U.S. healthcare system is bleeding us to death by design

The U.S. healthcare system is produced and fueled by crony capitalism. Activist investor Dave Chase bottom lined the result (Forbes): “the Middle Class is in a 20-year long economic depression that is at least 95% due to healthcare.” Studies show our healthcare industry is providing worse care than many other wealthy nations, at an astounding 50% per capita higher cost than the next most expensive nation.

Ask the price of any service and you always receive the same answer: “What insurance do you have?” Billing is determined by how much can be extracted from each patient on a case by case basis, often when the patient is at his or her most vulnerable. By any definition, this is a predatory, non-competitive system.

So called price transparency initiatives serve to perpetuate this system in which prices can vary by a factor of 100 for the exact same service performed by the same provider. Healthcare is the only consumer industry legally permitted to shield itself from the usual requirement of legitimate pricing and competition. Patients have been rendered powerless. Ethically, this is institutionalized fraud.

To stop the bleeding, Congress need only require that healthcare providers publish “legitimate pricing” which means, they can continue to set their own rates, but - a different rate for each patient - must be prohibited. Without legitimate pricing, price competition will never exist and healthcare costs will continue to skyrocket.

Consumer protection laws are applied to virtually every other industry and require both that (i) prices be disclosed; and (ii) prices be stated in a common format. Gas is uniformly priced in gallons (not pints, quarts, ounces or liters). Food is generally priced in ounces and pounds and state agencies protect consumers by inspecting scales. Scores of regulation specify precisely how annual percentage rate must be calculated and disclosed in all credit transactions (i.e. the price of borrowed money). Healthcare’s exemption from consumer protection laws is a national disgrace.

Healthcare providers, like other sellers of consumer and financial products, must be required to publish their rates in a uniform format such as industry standard CPT codes or a percentage of Medicare rates. Every citizen would be empowered to search any medical procedure online and see pricing for all providers within X miles. It would be as easy and familiar as checking the price of any other goods or services.

Legitimate prices mean networks will be obsolete, along with the administrative burdens, tremendous costs, and limitations on patient choice which they impose. Health insurance will function like homeowner’s, fire or auto insurance. When a house burns down, the price of drywall and paint does not depend on whether the home was insured by State Farm or Allstate. Patients would buy health insurance providing a reimbursement level that they select. For example, 100% of Medicare rates. Consumers could shop every provider in the nation and easily determine their out of pocket costs.

High amounts of corporate debt have been incurred acquiring medical facilities on the assumption they could continue to impose predatory pricing. Disruption of current business models will lead to bankruptcies. Just as in all other industries, currently non-competitive providers will be acquired at low cost and be operated by more efficient providers. Ultimately, the industry will adjust to a competitive environment and offer health services at far lower prices.

University of California researchers reported that a consumer-oriented incentive to generate competition, known as reference pricing, lowered hospital costs by more than 20% for the 1.3 million members (and their families) of the California Public Employees' Retirement System. The insurance plan stated the maximum amount it would pay for a group of common medical procedures, thereby incentivizing participants to shop prices. Lower-priced hospitals saw market share growth of 28 percent prompting many higher-priced hospitals to lower their prices.

Legitimate pricing, would be a far more powerful stimulus to competition than mere reference pricing. Legitimate pricing would compel wide open free market competition and in this author’s opinion, virtually overnight, reduce U.S. health expenditures by a minimum 33%.  Disposable incomes and prosperity would boom. The U.S. deficit would shrink.

Lower underlying healthcare prices is the sole and exclusive way to materially lower health insurance premiums. Anyone who says otherwise is, to be kind, incorrect.

Reform is difficult because the healthcare industry spends more on lobbying than the defense, aerospace, and the oil and gas industries combined. The American public understands our predatory pricing system is morally and economically unjustifiable and is demanding change. A Petition to End Predatory Healthcare Pricing and to require legitimate pricing rapidly gained more than 100,000 signatures this year.

To the many polarized groups in our nation, we have added free market verses single payer devotees. While this author takes no position on this issue, legitimate pricing is an essential prerequisite to either system.

Nobody knows what prices would look like in an open market. For example, a study by The Department of Health and Human Services compared Medicare allowable prices for lab charges to the negotiated prices paid for 20 high volume and high expense lab tests by health insurers. While providers generally complain that Medicare rates are too stingy, the study found that prices paid by Medicare exceeded fair market value: “Medicare could have saved $910 million, or 38 percent, on these lab tests if it had paid providers at the lowest established rate in each geographic area.”

Without legitimate pricing bureaucrats administering single payer would have no basis on which to negotiate or set rates. That will likely leave lobbyists in control of pricing. For many Americans this concept evokes memories like the Pentagon's purchase of $1,000 hammers and toilet seats. If we didn’t know how much those items cost in hardware stores (i.e. legitimate prices), there would be no reference point and nobody would have even batted an eye.

To reverse our nation’s financial bleeding, Congress must empower citizens by mandating legitimate healthcare pricing.