Health Reform: Why Aren't We Talking About Prices?

To tame the out-of-control cost of American healthcare, we need to slash the inflated prices we pay.

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One thing we can all agree on is that Americans spend too much on medical care. When a brief visit to the emergency room can cost several thousand dollars or a course of a new cancer drug runs $100,000, there can be no doubt that costs are out of control. Many people do not think they're footing these bills, because some 85 percent have insurance. But they are, really, by sacrificing income that could be used for other needs like school tuition in exchange for a bloated employer benefit. Putting it starkly, Americans now spend more on healthcare each year than on food.

I was expecting that last week's highly touted health summit and the president's own new health reform package would tackle this reality. I was hopeful that he would wow us by delivering on his earlier promise to reduce spending on healthcare by $2,500 per family. But that promise has clearly been forgotten. Instead, the president offered health reform that is largely a rehash of the Senate's trillion-dollar bill—except that the Obama version would tax even more and spend more to fatten Medicaid to quiet angry governors and protect from excise taxes expensive Cadillac health plans (ranging up to $27,500) favored by unions.

America's sky-high healthcare spending must be brought down to earth, not soar further. I'm convinced that this can be done. How? If our opaque and often secretive health-payment system were made transparent, the ground would be laid for consumers to find better premiums and prices for their families. One way to do this would be through open, fair, and guaranteed access, for any citizen, to competing insurers anywhere in the country. These steps could easily get all providers of healthcare products and services to reduce—yes, reduce—their prices by, say, 5 to 10 percent for starters. Any company or any family knows how to do this in times of belt tightening. This move would also free up resources to help subsidize affordable care for those who lack it.

What convinces me that breaking the healthcare cost curve is doable is not the rhetoric of the summit but rather the mounds of data on health spending that show it's not profligate overuse of hospitals and drugs or neglect of preventive care that accounts for higher medical costs here than in other countries. Yes, Americans' care is often more intensive and specialist driven (and to my mind, often better). But the real problem is that our prices are vastly inflated over what they can and should be. In a report comparing U.S. health spending with that in other developed countries, the Congressional Research Service showed that for virtually every medical service or product, Americans pay more. The same coronary bypass operation, abdominal aneurysm repair, or hip surgery will cost twice as much in the United States as in Canada. Americans pay the highest prices in the world for pharmaceuticals, averaging $878 per person per year versus $461 in Europe. That is a big reason that America spends more than 16 percent of its gross domestic product on healthcare, compared with Europe's average of 9 percent. There is a lot of room for lowering prices.

[One big problem: The true prices charged are often a secret.]

America's prosperity and rising GDP have enabled us to ignore the cost of health benefits mostly obscured in pay stubs. But the recession, the jobless rate, and the threat of expanded government intrusion in the health system force a largely unexplored question: Why can't America offer healthcare to its citizens that's both better and cheaper, as it has with everything from computers and telecommunications to food and clothing? An obvious answer is that contrary to what is often said, there is no free market in medicine where prices are known and where patients can shop around for what's best for them at the best price.

That's too bad, since Americans are good shoppers if given the chance and the financial incentive. We've seen this time and time again when patients pay for care themselves. Elderly Americans are the ones who tipped most of the country off to the excessive cost of prescription drugs when, despite government disapproval, they boarded buses to buy their drugs cheaper in Canada. Americans also manage to pay the lowest prices in the world, by far, for over-the-counter drugs, whose prices are known. Efficient walk-in clinics run by nurse practitioners with reasonable published prices are gaining traction among consumers. And prices for cosmetic surgery and LASIK procedures that patients pay for themselves have fallen even as the technology has gotten better.