Controlling Healthcare Prices

Writing in the New Yorker, Atul Gawande points out (in reference to the study I mentioned last week):

When your grocery store is the only one in town, it can jack up prices without losing customers. The same goes for hospitals. The study found that hospital prices in monopoly markets are fifteen per cent higher than in those with four or more hospitals.

It’s the Cost Conundrum Squared. The bigger the hospital, the more it can adopt systems that deliver better-organized, higher-quality, less-wasteful care. But the bigger the hospital, the more power it has to raise prices.

We have a few ways out of the conundrum. We can regulate the prices hospitals charge insurers—this is what Maryland does. We can break up big hospitals. We can encourage hospitals to become the insurers. (That’s what Kaiser Permanente in California has done. It provides members with prepaid care at its hospitals and clinics.) Or we can expand Medicare to more and more people until we’re single payer.

We’re going to have to do something. The healthcare sector is already more than a sixth of the total economy. With something between half and two-thirds of that coming in the form of tax dollars one way or another, that’s a drag on the economy. I also don’t see elected officials regardless of their political party eager to pony up the additional jack the additional healthcare spending requires. That spending continues to grow at a multiple of other costs in the economy and faster than revenues.