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December 21st, 2011 - G. Keith Smith

There is a way to lower health care costs


G. Keith Smith
Medical Doctor
Surgery Center of Oklahoma

Why is health care so expensive, and who even cares?

Those paying for it care: employers, people with high deductible plans, people with health savings accounts and those who choose to carry no insurance at all. And the government doesn’t seem to care or they wouldn’t have given 40 million people with no insurance a health care credit card.

A quick history: Prior to Medicare, the cost of hospital care was affordable for all but the extremely poor. The hospital bill for my birth in 1961 was less than $100, a small amount even taking inflation into account. Retired orthopedic surgeons have told me that repair of hip fractures in the pre-Medicare days ran about $300.

What happened? Medicare happened. Physicians wanted nothing to do with this scheme in the early days of the program, so to sweeten the pot, the federal government offered to pay whatever the physicians wanted to charge.

Guess what happened to physician fees?

A similar inflationary price effect happened at the hospitals, as well.

As a result, the “someone else is paying for it” effect took over.

With only a portion of the financial burden of health-related expense borne by the patient, demand skyrocketed, and health insurance was born. Health insurance became necessary for everyone, due to the intervention of the federal government in the health care market. The result has been massive price increases. Once again, as only a portion of the burden of payment was borne by the patient, demand for health services skyrocketed.

The presence of a third party (insurance company) caused bills to climb, as hospitals and physicians were no longer looking the patient in the eye when talking about their bill.

Medicare, along with Social Security, now threaten to bankrupt this country. And what does Washington bring us? Yet another distortion, passed ostensibly to provide health insurance to the “uninsured.”

The incredible claim is that this new program will actually lower the cost of everyone’s health care. As P.J. O’Rourke said, “If you think health care is expensive now, wait until it’s free.”

There is a way to lower health care costs. Application of the same free-market and competitive principles that rule and discipline the activities of other businesses is the simple answer. True market competition results in improved quality and lower costs every time. What do I mean by “true market competition”? Up-front, transparent pricing so the buyer can comparison shop to come up with the best value.

The argument that “the free market has failed us in health care and that’s why we are where we are” is laughable. Health care is financed by a mixed market, predominantly made of socialized medicine: Medicare, Medicaid, veterans benefits, Indian health services and active-duty military.

In areas where the market is allowed to work, it has worked beautifully. We are in the mess we are in precisely because free-market forces slowly have been pushed aside by Uncle Sam.

What has happened, for instance, to the price of plastic surgery or Lasik surgery? The quality of care in these particular fields continues to improve, and the price continues to fall. If you walk in to an ophthalmologist’s office and ask them how much they will charge for your Lasik surgery, you will get an answer. An amount. No “ifs, ands or buts.” Try this at your local hospital. Ask them how much for your hernia surgery or your gallbladder removal. Good luck. You probably won’t get an answer, and if you do, the amount will shock you.

But what if health care facilities posted their prices? Patients could decide, “You are a little more expensive, but this place sure is nice,” or “I want the cheapest deal I can find.” Several facilities in Oklahoma City have adopted a fixed, packaged price for certain procedures for those paying out of pocket for the entirety of their care. The result: Canadians are coming to Oklahoma City for surgery, as rationing care, the only tool left in their bankruptcy tool bag, has left many Canadians with only a place in line.

Instead of focusing on how we are going to get everyone insurance, and how we are going to pay for this high-priced care, why don’t we focus on giving the market a chance to reveal the true price of health care?

True market competition, price transparency and the price war that will result is a start. Competition lowers prices and increases access and quality in every business — period. Health care is no exception.

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