Could Deregulation Lead to LOWER Medical Costs?

Indeed, deregulation of medical pricing can lead to relatively
lower cost growth.

As Carnegie Mellon health economist Martin Gaynor recently
noted, the Netherlands deregulated a substantial portion
of its hospital pricing starting in 2006. Overall cost trends in
the country didn’t change—but the deregulated market segment saw
substantially slower cost growth than the sector that remained
regulated. In fact, costs fell for several years in the
deregulated sector, even while they continued to rise where price
controls were applied.
Price controls, in other words, don’t necessarily control
system-wide cost growth. Market-driven price signals, on
the other hand, do a remarkable job of restraining price growth—and
even lowering prices—in the few instances where we actually see
buyers and sellers negotiating as they do in functional markets. A
recent report by Devon
Herrick of the National Center for Policy Analysis, for instance,
notes that between 1999 and 2011, the price for corrective eye
surgery dropped by about 25 percent. Quality and service
improvements, meanwhile, helped create space for price and service
competition. “Eye surgeons who wanted to charge more had to provide
more advanced Lasik technology, such as Custom Wavefront and
IntraLase (a laser-created flap),” Herrick explains. “By 2011, the
average price per eye for doctors performing Wavefront Lasik was
about what conventional Lasik had been more than a decade ago; but
the quality is far better. In inflation-adjusted terms, this
represents a huge price decline.”
That’s what a functional market, with real price signals, looks
like: Customers who generally pay all or most of the cost
themselves, and providers who, knowing that, compete for customer
business based on price, service-type, and quality. Unfortunately,
that’s not what the vast majority of the medical market—if you can
really call it a market at all—actually looks like...


But even
in small doses, there can be significant gains from shifting away
from bureaucratically managed price systems. Last week, the
Bangor Daily News
reported the story of Dr. Michael Ciampi, a Portland, Maine
doctor who recently decided to cease acceptance of any type of
insurance, public or private. He says he immediately cut some of
his prices in half. Office visits that were $160 are now $75. Strep
throat patients in his area, he says, can either go to a local
emergency room for $300—or book an immediate appointment at his
office and pay $50.