Health-care pricing doesn't work. Washington can fix it.

American medical prices are a Kafkaesque nightmare

(Image credit: Illustrated | iStock)

Anyone who has ever gotten a serious medical procedure in this country is familiar with our perplexing medical billing practices. You get the surgery with no idea of its final price. Some time later, you get a bill with a long list of incomprehensible line items and a total as much as 20 times what you'd pay in Europe. If you're lucky, your insurer covers most of it.

These overcomplicated, inflated bills reflect systematic dysfunction and gouging in American medical pricing. It's time for government price controls in health care.

U.S. medical prices don't exist as normal prices do. If I'm shopping for, say, a cell phone, I can see the manufacturer's suggested price online, check prices across dozens of retail outlets, and consult the used market on eBay or Swappa.

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But, as Sarah Kliff shows in a blockbuster report for The New York Times, this is virtually impossible to do in medicine. A Trump administration mandate requiring hospitals to post prices they negotiate with insurers took effect in January. Many hospitals are ignoring the rule, but enough have complied that the public is getting a look at real medical prices for the first time. It turns out prices vary wildly. They're affected by factors including location, insurance status and carrier, the provider(s) involved, and whether you can pay out of pocket (this typically brings a big discount).

Effectively, there are thousands and thousands of different prices for the same procedure across the country. The differences can be enormous, even within a single facility or city. For instance, at Memorial Regional Hospital in Florida, an MRI scan costs $1,827 if you have a Cigna plan, $2,148 if you have a Humana plan, $2,455 if you have a Blue Cross plan, and just $262 if you have Medicare. In many cases, people are charged more for using their insurance — at a University of Pennsylvania hospital, insured patients pay between $18 and $93 for a pregnancy test, while uninsured people pay just $10.

Or witness colonoscopy prices, which vary by a factor of more than 10 between three different hospitals:

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Also important is whether you have the time, inclination, and skills to fight insurers or providers about large bills — if you're annoying and persistent enough, hospitals will often cut your bill, sometimes by well over half. The price can even depend on whether your insurer is filing their nightmarish paperwork correctly. In another article, Kliff profiled a couple whose baby died after a premature birth. Their former insurer, Cigna, accidentally double-paid for the care, then tried to claw back the overpayment from the couple themselves — all $257,000 of it — instead of the hospital.

This mess makes a mockery of price theory. The basic point of market prices is to transmit information and incentivize competition. When goods and services are for sale in an open market (regulated to prevent cheating), customers can compare options, get a reasonable idea of the value and production process for each, and make intelligent decisions about tradeoffs.

But when the price of a single product or service can vary by a factor of 10 or more depending on where and who you are, comparisons become pointless — if not actively misleading. If you can't get your hospital to cough up the price data it's legally required to provide, which is no small task, even a misleading comparision is impossible. The whole thing is a Kafkaesque nightmare from top to bottom. It reflects not economic "rationality" but a ruthless contest between insurers and providers to bleed the most money out of individuals, employers, and the government.

Luckily, there's a quick and straightforward solution: The government can fix all health-care prices. This is not an outlandish idea: As a report from the Organization for Economic Cooperation and Development details, all wealthy peer nations heavily regulate prices in some fashion or another — it's a major reason they spend so much less on health care than we do.

One simple way to do this is mandating Medicare prices across the board. Many private insurance prices are already calculated as a markup on what they charge Medicare, which actually pays a lot by international standards.

Some might argue that, instead of fixing prices, the government should somehow create an open market of medical prices with true consumer choice. Price transparency is great, but medical care is nothing like consumer goods. Ordinary people have neither the training nor the legal authority to diagnose themselves and prescribe treatment. Beyond mild illnesses, they have to seek out specialists, and for good reason. Moreover, when people are sick or injured, the last thing they want is to spend hours or days on elaborate price and quality research, like they're buying a car or laptop. A gunshot victim can't shop around to save $100 on a femoral artery stitch. You can't get a good Amazon deal on heart surgery if there's no cheap brick-and-mortar option in your town.

Government price regulators would no doubt make mistakes, undercharging for some things or overcharging for others. But they couldn't possibly do worse than the tangled nightmare we have now. Get rid of this nonsense and mandate simple, single prices for all patients everywhere.

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