Hospital prices in the United States are a complete sham. What a hospital lists as its basic price for some particular service or procedure bears no relation to the cost of providing it. Nor does it bear any relation to what hospitals are willing to accept.
Medicare dictates to hospitals what they will receive. And private health insurers negotiate huge discounts—perhaps 60 percent to 80 percent—off a hospital’s list price.
And the worst part of all this is the uninsured, who tend to have lower incomes and no insurer-negotiated discount, often have to pay the full price. While many hospitals will voluntarily provide some discount to the uninsured, they usually pay much more than an insured person or Medicare beneficiary.
President Donald Trump is trying to address this hospital pricing sham by requiring hospitals to post their health insurer-negotiated prices. The hospitals are fighting the effort, but a federal judge has recently upheld the Trump rule.
Disclosing prices is a big task because hospitals provide lots of procedures and services, and every price could be different for every insurer.
As a free market defender, the Institute for Policy Innovation isn’t a fan government mandates, but we certainly recognize the problem with consumers not having access to good price information.
This sham pricing wouldn’t exist if patients paid their medical bills out of their own pockets. Consumers would demand price disclosure and providers would comply—just as they do in areas when insurance doesn’t usually apply, such as cosmetic and Lasik eye surgery.
While patients are becoming better consumers in health care, we’re a long way from a consumer-driven system that would force true price disclosure.
Until we get there, if we ever do, a better solution than mandates is for hospitals to take the first step and set real prices for each of their services and stick to them.
It isn’t impossible. There are a handful of hospitals and clinics in the country that do exactly that.
For example, the Surgery Center of Oklahoma lists its prices online for a whole range of procedures. Check them out here.
But the Center doesn’t accept any type of insurance, though that doesn’t preclude a health insurer from reimbursing the patient directly—which is the way it should be.
Ironically, that’s how hospitals and clinics charged decades ago before insurance became the major payor. In other words, the Surgery Center and the Trump rule are trying to take us back to the future.
Markets can work in health care just as in every other sector of the economy. But only if consumers have real information about prices and quality. That’s what Trump is trying to achieve. But the better solution would be for hospitals to end the sham and set real prices.
July 21, 2020