By Michael LaBossiere
As a point of ideology, many conservatives advocate the broad application of free market principles. One key part of this ideology is the opposition of regulation, at least regulation that does not favor businesses. Since health care is regarded as a business in the United States, there is an interesting question in regards to the extent that health care pricing should be regulated by the state.
Because of the high cost of health care in the United States, there have been proposals to place limits on the cost of health care services. Some areas have implemented such proposals, but there is a general lack of such regulations on pricing. Those who oppose such regulations often contend that pricing should be set by free competition between health care providers and that consumers of health care should be savvy shoppers. The idea is that savvy health care shoppers will take their business to providers that offer better services or lower costs, which will force the competition to lower costs or improve quality.
There are various problems with the idea of savvy health care shoppers. The first is the challenge consumers face in finding the prices that health care providers charge. While it can be difficult to predict what services a consumer might need, health care providers often have a range of prices depending on who is paying for the services. For example, insurance companies negotiate prices with providers and these differ from what consumers without insurance would pay. Health care providers, although they always have a database of billing codes and costs, are generally reluctant to provide this information. This makes savvy shopping difficult.
A second problem is that health care consumers typically lack the medical knowledge to make informed decisions about health care. While a person might have some challenge in sorting out what sort of phone or laptop they should buy, sorting out what sort of medical care they might really need is typically beyond the skill of most people. That is why people go to medical professionals. As such, being a savvy shopper is rather difficult.
A third problem is that it is something of a mistake to describe a health care consumer as a consumer; it is usually more apt to call them a patient. While this might seem to be a mere difference in labels, the difference between consumer and patient is significant.
A rather important difference is that a patient is typically in duress—they are injured or ill and thus not in a very good state to engage in savvy shopping practices. While an informed rational consumer will be looking for the best deal, a suffering patient is concerned primarily with getting better. As people say to not go grocery shopping on an empty stomach, it would be best to not shop for health care when one is not healthy—but that is exactly when one needs health care. There are also the more extreme cases. For example, a person who is badly injured in a car crash is not going to be shopping in a savvy manner for emergency rooms as they are being transported in the ambulance.
It can be countered that there are cases in which a person can engage in savvy shopping, such as elective surgeries and non-emergencies. This is a reasonable point—a person who is not in dire need can take the time to shop around and be a savvy consumer. However, this does not apply to cases in which a person is sick or injured enough to impeded such savvy shopping.
Another important difference between consumer and patient is that the consumer often has a reasonable choice between buying a good or service and doing without. In contrast, patients usually have a real need for the good or service and doing without would be a real hardship or even fatal. When one must buy the good or service and the provider knows this, it makes it much harder to be a savvy shopper. This also provides a segue into the matter of regulating prices.
While free market pricing can work when consumers can easily do without the good or service, it runs into obvious problems for the consumer when the goods or services are necessities. To the degree that the patient cannot do without the health care goods or services, the patient is at the mercy of the provider. So, while a person can easily elect to do without the latest iPhone if they cannot afford it, it is much more difficult for a person to do without their chemotherapy or AIDS medication. True, a consumer could do without liposuction or breast implants, but such elective surgery differs from non-elective treatments.
The stock counter to such concerns is that if a consumer finds the price of a good or service too high, they can go to a lower priced competitor. Assuming, of course, that there is real competition. In the case of health care, the opportunity to find a lower priced competitor can be problematic. A patient might not have the time to shop around on the way to an emergency room. In many places, there is not any local competition with lower prices. As such, this free market advice is not very helpful.
In the case of pharmaceuticals, patients often find that there is no competition. When a company has a patent on a medication, the United States’ government uses its coercive power to enforce that patent, ensuring that the company retains a monopoly on that medication. Because of this, a patient who needs the medication has two basic choices: do without or pay the price. There is no free market competition, so without regulation on the part of the state, the company can decide to charge whatever is desired—subject to the cost of bad press, of course.
This monopoly system does create something of a quandary for a principled proponent of the free market. On the one hand, without such patents a free market of drugs would make it irrational for for-profit companies to invest in costly research. This is because as soon as the drug was developed, the competition would just duplicate it and can sell it cheaper because they would not need to recoup the cost of development. A solution, which would not be very free market, would be to have the state fund the expensive research and then provide the results to companies who would then compete without monopolies for consumer dollars. Another “solution” would be to let the market remain free and hope that medications would somehow be developed.
On the other hand, if the state stepped in to regulate prices as part of the agreement for using its coercive power to protect the monopoly, then there would also be no free market competition. But, the state could see to it that the companies charged prices that allowed profits while not gouging patients.
My own view, as might be suspected, is that since patients are essentially a coerced market when it comes to health care and medication, the state should act to regulate prices. In the case of pharmaceutical companies, this should be part of the bargain with the state that allows them to maintain their monopolies. After all, if taxpayer dollars are to be used to protect monopolies, then they should get something in return—and this something should be reasonably priced medication. In the case of health care providers, while they do not usually have a monopoly, they do have a coerced market. Just as the state justly steps in to prevent price gouging during large scale natural disasters, it can justly do so in regards to personal disasters—that is, injury and illness.
I am certainly sensitive of the desire of health care providers and pharmaceutical companies to make a profit and, as such, I would certainly advocate that the regulations on pricing leave them a reasonable margin of profit. While it might be objected that a reasonable margin of profit it hard to define, my reply is that if price gouging can be recognized in other areas, it can (and is) be recognized in the realm of medicine.