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Economist explains President Trump’s executive order on health care prices

Posted at 4:30 PM, Jun 25, 2019
and last updated 2019-06-25 16:31:11-04

GRAND RAPIDS, Mich. — President Donald Trump kicked off his week with an executive order meant to drive down the cost of hospital services but the structure of Michigan's hospital systems may get in the way of saving people money, according to an expert.

The order directs the government to require hospitals and insurers to make public their negotiated prices for medical services at hospitals.

For example, if a patient insured by Blue Cross Blue Shield needs knee surgery, they can see how much it will cost at hospital A and compare that will how much the same surgery would cost a different patient with Priority Health at hospital B.

“In theory, it makes it more competitive because if Blue Cross looks over and says, ‘Oh wow, you know Priority Health got this price, then I know that that hospital system will take a lower price. They’ll negotiate a lower price with me,'" said Leslie Muller, associate professor at Grand Valley State University.

Economists like Muller say this injection of capitalism into the health care market makes sense on paper, but because the market is so concentrated with large hospital systems, there may not be enough players in the game to make prices competitive, even if they are transparent.

“There’s another side to this and perfect competition or price competition works great when there’s a lot of smaller firms in the market," Muller said. “We have bigger hospital systems and we also have bigger insurers."

Muller says when there are fewer large systems like this and prices are transparent, there's the potential for price fixing, or providers colluding to keep prices high, which is illegal.

Since this executive order only applies to hospital services, people with insurance may not save money because these types of services, like a major surgery, exceeds most deductibles and copays.

“When we make our decisions, if I only have to pay $20 to go to the doctor, right, I’m not going to care what the price is that the doctor is charging even the insurer because I only have to pay 20 bucks," Muller said.

With the order only applying to hospitals, Muller argues that even with transparent pricing, many patients won't be in a position to be economical.

"You have a heart attack. You’re not gonna say, ‘Well wait a minute, let me figure out where it’s cheaper to go in for a heart attack,'" Muller said.

In January, an aspect of the Affordable Care Act went into effect that made list prices public. A list price is what the patient pays if they don't have health insurance.