Last week, the White House announced another executive order (EO), “Empowering Patients Through Radical Price Transparency.” While President Trump promises his EO will bring down healthcare costs, unfortunately, it will have little effect for two reasons.
First, there is ambiguity in the word “price” in healthcare. The amount listed as price will undoubtedly be the charge. However, that amount is never what is paid. Hospitals have proprietary contracts with health plans that include negotiated discounts on charges. These discounts vary widely depending on the contracts. Discounts can be as little as zero on some charges and as much as 90 percent on others. The discounts are proprietary business information and confidential. Thus, payments are not transparent — only meaningless prices are.
CMS (Centers for Medicare and Medicaid Services) publishes an Allowable Reimbursement Schedule which indicates the maximum the government will pay for any billed service. The amounts CMS pay range from 90 percent of charges to as little* as nine percent. Then, health plans and insurance contracts use these already reduced amounts as a starting point for further discount — bottom line is that providers are paid small fractions of the charge.
(*Before retirement, this author performed cardiac catheterization procedures on critically ill babies with congenital heart disease. The charges ranged from $1500 to as much as $9000 if a device had to be implanted. Medicaid’s maximum allowable reimbursement was $387.)
The price, or charge that patients will see, does not mean what it means in every other market – it doesn’t mean payment. In fact, it has no meaning.
The second reason Trump’s price transparency won’t work is the difference between the usual (free) market, and the healthcare market.
In the market for most goods and services, the consumer or buyer is also the payer. He or she takes money out of pocket to buy things and therefore has a reason to spend as little as possible. Sellers of goods or services must keep their prices low, quality high, and service speedy or the consumer-payer will buy from a competitor. In a free market, price does equal payment.
In the healthcare market, the consumer or patient doesn’t pay (other than a small copay) and has no reason to economize. Consumer-patient is spending OPM (other people’s money.) Thus, price transparency will have little or no effect on patients’ spending behavior.
In today’s healthcare market, sellers like providers are paid by third parties, not by the people they serve (patients). Doctors have no financial incentive to provide timely service, and patients can wait more than four months for an appointment. Price transparency, really charge transparency, will frustrate providers as they know patients are getting a highly exaggerated picture of what doctors are in fact being paid.
Unfortunately, Trump’s price transparency EO won’t work — it can’t repeal the laws of economics. He needs to turn DOGE’s attention to the reason price transparency won’t work. Washington, not consumers, is spending the money. Musk and his team need to apply the Willie Sutton rule to healthcare. When asked why he robbed banks, he replied, “Cause that’s where the money is!”
Where is “the money” in healthcare? It goes from taxpayers to Washington to federal BURRDEN — Bureaucracy, Unnecessary Rules and Regulations, Directives, Enforcement, and Noncompliance activities. At least HALF of the $4.9 trillion the U.S. spent on its healthcare system paid for BURRDEN. Since any healthcare dollars that don’t produce medical care are inefficient, wasteful spending, $2.45 trillion is ripe for DOGE’s cost-cutters.
Polls tell us what Americans want from the healthcare system: timely access to affordable care with access the number one priority. Americans do not want to die waiting for promised care that doesn’t come in time. Price transparency won’t improve access (and won’t reduce spending either.)
Instead of mandating price transparency that won’t work, ask DOGE to investigate dollar (in)efficiency in healthcare. Let them expose the trillions of taxpayer dollars that are diverted from patient care and wastefully spent on BURRDEN. Then imagine if DOGE cut BURRDEN down to proper size. Think of the trillions, not merely billions, that could either go to pay for care or be returned to taxpayers’ wallets.
Deane Waldman, M.D., MBA is Professor Emeritus of Pediatrics, Pathology, and Decision Science; former Director of Center for Healthcare Policy at Texas Public Policy Foundation; former Director of New Mexico Health Insurance Exchange; and author of 12 books, including multi-award winning, Curing the Cancer in U.S. Healthcare: StatesCare and Market-Based Medicine. Follow him on X.com @DrDeaneW or contact via www.deanewaldman.com.
Image: Free image, Pixabay license.