical care, especially emergency care. You go to the doctor or emergency room and do what you’re told and someone—insurance, the government, etc.—pays the bill. Because they don’t care what the answer is, no one ever asks the magic question: “How much is this going to cost?”

To be sure, someone arriving at the hospital with the acute abdominal pain of appendicitis is in a poor position to bargain, even if he has to care what the treatment is going to cost. But there are ways to bring price rationality to medicine even if the highly competitive pressures that force, say, all laptop computers to hover around the same price points, can never be fully in operation. There is a website, healthcarebluebook.com, that bills itself as “Your free guide to fair health care pricing.” It lists the “fair price” for various medical procedures by zip code. For the 85 percent of medicine that is non-emergency, this allows “customers” to get a sense of what the market would be if there were one.

It would be easy to get people to always ask the magic question for routine health care. It’s called the medical savings account, where people draw against a sum of money in an account to cover routine doctor visits and such. What they don’t spend in a year goes, tax-free, into their retirement account. “Do I really need this test, doctor?” would suddenly be heard in every medical office. The left has always fiercely resisted this idea, precisely because it would bring market forces to bear and bring down costs, reducing pressure to develop a single-payer system.

For the big-ticket items, such as an appendectomy, requiring doctors and hospitals to publish a schedule of prices for routine procedures without complications (which occur far more rarely in real life than they do in medical shows on television) would be a big step in the right direction. Suddenly they would have to justify their prices as reporters would ask why hospital X is charging three times as much as hospital Y, three miles away, for the same procedure. Those prices would begin to converge, and towards the lower end of the range. That, in turn, would force hospitals and other medical providers to search for ways to cut costs through increased efficiency and innovation.

There are trillions of dollars in excess costs in the medical system today that could be squeezed out by the simple application of market forces through the frequent use of the magic question. Democrats don’t want that question asked. Republicans should insist on it.

 


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