No, transparency will not cause healthcare prices to rise
On June 24, former Oklahoma Rep. Ernest Istook, a Republican, challenged the wisdom of an executive order President Trump signed that same day. Without having seen the executive order (the opinion piece was written before the order was published), Istook adopted the most bizarre of positions: that giving patients complete information about the prices they’ll pay for healthcare services will drive prices higher.
Forget about the fact that the prices we pay for healthcare in the United States are already twice what’s paid in any other developed nation; instead, just consider the idea that knowing prices will lead to even higher prices. If that were true, imagine what we’d pay for food or gasoline or electricity.
Istook writes that since no healthcare provider will want to be the lowest paid, knowing what other providers are paid will lead them to charge more, causing prices to rise. If that were true, then showing us the price of a burger at McDonalds, Burger King, and Wendy’s should drive prices up and not down. The same logic would have us demanding that Walmart and Target shield us from prices, too, lest they both start raising prices in a race to the top.
The logic couldn’t be more absurd. At Trump’s briefing on the executive order, highly respected economist Larry Van Horn from Vanderbilt University explained that price transparency should drive prices down dramatically. Istook’s claim to the contrary defies the common sense of everyday Americans and economists alike.
We have 250 years of experience in the U.S. with a system of free markets that give us some of the highest quality, lowest cost goods and services in the world. The system depends on the ability of buyers to know the price being charged by sellers — before a purchase is made.
For too many years, the American healthcare industry has thrived because of what Secretary of Health and Human Services Alex Azar refers to as “our bizarre three-party payment system.” In our bizarre system, two parties (hospitals and insurance companies) supposedly negotiate a price that the third party (patients) are responsible for, yet we are not privy to the negotiation or the price until after the fact. The result is a broken system — one that Istook seems keen to perpetuate.
Trump took a bold step to right a very big wrong that has been plaguing the middle class for decades by vowing to put American healthcare on a path toward becoming a robust, free-market, consumer-driven system. That’s something every American should applaud, including Mr. Istook.
Tom Coburn, a physician and fellow of the Manhattan Institute, served in the U.S. Senate from 2005 to 2015. David Silverstein is the CEO of the Lean Methods Group and the founder of Broken Healthcare, a nonprofit patient advocacy group dedicated to achieved price transparency in healthcare.