• My Latest Kaiser Health News Column

    My latest Kaiser Health News column is posted. It includes this parable:

    Our frustration with the soaring cost of health care is like a mother upset with the increasing price of bread. When her son returns from the market with another high-priced loaf she hatches a plan. The following week, when bread costs $5 a loaf, she attempts to control the price by sending him to the market with only $4. The family spends less on bread that week, but they also don’t eat any since the boy couldn’t find a merchant willing to sell below the market price.

    The next week bread is selling at $6 a loaf, and the mother tries another plan. Thinking her son lazy, she attempts to discipline him with competition. She sends her daughter with him to the market. Whichever of the two can obtain the lowest bread price will win the family’s respect. The winning price, paid by the daughter, is $7. She and the boy competed, but the additional competition on the buyer side sent the price up, not down (as one should expect).

    Read the rest here.

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    • Austin,

      Clearly the hospital services industry also needs a stronger dose of competition. That should go without saying. Eliminating certificate of need laws in the 36 states still possessing such laws and requiring hospitals to list price and quality information would represent some nice steps in that direction.

      It makes no sense that the bread is “selling for $6 a loaf” and the daughter pay $7 in a market where the buyer is provided with the right incentive. That’s why regulating the MLR makes little sense. Insurers will be presented with little incentive to reduce the MLR below the .mandated level.

      Rex

    • Austin:

      Your column is completely correct! The big sinkhole in health care is the hospitals. Their reaction to pressure is to consolidate, not to compete by improving efficiency, lowering prices, and increasing market share and total profit. Likewise with specialist groups. As a primary care pediatrician, I see acutely the pricing power others have that I don’t.

      It is also important to note, I think, that too much discussion talks about “volume” rather than “price.” Both are important, and cutting down on volume can sometimes be cutting down on quality. My wife had an abdominal CT scan and ultrasound at our local Sutter hospital – a monopoly – and the charge was $13,000!! Just unbelievable.

      Budd Shenkin

    • One of the biggest factors in the high cost of healthcare is the pricing power of local hospital monopolies. The way to fix this is price competition for individual healthcare procedures. Various estimates put the waste in healthcare services at 20 to 40%. We need to capture that and return it to those paying for the care. Hospitals and other providers would willingly compete to be the low cost provider if their market share depended on it.