Free market healthcare system: what is it, and can it work?

June 24, 2020
Josie Rasberry

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How strange would it be to go to your local grocery store and not be able to see the price of different brands of cereal? Or to go to the checkout and realize you’re not only paying for the groceries, but also a fee for the cart, a facility fee for just being in the store, and an extra fee because your cashier was hired through a management company. This would be completely unacceptable not only for a grocery store, but anywhere you intend to buy goods or services. And yet, that’s how healthcare works in America.

Healthcare is one of a few industries that isn’t a free market in the United States. To be clear, a free market is where there is no (or at least little) government interference and prices are based on competition, supply, and demand. In U.S. healthcare, understanding true costs and setting prices is extremely complicated and even those with a PhD can’t understand how different hospitals land at such varying prices.

To make matters worse, patients aren’t given access to see prices before they go in for procedures or appointments. Sadly, there is also little incentive for patients to care about the price because it appears to the patient that someone else is paying for the medical care. There’s also a confusing system of rules and exceptions that often leave even the insured stuck with thousands of dollars in bills for something they thought was covered by health insurance. After the event is too late to start caring about the costs!

So what does a free market healthcare system look like?

A free market healthcare system would have hospitals, doctors, and other medical service providers openly display prices and share outcomes data so patients can shop for care based on the value they receive. In healthcare, value is defined as the improvement in outcomes for a patient (commonly referred to as quality) compared to the cost the patient paid. Knowing these two key pieces of information would create competition and enable patients to regain more control over their health experiences, as long as society finds a way to help the patient become an engaged consumer. This is already happening in some areas of healthcare.

Take direct primary care (DPC) for example. DPC allows patients to pay a monthly or yearly subscription fee to have access to their doctor practically 24/7. In most cases, the subscription fee even provides labs and other tests at the heavily discounted level available to the doctors.  

Another example is Lasik surgery. One Forbes article reported that Lasik surgery costs fell by 25% in the last decade despite an increase in the number of procedures and technological advancements. Since most insurers don’t cover the cost of Lasik surgery, patients are incentivized to shop around. This incentive led Lasik providers to offer a package price upfront to compete with other providers, leading to an overall decrease in cost.

The easy first step towards a free market.

Some people’s solution to the current state of healthcare is to move to a government run “care for all” method, but all that really does is shift who is paying for the same healthcare system. There is an alternative option and the U.S. is already headed towards it: price transparency.

This simple step to disclose prices (both the chargemaster price and negotiated rate) upfront not only empowers patients, but also creates an incentive for doctors, hospitals, and other medical providers to be competitive on price while simultaneously improving their quality. This would also bring to light who the truly great providers and hospitals are as natural market forces would shift patients to the highest quality providers charging the fairest prices.

So, can a free market healthcare system work? We say yes, but perhaps not exactly in the same way your local grocery store does. The current administration has issued new rules through the Centers for Medicaid and Medicare Services (CMS) that require price transparency for 300 common shoppable services, and recently had a big win in the legal battles that have been surrounding the topic. These new rules are set to go into effect on January 1, 2021.

The verdict is still out on whether price transparency will be the law of the land in 2021, but even if the new rules don’t come to fruition, we foresee activists for more affordable healthcare continuing to champion for change. Whether that leads to a free market healthcare system or a simpler, more affordable version of our current system, we can all agree that more transparent and affordable healthcare would be a great thing.

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