Bast has edited or written more than 100 studies and 10 books on state and local public policy, including Why We Spend Too Much on Health Care (1993), Eco-Sanity: A Common-Sense Guide to Environmentalism (1994), Antitrust after Microsoft: The Obsolescence of Antitrust in the Digital Era (2001), and Emerging Issues 2007 (2007).
I’m no economist. But I was annoyed by a recent article in the Chicago Tribune reporting a new federal survey of hospital prices. I wanted Tribune readers to think a little more critically about that issue: why assume a hospital procedure should cost the same regardless of what hospital it’s performed at? Here’s what I wrote:
Should it really concern us that different hospitals charge different fees for “the same procedure”? (“An acute gap in prices at hospitals,” May 9)
For starters, let’s acknowledge that the product/service may differ among hospitals. Would we be surprised that “a hamburger” costs less at McDonald’s than at Fuddruckers? Of course not. The products, indeed the entire eating experience, are different at the two franchises. It’s quite likely the experience of being treated for a case of “simple pneumonia” is different at Stroger Hospital than it is at Loyola Gottlieb Memorial.
Then there’s the question of demand: Given the choice, would you rather have your pneumonia treated at Stroger or Loyola? Even if the two hospitals started charging the same fee, it wouldn’t take long for the laws of supply and demand to increase the fee at Loyola.
Finally, there is the matter of who pays. To the extent any hospital may be overcharging for its services, it’s likely because patients don’t “shop around” for those services … because they don’t directly pay for them. Insurance companies or government (through Medicaid and Medicare) pay – and they pay whether we have our pneumonia treated at Stroger or at Loyola. Medicaid, Medicare, and insurance companies sometimes question a charge and refuse to pay all of it. That’s about the only price-pressure hospitals feel.
So how does President Obama’s health care overhaul fix this third-party payer problem? It doesn’t. In fact, by encouraging even more people to get Cadillac insurance coverage and discouraging the use of consumer-directed health plans that actually give consumers incentives to comparison-shop, the president’s plan will make this situation worse.
Diane Carol Bast
Submitted Letter to the Editor, Chicago Tribune, May 9, 2013