Monday, September 15, 2014

Why is there so much healthcare cost variation? Because there are no transparent market prices for standard services.

The lack of consistency in the practice of medicine between one town and the next much less across the country can't be explained by any standard endogenous variable like ethnicity or disease load or access to third party payment.  Here's a quote from a recent study.

The authors are also brutally honest, writing, “None of the theories for which there is a lot of evidence can be shown to explain a major part of cross-individual or cross-area variation in treatments.” However, their tentative conclusion is that supply side factors are more important than demand side factors in driving treatment choice

However it's obvious that in a world where you can't tell what something should cost, the product never gets standardized.  Look at markets where price is visible for standard items - practices vary by segment but tend towards standardization around price points.  In a market competitive environment providing extra service that consumers don't want or doing more than the competition for the standard price gets squeezed out of the system - best practice (meaning the best combination of cost, quality, responsiveness, outcome for the consumer) is adopted much faster and much more consistently by people who are losing business to someone else.  And to have that happen there have to be markets with prices for products.

Note that "Supply side factors" is just another way of saying that suppliers (providers), not facing price competition do whatever they damn well want to which often isn't best practice.

Of course O'Care and the Feds ban on price lists in general for Medicare have wrecked this essential mechanism for continuous improvement and cost competitiveness. It's as if these cats don't understand how economies work.

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