Critical Condition

Fixing Transparency in Health Care

Niv Elis writes in Forbes about a key issue in health-care reform: transparency in pricing.

“The prices that are listed by hospitals are really a fiction,” says Darius Lakdawalla, director of research for the Bing Center for Health Economics at RAND, a think tank. Because list prices are used as bargaining chips for the mammoth players in the health field, he argues, they “exploit gullible, uninsured consumers” who lack the savvy to realize prices are not set in stone.

A recent report by the industry group America’s Health Insurance Plans inadvertently highlights the problem. The report, meant to highlight private insurers’ role in keeping down costs, also shows how distorted the pricing system has become. One example: An out-of-network doctor in California billed $4,500 for an outpatient office visit for which Medicare would only pay $145.

The best way to drive reform in the pricing of medical services, in my view, is to give consumers the incentives and the power to demand it. As Critical Condition contributor and Pacific Research Institute analyst John Graham explained a few months ago in a book review:

Because of government intervention, almost no patients know how much their health care costs, so the “system” has to rely on a bureaucratic web to fix prices, which results in frustration and loss of control by patients and providers. 


[The book authors] also explain how we can take control of our health spending by buying low-premium, consumer-driven health policies coupled with Health Savings Accounts, which leave patients in direct control of more of their health-care dollars.

Importantly, they teach individuals how to buy health care like we buy other goods and services.  They advise patients to ask hospitals before treatment, “what would I pay if I were uninsured?,” before treatment, in order to avoid the insane list prices that hospitals charge.