As the Federal Government prepares to implement new rules requiring greater price transparency in healthcare, the healthcare industry’s army of lobbyists is being fully mobilized.
At the top of the list of arguments against price transparency is the idea that patients don’t use price information, even when it’s available to them, because “healthcare is different.” It’s a misleading argument at best, because we’ve never experienced, or experimented with, a system of truly transparent pricing in healthcare.
In her blog on the CMS website a few months ago, CMS Administrator Seema Verma wrote, “You have a right to know the price.” I couldn’t agree more. The paradox is that once everyone knows the price of something, we don’t really need to know it anymore. That’s because in real consumer markets, we mostly act as a collective, not simply as individuals. And as long as prices are transparent and a small number of us check them, we all benefit. Without transparent prices, the fact that one party checks prices wouldn’t do anyone else any good, because we wouldn’t know if we were being charged the same price as everyone else. But in a system of transparent prices, we’d know. Now, that doesn’t mean sellers must charge us all the same price, it just means they’re more likely to. Economists call the phenomenon “price convergence,” the presence of which is one of the key indicators of whether a market is working. The complete lack of price convergence in healthcare is the most obvious and glaring signal that the market simply doesn’t work.
I call the phenomenon of collectively driven markets, “We, Not Me,” markets.
To understand the phenomenon of “We, Not Me,” in everyday terms, consider that your local supermarket has about 50,000 uniquely bar-coded items on its shelves. When we enter the store, we don’t necessarily know what we’re going to buy, we just know that the price of everything is available, if we care to review it. At the supermarket, we buy things by the quart, or pound, or piece, or bunch; we buy a bottle, or a six pack, or a case; we use coupons and loyalty cards; and we know which supermarkets trend towards luxury items at higher prices and which provide great bulk discounts. Many of us don’t know the difference between dried milk and condensed milk, baking soda or baking powder, and we’ve never heard of most of the cheeses in the cheese aisle. Yet somehow, we still make good choices without feeling at risk of being ripped off. How can that be? The answer is that we trust that others have looked at the prices and that as a result, market forces are at work. In other words, we act as a collective all of the time, and as individuals just some of the time. That is the power of markets and how healthcare should (and can) really work.
Opponents often cite one particular example of where price transparency won’t work in healthcare: emergency services. After all, if any situation defies the logic of “shopping around,” it’s when we have a bullet in our chest, right? Well, not exactly, because if prices were transparent, we wouldn’t have to worry about whether the prices at any particular ER were egregious any more than we have to worry about prices at the local supermarket. If prices were transparent across all participants in the healthcare system, media outlets like Consumer Reports would study them for us. So, too, would university students, journalists, government agencies, and countless others. All we need to know is that prices are transparent enough that if we want to compare prices, we easily can. Many people would. But if they didn’t have time, or simply didn’t want to, they wouldn’t have to. When we recognize the power of the collective, it becomes obvious that that the “shopping around” has been mostly completed before we find ourselves in need of emergency medical services in the first place.
Because I haven’t found any one particular economic theory that perfectly describes the phenomenon of “We, Not Me,” I’ve named it the “Theory of Consumer Proxies.” That is, as consumers, we have many proxies. I have you, and you have me. We have the media, universities, consumer groups, and even governments. We all act as proxies for one another, with the seller never sure who is or is not comparing prices, or when they do it. Buying healthcare should be easy, it shouldn’t be like buying a used car.
“We, Not Me,” is a force in every transparent consumer market. There is no reason that healthcare should be exempt from the influence of the collective consumer, and there’s every reason that it should be. So the next time you hear a politician, or journalist, or healthcare industry executive telling you what people will or will not do with access to real prices in healthcare, just remember that, IT DOESN’T MATTER, because someone else will have already done it for them.