Healthcare gouging

2/23/2013 07:30:00 AM
Steve Randy Waldman has some harsh words for the kind of hospital price gouging documented in Steven Brill's article in Time. Matt Yglesias thinks that Brill has missed the point of his own piece when he reaches the policy implications--calling his proposals "meaningless tinkering around the edges" when in reality direct price regulation is probably what the doctor needs.

I have just a couple thoughts to add.

For one, I think that health care providers need to pay a penalty every time there is a billing mistake. In the past studies have shown that (in addition to the usual price gouging) almost every medical bill contains at least one mistake, and over 80% of the time it favors the hospitals. These are almost never corrected, largely because the bills hospitals send are complete garbage--even the hospital billing department can't figure out what's what on their own bills. Which brings me to the next point.

Hospitals probably shouldn't be allowed to charge on the basis of what they actually did. What I mean is that all prices should be forward-looking. Under my system, you would pay a flat fee to have your appendix removed. Whether it took lots of anesthetics or a little, whether they got it done without incident or you had complications, should not affect your bill at all. How many pain relief pills you took shouldn't affect the bill. Just one appendix removed, one flat price paid. And except for cases where the doctor has to make choices on the patient's behalf (because he's unconscious or something), this would make it pretty easy for patients/insurance providers to shop around for the best deals, in advance of getting the procedure. And I suspect it would mostly put an end to price gouging. The ACA includes a pilot program to include a reform along these lines for Medicare payments, though it won't (as I understand it) include all of Medicare, just certain healthcare networks that agree to it.

As a final point, I will just tie this in to Nick Rowe's post about government price-setting where he says:
"I can easily build a simple macroeconomic model showing that price controls are a good thing that can make everybody better off. I cannot build a simple macroeconomic model showing that price controls are a bad thing. I don't think anyone else can either. Unless they assume the government price controllers are stupid."
This is a point that seems to have been lost. There is a general consensus, among economists and everyone else, that government price controls are inefficient, and that central planning is inefficient. As Rowe's note says, that may be what economists believe, but that's not really what their models say. Their models almost always say that central planing and government price controls are no worse, sometimes better, than the market outcome. This was a topic of serious discussion among economists long before my time, and it was ended by what I call the Hayek critique which (to offer a crude summary) basically argues that the government's choices are always stupid, and therefore inefficient. But after reading several reviews of Brill's article in Time, I think its fair to say the consensus of the econosphere is that while the government might make stupid choices if it were to regulate healthcare prices, it can't possibly come anywhere near as stupid as the price system we already have in place.