The Headache of Hospital Pricing
Cross-subsidization inside hospitals doesn't just distort prices, it makes healthcare harder to fix.
Some of the most persistent problems in American healthcare can be traced to structural features that conceal economic realities from patients, providers, and policymakers. The tax preference for employer-sponsored insurance is one. Over-reliance on third-party payment is another. These features have dulled price sensitivity, inflated spending, and caused patients to disengage from the economic realities of the care they consume. Another such defect that deserves more attention is the extent to which we have normalized internal cross-subsidization across different services, particularly within the hospital context.
It sounds technical, but put simply, hospitals have come to depend on an internal financial arrangement in which some lines of business are reliably profitable while others are chronic money losers. For example, elective, specialized, and outpatient-oriented services such as orthopedics, cardiology, and imaging often generate substantial margins. By contrast, emergency care, psychiatric services, obstetrics, and pediatrics are often financially weak or negative. This arrangement is causing problems, especially for anyone trying to introduce competition, transparency, or lower prices into healthcare.
Read the full article at Law & Liberty...
