With King v. Burwell looming, a Republican-controlled congress and a possible Republican president in less than 2 years, Republican alternatives to ACA have started to surface.  The free market is being touted as the basis for these plans.  All are focused on the patients – the consumers of healthcare.  The proposals have advocated HSA’s for all, free choice for insurance, elimination of mandates, making Obamacare optional as well as several other alternatives aligned towards making patients more sensitive healthcare consumers while giving them more latitude in their healthcare decisions.

While all of the above are great ideas, they only address half of the problem and will be doomed to failure.

ADVERTISEMENT

A free market requires that prices be free to float to the optimal point, where demand meets supply.  However, none of the Republican options address the price-fixing in medical care.  Price fixing guarantees that some things will be undervalued and some will be overvalued resulting in shortages and oversupply, not to mention inefficiencies and waste. 

The current third party system fixes prices and limits patient choice to doctors and hospitals on their insurance plan.  The prices are fixed by contract and the doctors/hospitals cannot negotiate these with patients.  The insurance plan negotiated prices are typically based on the Medicare fee schedule but represent a “discount” from the artificially high charges.  In any event, the prices are locked in by contract and are not negotiable with patients.  There is no such thing as true price competition or transparent pricing.

These prices also vary tremendously from one insurer to another and within insurers, from one product to another.  Consequently, if you call a doctor/hospital to ask for a price, they won’t be able to tell you.  In fact most won’t be able to tell you how much you will be billed for services rendered until months later, with the notable exception of a growing number of third party free medical practices like my own, who eschew any contracts with insurance companies, Medicare, and Medicaid.  Third party free practices typically advertise their prices so that patients can actually shop around.  Prices are quoted to patients prior to scheduling the visit.  Therefore, prices are contained because if the prices are too high, the patients will go elsewhere.

Third party free practices can provide services at a fourth of the prices seen at practices locked into insurance contracts.  Witness the price of mammography.  A typical charge for an annual mammogram is $350.  With insurance discounts, that price is lowered to somewhere between $130 to $300.  However, if the patient pays cash in advance, especially during breast cancer awareness month, the price can be as low as $40-50.  The radiology units know that $50 in hand is worth more than a promise that they might collect $350 in a few months.  They also don’t have to pay an employee $20 per hour to fight with the insurance company for a payment they may or may not get.

Third party free practices, like refractive eye surgery and cosmetic surgery, are unencumbered by insurance contracts and patients are truly free to choose their provider.  Consequently, there is a free market and price competition.  This is why the prices for cosmetic surgery and Lasik surgery have come down over the past 10 years while the quality has steadily improved.

Although, third party free medical practices are one growing trend representing just over 7 percent of doctors, a bigger trend is one towards corporate employment.  Over half of doctors are currently employees, up from only a third of doctors 6 years ago.  If these trends continue, we would expect 85-90 percent of doctors will be employees and 10-15 percent will be third party free in the next few years.  This will mean 85-90 percent of the medical field will still be bound by insurance contracts.

If the contracts between providers and insurers persist, as many of the republican plans allow, patients will be mired by limited doctor choice and doctors will be unable to compete due to insurance contracts.  Prices will remain artificially high and everyone will claim that the “free market” failed. 

The obvious solution is to address both sides of the free market healthcare equation.  Free up patients with HSA’s and other reforms to enable them as sensitive consumers as has been proposed.  But equally important, eliminate contracts between insurers and providers.  The elimination of these contracts will allow all patients to go to any hospital or doctor since there would be no insurance panel.  This further increases competition and forces providers to compete on price by actually coming up with a price to display in advance.  It is the only way to stop the price fixing in medical care.  It’s the best way for you to keep your doctor if you like your doctor. 

Of course, this free market alternative is hampered in the context of a true emergency.  No one is going to shop around when they are bleeding out or having a heart attack.  However, most medical care is not about life-threatening conditions and less than 2 percent of medical care is an emergency.  For the other 98 percent of medical care, a true free market can bring about the real reforms we all seek.

Although freeing our patients to use their money as they see fit is a great idea, unless we eliminate price fixing in medical care, we will have the medical equivalent to Soviet bread lines – you can spend your money anyway you like, but the only thing available is a $100 loaf of bread.  Remember, only one loaf per person.

Gianoli is a physician with The Ear and Balance Institute in Covington, Louisiana.