Newtown, CT – January 27, 2017
It’s amusing to watch what happens when the invisible hand of the market strikes the glass house of the Gosplan – Back in the heyday of the Soviet Union and Communist China, central planning was all the rage. Prices were fixed, production followed suit, and the common good turned into the tragedy of the commons. Despite the dismal failure throughout history of this type of policy, there are some remnants of it, even in the U.S. One of those remnants is about to meet the invisible hand of the market and there’s already a sense of panic. If you’re among the cognoscenti, the intricacies of Maryland’s all-payer fixed prices for hospitalizations are clear. For others (including me), the policy has been interpreted as one in which all hospitals are paid the same amount for a specific hospitalization, irrespective of the payer. In other words, if a commercial plan member, a Medicaid beneficiary, or a Medicare beneficiary was hospitalized for the treatment of a heart attack, the price paid to the hospital would be the same. And that price would apply to all hospitals. It doesn’t. Hospital prices are, in fact, set for all payers, but they vary by hospital, unbeknownst to the average Marylander. Some hospitals are paid more, across all payers, for a specific hospitalization, than others. And now comes the invisible hand of the market in the form of a comprehensive price and quality transparency website. Through it the regulated price disparities will be in full display, to the horror of those who have benefited from the more favorable prices. The glass has started to crack and will soon shatter.
What this means to you – Faced with the impending reality that some consumers may act on the information provided (and they will because they’ve been yearning for this information), those that have enjoyed higher prices across the board (even from Medicare) now risk losing patients and volume. Horror of horrors, foul play, they cry out. How can you do this? We can’t lower our prices because they’re fixed. Really? Now you cry foul? This reminds us of the CalPERS reference pricing program and the rapid fire calls from the higher priced hospitals offering up lower prices to stem the outgoing tide of patients. Initial reactions to drafts of the Maryland transparency site included the usual statements that consumers will never understand the information because it’s simply too complicated, and that there will be unintended consequences. These are all code words for those who enjoy the status quo at the expense of those who pay for it. Because the truth is that consumers will understand the information, and they will act on it, and there will be intended consequences, not least of which is the shattering of the Gosplan glass house. It’s going to be messy and that’s ok because markets are always messy, but they’re messy for the sellers and very rarely for the buyers if, and only if, the buyers have easy and timely access to information on the price and quality of what they’re buying. This is such a stunningly simple concept that we were surprised when one of the states who had been in the vanguard of price transparency, Massachusetts, decided to retreat. The consequence was an F on our yearly report card. But even in that blue bastion the inevitable logic of arming consumers with the information they want has reasserted itself. Consumers have been the most powerful force shaping markets for centuries and they can help reshape the US healthcare market if given a chance. They are eager to play their role because they’re done with paying such a steep price for the misguided policies of central planners. They are the hand of the market and we plan on making it as powerful as possible.