The cost of health care

I had just wanted to go over a few basic things about the extraordinarily inefficient nature of American health care with my class this week, but ended up spending a lot more time than I anticipated as the students had a lot of nuts and bolts question about the crazy way the system works.  Anyway, excellent piece in the Times yesterday about the craziness of pricing everything.  Here’s a bit:

Hospital care tends to be the most confounding, and experts say the charges you see on your bill are usually completely unrelated to the cost of providing the services (at hospitals, these list prices are called the “charge master file”). “The charges have no rhyme or reason at all,” Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins Bloomberg School of Public Health. “Why is 30 minutes in the operating room $2,000 and not $1,500? There is absolutely no basis for setting that charge. It is not based upon the cost, and it’s not based upon the market forces, other than the whim of the C.F.O. of the hospital.” [emphases mine]

But, hey, it’s just the free market at work– right?  Markets really are a great innovation and generally really make for more efficiency.  But, free markets depend upon a lot of things that don’t exist in health care, like the ability to compare prices in a meaningful way:

With so little pricing information available, expecting people to shop around for quality care at the lowest cost — something that’s not always possible in emergency situations — is also asking a lot of consumers. “I have always found a bit cruel the much-mouthed suggestion that patients should have ‘more skin in the game’ and ‘shop around for cost-effective health care’ in the health care market,” said Uwe E. Reinhardt, a health policy expert and professor at Princeton University, “when patients have so little information easily available on prices and quality to those things.”

Of course, even if there were prices for everything, if your regular doctors says “I perform procedures at Hospital X” hospital X is going to be where you have the procedure.  Buying knee surgery is quite different than buying a car.

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