Price Discipline and Health Care

There was an op-ed by Joseph Rago in the WSJ proclaiming health care’s coming price revolution. Like most WSJ editorial pieces it includes the mandatory odd shot at the liberals that can be safely ignored, as there is the seed of a decent observation in here:

The big insurers now publish transparent, meaningful all-in prices for hundreds of services by hospital and doctors, and they are building Web platforms that allow consumers to shop for providers. Tiered-benefit structures that use cost-sharing to steer patients to more efficient providers finally give patients the means and incentive to make reasoned medical decisions outside of an information vacuum.

Rago gives away the game, later, when he mentions that defined-contribution benefits (that is, like the idea of competitive bidding applied for private plans) will align “costs and incentives.” He believes the misaligned incentives in health care occur at the demand side rather than the supply side—and thinks that the action of consumers shopping for providers will do the relevant work.

It’s an idea that’s much beloved of a certain set, that the problem with health care consumers is that they are insufficiently exposed to the costs of their actions and that so exposing them will cause them to seek out more efficient, better providers. This sounds good in theory, but of course the practice is very different—the question is, how good are consumers at seeking out genuinely healthful doctors or providers?

Elsewhere in the WSJ we saw an interesting study summarized:

According to the analysis, there were about 500,000 fewer screening colonoscopies among commercially-insured people aged 50 to 64 than you’d expect during the most recent recession…
…
The analysis also found that when it comes to colonoscopy, cost sharing appears to be a deterrent. No matter the economic climate, people with higher out-of-pocket costs — $300 or more for the procedure — were less likely to be screened than those with lower costs, defined as $50 or less. That gap “widened during the recession,” says Dorn.

I wouldn’t characterize this as the smoking gun, but it is suggestive that patients will forgo necessary preventative care (as colonoscopies are) when exposed to the discipline of the market. The discipline of the market works fine for short-term problems that can be fixed by short-term solutions; long-term problems have not been as well served, generally speaking. I would guess health care isn’t different.