When I began my medical career more than a decade ago, people were already very concerned about the skyrocketing cost of healthcare. However, as much as everyone knew medical costs were high, no one in my profession seemed to know why. None of my colleagues could answer even simple questions about what, specifically, was costing so much. This seemed to be a real problem: how could we begin to control these costs, if even the people in the field didn’t know what they were? How does health care system in France?
Why didn’t we know? To start with, unlike any other business in America, almost all of the financial transactions in healthcare are hidden from the providers as well as the patients. We order tests, procedures and medications to manage our patients, but very few doctors, or other healthcare providers, have any idea how much any of those things cost. Patients only rarely pay directly for these services and payment for any service varies substantially from different payers. Hospitals have separate billing departments that are far removed from anyone ordering or performing tests or procedures. No one directly involved with patient care has any notion of the charge or reimbursement for their service. Even most private doctor’s offices contract billing companies, who just send them a check each month from the total amount collected, leaving them no notion of the actual charge or reimbursement for an individual service they provided.
If there’s any cost in health care that should be easy to understand, it’s the cost of prescription medications. Pharmacies buy prescription drugs in bulk from pharmaceutical corporations and suppliers the same way they buy aspirin, and then sell them for a profit. But somehow this simple transaction is wrapped in so many layers of confusion that almost no one understands what’s really happening. So let’s start by trying to figure this out.
Any time you go to a store (say, a grocery store) you expect to see all of the products being sold with their prices plainly displayed. When you go to the checkout, that’s the price you expect to be charged. You also expect to be able to check the price of the same or a comparable product in competing stores so you can shop around. That’s how the free market works.
Imagine what it would be like if a grocery store never displayed the price of anything. And the price you’re charged might be totally different from the price the next customer is charged for the same product. In fact, suppose you couldn’t even pick your own groceries. A grocery list would be handed to you by a food expert and you’d be billed based on your particular grocery plan. Eggs might cost you $5, the next person $10 and some poor guy who doesn’t have a grocery plan would have to pay $50 for the same carton. Don’t even think about shopping around. Your grocery plan follows you everywhere and determines the price you pay and, since you’re only allowed to buy what’s on the list, you can’t even price compare similar items (like brown eggs vs. white eggs). The only way to save money would be to go without groceries. Do you think this would make food cheaper or easier to get? Well, whats described above is pretty close to how prescription medications are sold in the U.S.–Why?