The Myths of the Healthcare Market
The free market has done wonderful things to benefit people looking for the best price and quality in their next major purchase.
Key to this is what retailers call “price transparency”, the idea that a consumer can quickly see the price “everyone in the world” is selling a particular item for, and make their purchase decision accordingly.
Where in the Olden Days buying a television (and shopping for price) involved either physically visiting a number of retailers – or calling them and trying to get their salesmen to divulge their price, today all you need to do is enter “buy television” into a search engine and you instantly have thousands of price data points.
This has driven profit margins down tremendously. The retailers I worked for in the 1990’s often saw gross margins in the 30%+ range, by the mid 2000’s that had been cut in half.
The company I worked for – along with other major electronic retailers – was out of business as a result, but companies that were able to adjust are still there, and in the end the consumer wins. Buying a TV was once a major expense, now it’s almost trivial.
Price transparency is now expected in almost everything. Ever used Expedia to price flights, Hotwire to price rental cars, Priceline to price hotels, Trulia to shop for houses…?
No? What’s the address of the rock you live under, again?
Despite the fact that we see the effect of price transparency all around us on a daily basis, somehow when we discuss healthcare the fact the market has almost no price transparency at all rarely seems to bother most people.
We spend serious time shopping for the most insignificant of things. My wife and I have spent hours researching light fixtures for our bathroom to find the best pricing on the style we want. Heck, we still haven’t bought a new couch – after years of shopping.
Why would people NOT shop when they’re considering buying healthcare services – if they could? Especially when healthcare can often cost thousands of dollars (and are the number one expense that drive people into bankruptcy…)?
If you were on a plan with a $6000 deductible (the average ACA “Bronze” plan) and knew you needed a procedure that would cost $5,000 at the facility you usually go to …. but there was a provider a mile away that charged $2,500 …. wouldn’t you at least think about it?
In the healthcare debate we see a number of common myths used to refute the idea that such shopping is even possible in healthcare, or that free market approaches could be used to effectively provide healthcare services to people at lower costs and with higher quality.
The fact that these myths involve supposed insurmountable hurdles in market approaches is used to support claims that it is “impossible” to have a functioning healthcare market.
Let’s take a look at the most common of these…
“Every Medical Need is an Emergency!!”
“How can you shop when you have a kidney stone that needs to be removed right now and don’t have time to shop?”
True, this happens. But in reality the true “drop everything and get done NOW” medical emergency is somewhat rare.
According to various studies, anywhere from 2 to 10% of healthcare is done on an emergency basis.
Politifact has an article that summarizes this…
…. And the best linked study from this article (I think) is by the Annals of Emergency Medicine from 2013, at…
Now… this study is based on the COST of healthcare, not the number of visits, so I would need to point out that if we believe that 10% of the COST of healthcare is related to emergency visits then the number of actual healthcare visits is likely a lower percentage – given the average ER visit results in a far higher bill than the average visit for all the lower-level non-emergency issues.
But even if we go with the high end of their estimate, 10%, that means 90% plus of healthcare is done with pre-scheduled procedures that are most certainly shoppable.
And, doesn’t that coincide with your own experience?
Think about it.
How many of the healthcare events you’ve been involved with in your life required you to call and schedule an appointment in the future – and how many times have you been rolled into the ER unconscious?
If you’re like most people, the former is close to 100% and the latter is something that might happen once or twice in your life.
People who think healthcare can’t be a market because everything is done on an emergency basis are not only ignoring facts but also ignoring their own direct experience.
Even if we assume that a small percentage of care truly cannot be shopped, would not the downward pressure on cost that happened by exposing the healthcare market to competition be a good thing for those ER-visit-related costs as well?
“Healthcare is too complex to allow shopping!!”
“How can I possibly know enough about what I need to shop for what I need?”
Yes, healthcare IS complicated.
Fortunately we have experts involved. Experts who spent years in school (and hundreds of thousands of dollars) studying healthcare so they could work in the field.
We call them “doctors” (or sometimes “nurses”), and almost every single healthcare event we are involved in (barring emergencies…) starts with a visit to one.
That visit largely ends with a diagnosis, or possibly a need to do further testing.
Certainly there are cases where a doctor might be stumped, but they’re rare and likely never related to serious ailments. Usually if the doctor can’t figure it out, he’ll order some tests or procedures to get more data.
In my case, being a person in his 50’s, I have some aches and pains. Last time I went to the doctor I complained of a bit of pain in my shoulder.
The doctor said “well… either I can tell you you’re 58 years old and that’s the way it is, let me know if it gets worse, OR I can order a bunch of expensive scans and tests and THEN tell you you’re 58 years old. Which do you want…?”
OK, OK, I get it.
Now, conversely, I also went in recently to look at a lump that I felt in my throat. The doctor poked and prodded, and said “I’m not sure what that is, I suggest you get an ultrasound to find out further. I’ll order that, the imaging lab will be calling you to set up an appointment.”
Hmmm…. Not good.
The doctor did not, then, write “needs ultrasound” on a napkin and send it to the lab. He (or his staff) determined that the proper procedure was an “Ultrasound, soft tissues of head and neck (eg, thyroid, parathyroid, parotid)” and ordered that.
And they did not order it by description – they assigned a code to it. What is called a “Common Procedural Terminology” (or CPT) code.
So the good doc’s office ACTUALLY sent over a referral for CPT code 76636.
Which means if you – the patient – needed an “Ultrasound, soft tissues of head and neck (eg, thyroid, parathyroid, parotid)” you would not need to understand what that is, why it’s needed, and then call around – or search online – for that terminology.
All you need to know is “Doc says I need an ultrasound, CPT code 76636”, period.
Would it be so hard to call a few imaging centers and ask “what do you charge for CPT 76636?” Especially when you might save hundreds – or thousands – of dollars?
… Or, better yet, go online using a search engine and simply ask for what all the providers within 10 miles of your house charge for 76636?
Hmmm… is THAT so complicated?
“You can’t shop for quality in healthcare!”
“If I call around (or search the internet) for pricing, how do I know I’m going to find a provider that knows what they’re doing?”
Yes, quality IS paramount in healthcare. You may be willing to “roll the dice” a bit on many purchases, but not on your healthcare.
Fortunately we have at least some data on medical provider quality, provided by the Medicare system, which tracks metrics on such things.
Anyone can see that data right now – at least for Medicare providers – at
And data sets are downloadable, which means they could be incorporated into medical search engines, or provided to patients “on request.”
What if the ACA had mandated that all providers accepting government subsidized insurance (i.e. almost everyone) were required to submit such data to this system as well?
Which means that when our hypothetical shopping patient got a quote on a procedure they need, that quote could include their quality rating?
Perhaps if you needed something critical – a heart operation, for instance – you might go with “the surgeon your doctor recommends” whether you could save $10,000 going elsewhere or not, whether that surgeon rates only 4.5 stars (out of 5) in quality or not – you may trust your physician in that, and I understand that.
But what if you’re simply getting an ultrasound to see if they can figure out what that pain in your shoulder is, and the 5 star facility is twice the price of the 4.5 star provider?
Hmmmm….. that makes it a more difficult decision.
And what would the effect be on the 4.5 star provider if their quality shortcomings were exposed and they saw some of their business going away to the 5 star provider? Maybe they’d now have the incentive to buy that new ultrasound machine, or hire better technicians, or improve their customer service, or whatever is driving their lower rating?
“Medical procedures are not predictable”
“What if I go in for a colonoscopy and know the price up front, but during the procedure they find polyps to be removed and end up having to do more work? They’re not going to wake me up first and get approval, are they?”
No, they’re not. And we’re not suggesting they do that at all.
We’re simply suggesting that, when your doctor makes the diagnosis and prescribes further treatment, you get the details on “just what the doctor ordered” and use that to shop around.
WITH that, of course the provider could very likely give you up front data on the possibilities, along with CPT codes and pricing for those possibilities for the most common “add-on’s”.
For example, a gastroenterologist knows very well what the most commonly added-on procedures are for a colonoscopy. And their office most certainly has statistics – from their billing processes – that can tell you what the most commonly found complications are in their practice.
With that, the pricing they give you could easily provide a price for the general procedure, as the doctor ordered, as well as pricing on commonly seen complications along with their percentages.
Heck, wouldn’t that be nice to have just to know what the possibilities are for complications, much less their impact on pricing?
“Cost depends on coverage, how can a provider possibly give you price?!?”
“Our prices vary dependent on negotiated rates with all the different insurance companies, how can we possibly give a patient accurate pricing?”
True, but it’s just not that complicated. Particularly with computers involved.
Every single medical provider has the pricing for every single insurance company they do business with, identified by CPT code – in their computer. Every one of them.
Providers also know at least some of the terms of that coverage – particularly if co-pays are involved.
Have you ever gone to a medical provider and had them ask you for the co-pay up front? They do that because they know what it is.
The Great Unknown – from the provider’s standpoint – is where the patient is at in your deductible or what portion of the visit cost the insurer expects the patient to pay.
While a provider may not be able to tell you exactly what your part of the payment might ultimately be – they most certainly can tell a patient what their charge to the insurer would be, as well as any expected co-pays that would go directly to them.
Which the patient could then use to determine what their portion of the cost would be – either based on their own knowledge of their plan or by calling their insurer.
In my past, having been on high deductible plans where almost nothing is covered until I reached several thousand dollars, I pretty much knew the entire cost was going to be on my dime in most cases, no need to consult with the insurer.
And, what if, driven by a rising number of calls to its customer service agents from people wanting to know how much a given procedure is going to cost them, the insurer added a feature to their website letting you log into your specific plan and plug in the CPT code given by the provider so you could just get a price on that specific procedure under the actual terms of your plan?
How to make all this work (the Medical Good Faith Estimate)
There are some parts that need to be in place for this to work – to provide the patient with the information they need to shop as well as to facilitate that shopping process.
The key bit of this is that the patient be given the information on their diagnosis or medical need, in a standardized way that provides the critical bits of data needed.
Fortunately we have a model on how to do this already, the “Good Faith Estimate” (“GFE” or now simply called a “Loan Estimate”) required to be provided to consumers prior to closing any mortgage loan.
Taking out a mortgage is also a complex process that involves a significant purchase and has a number of complicated moving parts to it.
Prior to the 1974 passage of the Real Estate Settlement Procedures Act, it was not uncommon for consumers to be quoted a set of terms (interest rates, fees, closing costs, etc) by a broker, go through the entire process, and then find at closing all of a sudden those terms had changed – in ways that made them much more expensive, of course.
The RESPA fixed that with the GFE. With that, a customer was given an estimate up front, in writing, that with details on the offer. Although the final bill might be different in some respects depending on what happens in the process, it had to be close – and having that estimate both prepared the customer for the final charges as well as allowed them to shop around and compare apples-to-apples when doing it.
The single most significant thing the ACA could have done – that would have cost literally nothing to the taxpayer – would have been to require medical providers to give patients an up-front “Medical GFE” with every diagnosis (including CPT code and quality metrics) – and require that they get approval on charges prior to any scheduled visit.
Part of that could also have required any provider to respond to a request for such GFE “within 3 days” (as with the mortgage GFE), so if the patient is shopping, they get answers in a timely manner.
And what if there were “teeth” in that law, by requiring any procedure done with more than three days lead time that is done without prior approval only be charged at Medicare rates…?
If we really wanted to force the medical industry to figure out how to tell a customer what they charge, we could even define clauses relating to emergency care. Say, something like “any patient treated on an emergency basis who is conscious and able to provide informed consent must be provided with a Medical GFE prior to any billable procedure”, or something similar.
Which would mean if you’re sitting in the waiting room waiting for hours for them to check you out for some “important but not critical” issue, you would also be covered by the law?
This would give the patient exactly the data they need – both to know what they’re “in for” in charges as well as to contact their insurer if they need to so they can clarify their final expected bill.
And, of course, exactly what they need to “shop around” for procedures, as well as to prevent medical providers from surprising people who think they’re in for something minor with bankruptcy-inducing bills?
All this would most certainly drive cost down, and quality up, for everyone.
Now, why would something called the “Affordable” Care Act not include a provision like this, which would obviously do more to make healthcare more affordable than almost anything – and cost the taxpayer literally nothing?
Who knows, really, but I suspect the answer would be in the damage that this would do to the profitability of every part of the medical industry, and the level of discontent this would create among the contributors to our politicians?