Examine the causes of escalating healthcare costs


We continue to talk about healthcare as if it were a commodity that that can be purchased in the same way as iodized salt, a flat screen TV or a used car. But healthcare essentially operates in a different type of market. As a consumer we decide whether we need salt, will replace the TV or purchase a used car. Once we make that decision we decide which we will buy and we make the payment from our own funds.

But healthcare does not fit that model. We decide when we need to see a doctor, then the doctor tells us what we need to buy (blood work, an MRI, a stay in a hospital), but then — if we have insurance – someone else pays for the cost.

Even if you ask, a physician who says you need an MRI of your head to determine if something is amiss in your skull, that physician cannot tell you what the cost of the procedure will be. If you actually have an MRI, you are very unlikely to be told prior to the procedure what the cost will be.

This is not the model for informed buying decisions. In healthcare all you get to do is determine if you will see someone (your primary care doctor) who will tell you what to buy (drugs, MRI, surgery), another person will provide that service to you (surgeon, radiologist, hospital, etc.), and a third party will make the payment (if you are fortunate enough to have health insurance).

Only rarely will any of these providers be able to quote a total price to you for the service, or even the price for their specific service. This entirely opaque system does not support informed decision-making at each stage.

As a result there are no competitive market forces operating at each stage. This allows providers at each stage to price their services with little regard for the financial effect on the person who will benefit from the service (you as the ultimate user/beneficiary). Nor do you as the ultimate consumer have the competency to determine the adequacy or appropriateness of the treatment or service for its intended use.

So, in such a disconnected market place, prices, quality, and consumer responsiveness do not have the same effect that they have in, for example, the consumer market for a smart phone. Healthcare prices can escalate with little regard to end user impact.

As President Trump so cogently put it, “Nobody knew that healthcare could be so complicated” (Feb. 27, 2017). Well, economists, political scientists, sociologists, policy wonks, Centers for Medicare and Medicaid Services, CDC, community health planners, hospital administrators, medical group practice administrators, health insurers, public health officers – each could have helped, for a start.

Roger Cochran, Ph.D.
Partner, Morgan Healthcare Consulting, LLC
Peachtree City, Ga.