Random pricing not correlated with quality strong sign of a broken market

In functioning markets quality, service and features tend to vary positively with price.  First class costs more but you get free drinks, dinner and someone treats you well.  One condition where this truism doesn't hold is when there are major market discontinuities:  personal computers were cheaper and more useful than the prior version, Walmart integrated a whole host of distribution, order management and procurement innovations to wipe out a whole category of small town and rural retailers while giving more for less.

The other common scenario where price fails to correlate positively with the value elements is market failure - an industry where price are is not well connected to the underlying economics of the business.  Either buyers don't respond to price signals rationally or sellers don't behave in a profit maximizing manner.  This happens most often when third parties like the government get in the middle of market transactions, disconnecting price from consumption, like it does in education or in this case health services.  From the American Interest:

Pay more, get the same—or less. A new study in Health Affairs finds that health care, unlike practically every other sector of our economy, is the one area where price and quality are totally uncorrelated. According to the WSJ, the study authors paired newly released data on hospital prices with quality metrics. The result throws the dysfunction of our system into sharp relief:

However, more qualitative, albeit rudimentary data, did not show expensive hospitals excelling. They performed worse than low-priced hospitals in keeping patients from being readmitted within a month and for avoiding blood clots and death in surgical patients. They also did no better in keeping heart attack and pneumonia patients alive than did low-price hospitals, although they were more successful in averting death for heart failure patients. Their overall ratings among patients were not significantly different than low-price hospitals.

Our healthcare system has been shaped by governments that have worked to create healthcare delivery cartels composed of two or three broad spectrum regional health caresystems in most metropolitan areas. It's as if WalMart and Target lwere different companies in each metro region and owned all the various retail and retail related categories: one owns Lowes, the other Exxon gas retailing down to the smallest boutique . That's how healthcare is operated and it's been the active policy of government to promote this cartelized conglomeration. And it's insame - there are no scale economies, no experience curves, no process optimization when you organize across a market sector rather than deeply within the sector segments. What do the Oklahoma City region Walmarts know about car dealerships? or the Chicago area Targets about dry cleaning? But of course the healthcare systems or more accurately, cartels were not created to drive cost down or quality up but to increase negotiating power relative to the payers - private insurers, state governments and the Feds. And they do so by eliminating competition and dominating a particular region.

This anti-competitive behavior is why often the most expensive (read most powerful) cartels have lousy quality.  A good example is South Texas where a single cartel controls most delivery in a very geographically isolated area - lousy quality, stunningly high prices all in the lowest income market in America.  The exception to this rule are independents like the Cleveland Clinic, Mayo, or MD Anderson that compete on a nation-wide basis - they can only attract patients and get reimbursement if they focus on efficiency and innovation and deliver more for less.  And as a result, they do.

The Obami are making this rotten system worse by giving higher reimbursements to doctors that are employed by the cartels than they pay to independent physician groups and by requiring physician groups to make major investments in software that has no value for them but facilitates cartel control.  This medical corporatism, when combined with the anticipated increases in health demand driven by higher enrollments and forcing people to buy more feature rich 'prepaid health plans' is a recipe for accelerating healthcare inflation.

What's even worse is that the cartels are ultimately controlled by physicians, who are the true victorsof 20 years of 'healthcare reform' - the NFP hospitals and facilities of the 'Systems' have become nothing more than financial conduits s for the further enrichment of the world's richest physician guild.  Who because they will now be employees rather than independent businessmen will (based upon experience) work 10-30% less, seeing fewer patients, delivering fewer procedures and making a serious doctor shortage even worse.

Funny how corporatist rigging of markets results in the most powerful corporatist entities getting richer.  But that was always the plan - carving up the rackets so all the power players win is the Chicago way.

And the people?  Tough.