Editor’s Note: Scott W. Atlas is the David and Joan Traitel Senior Fellow at Stanford’s Hoover Institution and the author of Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Cost. The opinions expressed in this commentary are his own.
The Trump administration is trying to institute a dose of free market reform that promises to disrupt American health care. In a flurry of pro-consumer moves, improving price transparency has been at the center of the administration’s plan to reduce the cost of health care through competition.
Barring gag clauses that prohibit pharmacists from revealing that a prescription drug may cost less than the insurance co-payment if bought with cash; requiring hospitals and doctors to post prices for procedures under Medicare; facilitating tools that show patients their out-of-pocket costs for drugs and compare prices for other medical care; and attempting to force price visibility in advertisements for drugs have all been part of this effort. These moves — intended to remove the cloak of mystery around health care prices — are long overdue.
Health care is the only good or service in the United States that Americans buy and use without first knowing its cost — and that needs to change.
America’s health insurance model has evolved to minimize patient payment at the point of service. Doubling down on that counterproductive idea, the Affordable Care Act of 2010 instilled broader coverage requirements for private policies on ACA exchanges while misguidedly adding premium subsidies for that coverage. This generated more widespread adoption of bloated insurance policies that propped up artificially high prices for care. In America today, doctors and hospitals typically don’t bother to compete on price. And the consequences are entirely as anticipated: inflated prices, health care overuse and runaway spending. All the while, patients are not aware of the real prices they are paying for health care.
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Contrary to conventional wisdom, the data shows that most health care is potentially amenable to price-conscious purchasing, because it is scheduled, non-emergency care. Emergency care represents only 6% of health expenditures; while 55% of health expenditures among all adults and almost 40% in the elderly is for outpatient care. We also know price consciousness by patients brings down prices for scheduled care, as shown by almost 20% cost reductions per procedure in magnetic resonance imaging (MRI) and outpatient surgery after measures to increase price transparency were put in place. Scheduled, non-emergency, outpatient care dominates US health care. This sort of care offers patients the time to compare costs, a powerful tool to drive prices down.
Prices of prescription drugs could also be reduced if patients are motivated to compare prices before buying their drugs. In a 2018 study, the cost of a 30-day supply varied enormously in a single city. For the 15 million seniors taking five or more medications daily, comparison shopping could save several hundreds of dollars per month. Importantly, price transparency must mean visibility of the price relevant to patients — out-of-pocket costs. The “retail prices” for my two prescription drugs are $12.49 and $31.49, but that’s not relevant if my out-of-pocket copayments are less than a dollar for each.
The goal of health care reform should be to ensure that everyone has access to excellent medical care. Instead of compelling Americans to accept an inferior government-run system that restricts access to important drugs, diagnostic technology and medical care to regulate costs, the Trump administration is exposing health care to the power of the free market. This means creating conditions proven to bring down prices while simultaneously improving quality in virtually every other good or service in America: incentivizing empowered patients to seek value with their money, stimulating competition among doctors and hospitals and increasing the supply of medical care.