The Political Philosophy of Pricing

Let’s get into a little bit of political philosophy. Here’s my logic flow that sets the context for this discussion. This is my first crack at laying this out, so I hope it is easy to follow:

  1. An efficient economy is desirable because it raises the general standard of living, which can help more people escape from the limiting effects of poverty.
  2. An efficient economy is one that enables resources to be put to the best use.
  3. Prices are central to helping resources be put to their best use. Only market-generated prices can accurately convey the true and current value of something, as explained by all the following points.
  4. The market-generated price of something is determined by (1) the cost of all the inputs and (2) people’s willingness to pay.
    1. The cost of all the inputs is determined by the price at which those inputs are being sold by suppliers. And those suppliers are setting their prices according to the same two factors (the cost of their inputs and people’s willingness to pay).
    2. People’s willingness to pay is an aggregation of the different potential buyers how much that input is worth to each of them, which depends on if there are substitutes and, if so, the relative price and quality of those substitutes for their specific use case.
  5. The numerous supplier-buyer diads, taken together, form a supply chain, and at each link in the chain there are prices being set in accordance with those same two factors.
  6. New uses for resources are constantly being developed, and the availability and procurement cost of resources are also constantly changing, all of which have ripple effects on the prices of all other resources in the economy as mediated by changes in those two factors that determine market-generated prices.

I’m sure that logic flow will need to be clarified and changed, but it is a start at least. And the conclusion of it, at least as it relates to administrative pricing, is that there is no way a group of experts could ever acquire enough information to accurately determine the proper efficient-economy price for a single product at any point in time, let alone constantly adjust that price over time to take into account the ever-changing factors in every locality.

The way Friedrich Hayek said it in his seminal paper, The Use of Knowledge in Society, is that “the knowledge of the circumstance of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” And, therefore, “Prices can act to coordinate the separate actions of different people.”

He gives an example of this using the tin market, showing what would happen when suddenly there arises a new use for tin:

“All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.”

I do not think people argue that administrative pricing is as efficient as relying on market-generated prices. But from this it should be clear that those two prices are going to end up being wildly different from each other most of the time, and the challenge is to quantify the efficiency cost to the economy of that and then to weigh it against the estimated benefits of using administrative pricing.

Or, in cases where administrative pricing is being proposed in an attempt to curb our capitalistic society’s wealth inequalities, why not just use other methods to redistribute wealth and avoid administrative pricing’s efficiency costs on our economy altogether? This is what I’ve described in my examples of an optimal single-payer healthcare system and an optimal government-run healthcare system.

Making a Lot of Profit with a Drug ≠ Making a Lot of Health with a Drug

The New York Times has a healthcare blog called The Upshot, and Austin Frakt of The Incidental Economist is a regular contributor. He recently wrote an article about drug prices, which is what got me thinking a little more about drug prices and prompted my post last week.

Sidenote: He has not been blogging very regularly anymore on The Incidental Economist, and it feels like a great hole has opened up in the health policy blogosphere. He has a great way of getting interested in a topic and finding all the useful evidence on the subject and then synthesizing it all, and through that process thousands of followers get carried along that journey of learning about an important health policy topic.

I think the topics Dr. Frakt covers in his most recent Upshot article are important, so I want to highlight some of them.

First, there is a link between higher prices and more innovation. Drug company executives aren’t dumb–if there’s a lot of money to be had in a certain drug market, they will put their R&D investments into those areas.

But the potential to make a lot of money with a drug doesn’t always line up with the potential to make a lot of health with a drug. We try to help those two things line up by manually setting patent lengths longer for drugs that will have a greater impact on health, but American politics is messy, so it doesn’t always work out that way. Another way to try to help those two things line up is by using administrative pricing. For example, New York Medicaid, similar to many countries, establishes prices based on a drug’s “therapeutic value.” If there is a high therapeutic value, the drug will be priced higher, and therefore the drug company will make more money if they focus their R&D on areas that are the most likely to increase health.

There is a whole independent nonprofit group dedicated to helping figure out the therapeutic value of drugs, and it’s called the Institute for Clinical and Economic Review (ICER). Some have proposed Medicare use the recommendations from ICER, but these days the trending proposal (which essentially accomplishes the same thing but is more politically palatable) is to instead look at the prices other countries set for drugs (presumably based on therapeutic value assessments) and then set our prices similarly. This is referred to as international reference pricing.

And while I think these proposals make a lot of sense because I, too, want more medications available to help my patients better, from a market perspective, I still have huge reservations to these sorts of administrative pricing proposals. It’s the same argument I end up at every time an administrative pricing proposal comes up: Taking the pricing power away from the collective knowledge of the market and putting it in the hands of a group of experts will never be accurate enough to allow the most efficient use of resources. And, in impossible-to-predict ways, it may create barriers to innovation.

I will talk more about the specific downsides of administrative pricing next week. And, by the way, my purpose here is not to say that administrative pricing is always wrong; rather, my purpose is to say that there are significant unpredictable costs associated with such a policy, and those short- and long-term costs need to be taken into account when deciding which policy would be best.

Maybe This Is Why Drug Prices Are So High?

Communism bread line (the result of administratively set prices)

If you’ve ever taken an Econ 101 class, you will have learned that even monopolies are constrained on how high they can price something. The reason is because if the price is too high, people will just do without the thing, or they’ll substitute something else to fulfill that same job in their life.

Any medication under patent is a monopoly, but nearly all of them have substitutions available or can be lived without. For those drugs not under patent, they can be manufactured by several different companies, so there should be price competition pushing the price down even further.

Then why are drug prices so high?

I am not trying to force-fit my ideas to make them explain everything about the whole world, but let’s just think about value-sensitive decisions in the drug market for a minute.

Value-sensitive decisions come about when people are considering the price and quality of their options and making a reasoned decision about which one is the best value to them. This is what stimulates competition to offer the highest value to people.

Do people make value-sensitive decisions in the drug market?

I’ve prescribed thousands of medications, and not once have I enabled a patient to make a value-sensitive decision.

For example, let’s consider anti-depressants. There are many options. And there are even some decision aids out there (for example, this one created by the Mayo Clinic) to help doctors and patients together choose the one with the best benefits and side effect profile for the individual. So we are looking at the quality of their different options.

But nobody knows the price.

Often doctors will know that a certain med is still under patent and others are generic, but that’s about as good as it gets. I’ve written before about how difficult it is to find the cheapest price for a medication–it was even impossible for me, and I was knowledgeable and highly motivated and spent a lot of time searching.

So here we have a market where the person actually paying for the product usually isn’t the one choosing which one they will buy, which means out-of-pocket costs are often completely forgotten, and neither the consumer nor the one choosing the product for the consumer has any idea about relative prices other than an occasional very general notion.

This sounds like a perfect setup for the suppliers of these products to take advantage of that, doesn’t it? They know setting a high price will make little difference on their sales. For them, given their incentive scheme, setting a high price isn’t greedy; it’s a rational profit-maximizing response to a horrible incentive scheme. And, while setting a super high price, drug manufacturers use other means to try to persuade people to buy their product, whether it’s by advertising to doctors in many creative ways or advertising directly to patients. This advertising arms race inflates prices even more, by the way.

So if we want to get drug prices down, we have a choice between (1) fixing the core cause of the market failure by finding a way to get doctors and patients to know out-of-pocket prices at the time they’re choosing medications or (2) just straight up administratively setting prices. I guess, realistically, there is a third option of getting the insurance companies that are the intermediaries in this market to try to negotiate for better prices on behalf of their enrollees. This can help, but it will not be nearly as effective as value-sensitive decisions on an individual level. And having read The Road to Serfdom recently, the enormous downsides of trying to administratively set prices are fresh in my mind.

I will be very excited the first time I see a politician propose to lower drug prices by helping patients make value-sensitive decisions, but I haven’t seen a proposal like that yet.

Academic Integrity

People in our culture think they can never admit they are wrong. This is especially true of so-called experts in any discipline. I’m not sure if it’s a pride thing, a worry that it will undermine their credibility/reliability as a source of good information, or (maybe more likely) a mix of both.

Politicians have the added consideration that people would be hesitant to vote for someone who admits they were wrong and then changes their position on an issue–it begs the question of what else they are going to change their mind about. Entire parties seem to get locked into this defending-previous-opinions cage even if that previous position doesn’t make sense anymore.

The more intelligent someone is, the better they are at justifying or spinning their position to make it seem like they weren’t wrong.

And I’m tired of it.

The benefit of having the academic integrity, humility, and bravery necessary to admit you were wrong more than compensates in the long run for any possible short-term downsides. Admitting fault acts as a signal to others that even experts are fallible humans, too, and that they, too, are still learning and improving. It shows we are not close-minded and dogmatic. And most importantly, it shows we are seeking truth rather than selfish aims.

Our learning and growth and progress will be stunted if we are ever-defending our errors. So let’s stop.

This is my reminder to do that myself, and it’s my encouragement for everyone involved in politics and policy to do the same. I am committed to being transparent about my areas of ignorance and my wrong assertions and also my biases. And as I work at completing and perfecting my knowledge, I will continue to try to be a reliable source of information by suspending judgment on an issue until I feel like I have understood all aspects of it thoroughly enough to make a sound assessment of it.

NEJM’s Fundamentals of U.S. Health Policy, Part 3: Do We Spend Too Much?

Photo by Scott R on

This next part in The New England Journal of Medicine’s fundamentals of health policy series is written by my favorite health policy writing duo–Drs. Baicker and Chandra. They both do amazing research independently, but when they work together to write an article, it seems to be extra insightful and interesting.

Their task with this article is to help people think deeper than the simplistic sentiment, “The U.S. spends way more than every other country on healthcare; we need to cut back, and any increase in spending is wasteful!”

Key insight: Only looking at the aggregate number obscures many important facts about our healthcare spending; digging a little deeper totally changes the conversation.

Here are my favorite examples of this from their article:

  • As nations grow richer, they spend more on healthcare. So, based on that alone, the U.S. would be expected to spend more than nearly every other country. Of course, this doesn’t explain all the difference between our spending compared to other countries, but it explains a lot of it, and it’s not a bad thing. A related side point they make about this is that it “highlights the challenge of putting all Americans, with very disparate incomes, into a single insurance plan.”
  • Studies that conclude our higher spending is purely due to higher prices (rather than higher quantity) aren’t able to account for all the inter-country differences in quality or intensity of care. This one was news to me, and you’ll see in my prior writings that I didn’t know this. You see, I thought that if a study shows that we generally have the same number of hospitalizations, doctor visits, prescriptions, imaging studies, etc., they would have controlled for differences in what kind of doctor visits (primary care vs. specialist) and scans (a 0.5-Tesla MRI vs. a 3-Tesla MRI) and such were being delivered. But that’s wrong–researchers don’t always have the data they would need to be able to do that. This means we need to look closer at exactly what we’re getting when we are paying a higher price than other nations, which will help us distinguish if it’s just plain overpriced in the U.S. or if it’s a substantially better service.
  • If we look at specific health outcome domains, we find out that we overspend on some of them and actually underspend on others. This means that sometimes increasing spending is actually a good thing, like for vaccines or other preventive care. When we look at spending this way, we can start to evaluate whether reforms’ spending impacts are effective not based on whether they increase or decrease aggregate spending, but instead we can base our assessments on how well they do at reducing overspending on the low-value care and increasing spending on the high-value care.

I hope that helps you think a little differently about (i.e., be a little more critical of) aggregate health spending references like it did for me.

And, to close, here’s a thought-provoking statement they drop in the middle of their article: “The debate about whether health care is a right sidesteps the more difficult and important question of how much health care is a right that should be ensured through public programs.”

Who Can Fix Irrational Healthcare Spending?

Photo by Karolina Grabowska on

A couple weeks ago, I wrote about an experience I had at work with a patient wanting to stay in the hospital for two extra days just so he could spend a few hours with his daughter from out of town before going to a skilled nursing facility where no visitors would be allowed. The cost of staying in the hospital those couple extra days was probably at least $4,000 total, but the patient and his family were (rationally) ignoring that cost because they weren’t going to have to pay for any of it directly themselves.

The solution I proposed to such system-level irrational spending was to have the person making the purchase decision bear at least part of the cost of that decision. That way, if they choose something more expensive, it will be done with a consideration for the additional cost that choice entails.

As context for my proposed solution to such a problem, remember three things: (1) every system is perfectly designed to get the results it gets, (2) the design of a system generates a set of incentives, and (3) incentives are what drive the results of every system. So does no one have an incentive to get the people making purchase decisions to bear at least part of the price differential?

This is how I look at it:

Anything that lowers the total cost of care (while at least holding quality constant) is desirable for whoever is bearing the burden of that total cost of care. And the parties who bear that burden are the insurer and the patient, to varying degrees.

But since the patient typically doesn’t have much of an idea about what their out-of-pocket cost will be or how those costs will be impacted by choosing a different procedure or a different provider, they are not in a position to do anything about it.

The insurer, on the other hand, has the capacity to know–or at least give a reasonable estimate of–the cost of something. Therefore, we need to look to insurers for the necessary changes.

But think about this proposal from an insurer’s perspective . . .

The young energetic intern pitches such a plan to the executives, “Hey, how about we offer a new and innovative insurance plan that gets rid of the typical deductible and instead makes enrollees pay a 50% coinsurance on each service they receive (subject to their out-of-pocket max, of course). We could set the total price of each service (and, therefore, their coinsurance portion) at our negotiated rates with each provider. And we’ll make an app that will allow them to compare prices beforehand.”

The room’s executives would immediately see all the problems with such a plan. “This is too complicated for people! They will hate it and never want to get an insurance plan from us again.” “We can’t divulge our negotiated rates, all the providers who find out they are getting paid less will be angry and demand more from us.” “What about things that are not shoppable?” “If a single bad publicity event comes out of this experiment, it will severely damage our reputation and we’ll lose market share as a result, so we stand to lose more than we could gain.” “We’re going to have to make premiums extra low for such a plan to be able to convince people to try it out, but there’s no way to easily communicate how this plan is different, so a lot of people will just choose it because it’s cheap and says it has a $0 deductible and then they won’t be prepared to pay all their coinsurance costs.” “What about out-of-network coinsurance rates?” “Nobody’s ever done something like this before, so it’s too crazy to try unless we are likely to make a killing on it, which we aren’t.”

I talked about these same issues in my Why Insurers Don’t Innovate post a year ago. And not all of them are immediately solveable. But if we could address at least a majority of those executives’ concerns, I believe we would start seeing some enterprising insurers try this out.

The big thing would be solving the novel complexities that such a plan would create and then finding a way to convey this information to potential enrollees, either in the health insurance marketplace or in employer benefits explanations. And we would have to hope that many people would be willing to use an app to check healthcare prices in compensation for paying a much lower premium.

There would be lots of challenges to solve, and apparently no insurer has yet determined that the potential benefits are worth the potential harms. But I have hope that this will happen and be successful sooner or later. Maybe if the first enterprising insurer to try it can identify some first-mover advantages and create some barriers to imitation, they would stand to gain a lot more.

Also, remember there’s the static-world benefits to patients making value-sensitive decisions (they get better deals on the care they buy), and then there’s the dynamic-world benefits (the market starts to evolve toward delivering higher value). This kind of insurance plan design change, as it starts and then spreads, will enact a big change in providers’ incentives. In other words, the system will be fundamentally changed, which will result in much higher value care being delivered as it evolves in response to that change.

NEJM’s Fundamentals of U.S. Health Policy, Part 2: How Broken the U.S. Healthcare System Is

Image credit: Karsten Schley

I only vaguely remember the great interest and surprise and bafflement I felt when first reading health policy articles that describe how broken the U.S. healthcare system is. But now, after having seen those sorts of summaries hundreds of times, I kind of just gloss over them. Having said that, I think Dr. Schneider does a great job covering the “our healthcare system is broken” lay of the land fairly succinctly in this article, which is the second in NEJM’s series on the fundamentals of U.S. health policy.

Not only does he cover each of the three main categories of issues (quality, spending, and access), but he makes mention of other important aspects to that that are sometimes forgotten, such as the fact that part of our higher spending relative to other countries is simply attributable to our wealth, the impacts of healthcare overspending on U.S. competitiveness, and that a big unmeasured component of the inconvenience of our healthcare system is how much time is wasted by patients trying to figure out insurance or navigate this system in other ways.

I won’t rehash everything he talks about here, but I did find one small section in this article particularly interesting. He is talking about how private organizations and private markets affect the healthcare system, and then he says, “Functioning private markets can reduce costs and innovate in ways that broaden service availability. But private markets may not restrain costs in health care as they do in other sectors. Patients frequently rely on professionals to decide what services are needed, and costs may not be a consideration for either patients or professionals.”

Translation: Markets don’t work in healthcare. And a couple reasons they don’t work are (1) information asymmetries and (2) costs are not considered.

I remember reading things like this as well from the very beginning. And my question was always, “Why?” Or, if reasons were given, “How does that mean markets don’t work in healthcare?” And there never seemed to be a good answer that contained spelled out causal details. The unsatisfactory answer was always, “Healthcare is different.” And then they’d reference the same landmark article by Kenneth Arrow, Uncertainty and the Welfare Economics of Medical Care. So I read that article carefully, and it is a great and important article, but it never seemed to address the challenges for which people were referencing it.

This is, in big part, what spawned this blog. And thousands of hours of researching and thinking and writing later, I feel like I have answers to those questions. Not every answer to every question, mind you, but the main answers to the most important questions. I’ve found that it’s not that markets don’t work in healthcare–it’s that markets aren’t working in healthcare. And the reasons why are explained in my Healthcare Incentives Framework, which I probably reference in at least 50% of my posts because it’s the foundation of how I have come to understand healthcare markets and our healthcare system specifically.

So, if you do any degree of reading about health policy topics, you are sure to come across similar statements about how markets don’t work in healthcare. Or, just as commonly, that they could work in healthcare but relying on them would cause even worse disparities. Don’t believe either of them.

There is a whole article about markets at the end of this NEJM series, so we will see whether it has worthwhile things to say on the topic!

A Real Life Example of Irrational Healthcare Spending

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This week at work, I had a patient in the hospital who had been through a pretty challenging illness, and he was going to have to be discharged to a skilled nursing facility (SNF) to rehab for a few weeks. Sadly, SNFs in my area don’t currently allow any visitors due to the pandemic. The patient is very close with his daughter, who lives out of state, and she was flying in the next day to visit him and lend support in his challenging time.

Unfortunately, he was ready for discharge to the SNF now, and upon hearing my plans for discharge, the family requested we keep him in the hospital until he could see his daughter. Because she would be arriving late afternoon the next day, it would be too late to send him to the SNF that day, so he would be stuck in the hospital an extra two days just so he could see his daughter for a few hours.

It’s a perfectly reasonable request, right? But what am I to do when I get a request like that? What’s the socially responsible thing to do? If I assume that every day spent in my hospital costs at least $2,000, I am left judging whether $4,000 of society’s money is worth spending on this brief visit from the patient’s daughter.

As all these things were going through my mind, I gave them my response: “Sure.”

Maybe that’s an irrational use of society’s resources, but it’s a rational response to the situation. I, as a physician, am often asked the be the incidental steward of society’s resources.

And I face experiences like this every week at work. Actually, I would contend that there are thousands of these illogical spending decisions happening every single day across the healthcare system.

The issue at play here is this: The people making decisions about healthcare purchases are not the people directly paying for it.

But what if Medicare patients were required to pay even just a portion of the $2,000/day cost of staying in a hospital? Of course, not all patients could afford it, so there would have to be a policy to account for that, but let’s focus on the people who could afford it. Suddenly, the conversation with that family changes quite a bit.

“Can you keep him in the hospital two extra days so he can see his daughter for a few hours?”

“Sure, I’m happy to do that. Medicare requires patients to pay 50% of the cost of each hospital day though, which means it’s costing him $1,000/day to keep him here, so you need to decide if it’s worth paying $2,000 extra for him to see her for a few hours.”

Then the people making the purchase are directly bearing a portion of the cost of that purchase, and the utilization of resources becomes more rational.

In my Healthcare Incentives Framework, I focus so much on removing the barriers to people bearing at least part of the cost of their healthcare purchases for this very reason. And the way to get there starts with changing insurance plan designs and enabling patients to obtain price information up front.

NEJM’s Fundamentals of U.S. Health Policy, Part 1: What Is Health Policy?

The New England Journal of Medicine (NEJM) is one of the most prestigious medical journals in the world, and it has a new series of articles I find particularly interesting called Fundamentals of U.S. Health Policy. I’ll be reading through the articles of that series and giving some thoughts in response.

The first article in the series, written by Eric Schneider, Debra Malina, and Stephen Morrissey, introduces and defines the field of health policy, and then it defines the goal for the series: “To offer a foundation for a common understanding of where we stand and where we need to go.”

When I tell people I’m an internal medicine physician but that my real passion is health policy, they often respond by saying, “Oh, so you want to get into administration, eh?” And then I have the opportunity to introduce them to this amazing field of health policy.

Sometimes I’ll tell them my oversimplified analogy to NCAA basketball, with the clinicians being the players, the administrators being the coaches, and the policy makers being the NCAA. Sometimes I’ll tell them I want to set the rules for the system, to align incentives properly. Sometimes I’ll simply just say my goal is to fix the healthcare system (so far, everyone agrees–it needs fixing).

This is how Schneider et al. define it: “the choices made by the people who govern, manage, deliver, and pay for health care.” They also describe it as shaping (1) how clinicians deliver care and (2) how patients seek care, obtain care, pay for care, and adhere to care.

There are many other definitions you can find online with a quick “what is health policy?” search. But they all seem kind of vague and textbook-y and obscure the captivating challenge and monumental opportunity that health policy offers.

My working definition of health policy is different. I would say that health policy is the field of work that deals with making the rules for our healthcare system; it takes on the ultimate challenge of figuring out how to properly align all the industry participants’ incentives in a way that motivates them to maximize value for patients. And then I’d add some rhetoric about how healthcare is the most complex and high-stakes industry there is, that it’s like the ultimate puzzle, and I’d tell them about how success can mean solving many people’s greatest heartaches, solving the nation’s fiscal crisis, and saving the world.

I look forward to evaluating the rest of the articles in this series!

Sneaky Hospital Tactics to Force Higher Prices

Image credit: Rich Pedroncelli/Associated Press

There was a recent 60 Minutes episode with a segment that talked about why healthcare prices are so high, and I learned a couple new things.

The segment focused on Sutter Health, which is a large healthcare system in Northern California. Sutter Health was the bad guy in this episode, but the American Hospital Association dutifully provided a counter-argument to the story here.

For context, remember that the price negotiations between hospitals and insurers are not based on costs but rather bargaining power. The more bargaining power the hospital has over the insurer, the higher the prices they win.

Here is Sutter Health’s strategy to win more bargaining power, according to the 60 Minutes segment:

First, buy up other hospitals to become a monopoly in as many markets as possible. If you cannot be a complete monopoly somewhere, find a way to become a monopoly over a key service line, such as maternity care. Next, require two things in every contract you make with an insurer–a gag clause (so nobody can divulge the prices agreed upon) and an all-or-nothing clause (so the insurer has to have all the system’s hospitals and services in network or none of them).

The combination of all that leads to the hospital having much greater bargaining power.


The insurers are kind of forced to have Sutter Health in their networks to avoid having important gaps in coverage (either a regional gap if the one hospital in that county isn’t in network, or a service-specific gap if Sutter Health is the only provider of that service in an area). They leverage that foot in the door with the all-or-nothing clause, so now basically every insurer is compelled to include every Sutter Health hospital, so Sutter Health can demand very high prices and get away with it. And, for Sutter Health’s protection against the bad PR they would get by charging such high prices, they have the gag clauses in place.

Pretty clever I’d say. Unfortunately for them, the government tends to notice when a hospital system becomes a monopoly in multiple ways, and they also notice when a hospital system is making a lot more money than others around it. So they get investigated, reporters dig up the juicy story, and the government slaps a few wrists with lawsuits and new regulations.

Is there a better, long-term solution to these tactics? I have a few thoughts on the matter. First, there’s nothing like monopoly rents to draw competition to a market, so allowing healthcare entrepreneurs to enter those monopolized markets/service lines would be a great start. And if Sutter Health’s competitor hospitals start doing some thorough cost accounting, they could know how much their different services cost and be able to start setting competitive “out-of-network prices.” When those competitors start winning market share, Sutter Health will have to respond with lower prices and more price transparency to become competitive again themselves.

So many market failures are solved by price transparency.