How to Radically Reduce Medical Costs

Radical transparency.

The state of Colorado is considering a new law, the Comprehensive Health Care Billing Transparency Act, which has the potential to profoundly affect the cost of medical care. As former senator (and physician) Tom Coburn explained in the Wall Street Journal:

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.

Once hospitals, surgical centers, etc., are forced to disclose their prices, free-market competition will ensure that those prices tend to converge towards the low end. Some opponents call this a race to the bottom. But, in fact, it’s a race to the market clearing price. In a free market, no one is going to provide a service at a below cost price, and no one is going to pay more than the lowest offered price. This will force hospitals that currently have little incentive to be more efficient to cut costs and meet the competition’s prices.

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How to Radically Reduce Medical Costs

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