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Price Transparency in Healthcare Will Save Trillions | Economics21

While care is largely delivered by private insurers, hospitals, and physicians, each of those groups is influenced by price controls and regulations that stymie their entrepreneurial spirit. Too often, consumers experience “the system” as unresponsive behemoths. What’s more, health insurance obscures the true cost of care from patients, removing any incentive to shop for value, and allowing insurance companies and other middlemen to turn a profit by raising prices. Let’s be clear: there’s no real market in American healthcare. That’s the real problem

Enabling price transparency is an important step towards injecting market incentives into healthcare, and restoring the economic discipline of a truly competitive market.  Research by McKinsey and Company suggests that improving both market incentives and healthcare productivity could lower annual national health expenditures anywhere from $284-532 billion, bringing healthcare cost growth in line with the rest of the American economy. These gains could be supplemented by improving the demand-side market incentives as well: once patients can shop for quality, high prices will tend to be associated with better outcomes, as is the case in the rest of the economy.

Why is it the case that when it comes to healthcare — nearly one fifth of the American economy — we deny consumers the right to know the price of care before they select and purchase services? As a physician, I’m not naïve – I realize a patient in cardiac arrest isn’t going to “shop” around for an emergency room. But the vast majority of American healthcare spending doesn’t look like that: 86% of spending supports chronic and mental healthcare. When consumers are denied basic information on costs and quality, they have no incentive to select the most efficient and effective site of service. As a result, prices for the same healthcare services vary so considerably that a single procedure may be two to three times more expensive within the same state, or even the same city.

In most segments of the American economy, sellers compete for buyers by offering competitive prices, service guarantees, and even attractive financing. But in healthcare, consumers don’t benefit from the market discipline of transparency and competition. Some argue that American consumers are not sophisticated enough to shop effectively for healthcare. And yet, these same people sophisticated enough to buy in other sectors of the economy. More than 90% of Americans have figured out how to buy and operate a smartphone, and 51% of Americans use their smartphone for activities like buying a car, shopping on Amazon, or selecting a new outfit. 79% of Americans have made purchases online, while 64% of Americans have figured out the complex financing and paperwork necessary to buy a home. Americans are smart and adaptable in every other sector of the economy; under the right conditions, healthcare would be no exception.

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Price Transparency in Healthcare Will Save Trillions | Economics21.