Health Care Prices

By: State Rep. Lenny Mirra – Feb. 2017

Getting your appendix removed can be an expensive thing. This routine surgery costs an average of about $16,000 in the U.S., and even higher in places like Massachusetts. But in Switzerland the average cost is about $6,000, and only $2,000 in Spain.

For a hip replacement the prices vary even more, on average about $40,000 in the U.S. but only $11,889 in the UK and $10,927 in France. For that amount of difference you could take your entire family to Paris for a week while also paying for your hip replacement – and come out ahead by several thousand dollars.

Even such routine, mundane things like an MRI can vary by a lot, about $1,119 in the U.S. compared to $811 in New Zealand, $215 in Australia and $181 in Spain.

This is no small problem as health care consumes about half of our state’s $40 billion budget, to say nothing about federal and municipal budgets. Moreover this excessive spending devours a huge percentage of our GDP and does a number on our small businesses.

This has understandably led many to conclude that we should simply adopt the health care systems of other countries but that doesn’t guarantee long term success; these other countries are facing health care problems of their own. But a look at how they approach the issue can be helpful. In Canada and Britain, for example, prices are set by government, which I think would be disastrous here. But in Germany and Japan prices are determined by negotiations between providers and insurers, something that allows for more competition and market forces.

Our lack of competition is what has led to the utter dysfunction of our health care industry as prices are now determined by a convoluted system of government regulations and red tape, exacerbated by mergers and consolidations among hospitals. About a year ago Kellogg Northwestern Management School wrote a paper entitled “The Price Effects of Cross-Market Hospital Mergers” where they researched the cost of healthcare after mergers. What they found was not surprising: “The results suggest that cross-market, within-state hospital mergers appear to increase hospital systems’ leverage when bargaining with insurers.”

What this means in plain speak is that some hospitals have cornered the market in some regions, like Partners has done here. This is why a Partners hospital can charge tens of thousands more for even routine surgeries, or even for things like CAT scans or an MRI. They negotiate these prices with insurance companies that are compelled to pay them because they would never be able to sell a policy without including Partners in their network. The result is patients unwittingly going to these high priced providers to pay these exorbitant prices because “someone else” is paying for it. The rest of us are “someone else.”

This wouldn’t happen so often in a more free market system and that is why things like Lasik and cosmetic surgery have come down in price while the procedures covered by government and/or insurance have skyrocketed. Now just imagine if more countries used a more free market approach to healthcare; innovation would take off and prices would plummet. If France is more adept at replacing hips, more people would go there for that procedure and they’d become more proficient and efficient at it because they’d specialize in it. Likewise, if Partners hospitals are especially good at cutting edge cancer treatments, people from around the world would go there for treatment and they’d have fewer beds, rooms and doctors being used on appendectomies that are done much more efficiently and economically elsewhere.

In fact this is already happening to an extent. Mass. General is full of people from other countries taking advantage of their best in the world treatment of certain illnesses. Unfortunately, only their rich and powerful have access to it, depriving Massachusetts of millions that could be earned through medical tourism. If our healthcare system were more like our cell phone “system”, that is to say, controlled by the free market instead of government, then even the poor and middle class could have access to healthcare that is the equivalent of the iPhone of health care. And we’d all be a lot richer.