Achieving a long, healthy life often requires the input of scarce medical resources, and that makes maintaining health an economic problem. Most Americans now are covered by some sort of health care insurance [future risk of catastrophic illness, disease, injury ] that is referred to as an economic market system. This article provides a few examples of the inequities in this kind of health care system market and how to fix it.

The standard theory of how markets work is the model of supply and demand, in which buyers and sellers are guided by prices to an efficient allocation of resources in a free market economy. Yet, as we will see, the economic market for healthcare deviates from this model in many ways. These deviations often call for government policies to ensure that healthcare resources are allocated inefficiently and inequitably.

Healthcare is not the only good or service in the economy that departs from the standard model of supply, demand, and the invisible hand. But healthcare may be the most important good or service that departs so radically, because people are not given the option to select the price to pay for health care service. Not knowing when a disaster will strike a person or family, they purchase private health care insurance.  Harvard: health care economics 

Therein lies the reason why the democratic free market system does not work in the health care system.  Stephan Hyde points out that the Health Care System free market doesn't work the same way as the typical commercial American consumer market. For example: American consumers ask for what they want to buy [food, cars, clothes] directly from the goods supplier but when they are sick it is the middle men, the doctor, hospital and insurance carrier, who prescribe what they think the sick person needs as a service or medication. Instead of getting a low price on service or drug, the sick person gets the high cost. The sick person does not get to select the hidden price; instead he/she is given the cost that hides price options. Hyde advocates a Universal Health Care System that creates equal opportunity free market system for all medical-health goods and services on a free-market competitive basis.  Hyde:Book Health care reform 2009

According to Kimberly Madaeo, there are two causes of massive increases in health care costs: government policy and lifestyle changes:

• First, Health care Policy: United States relies on company-sponsored private health insurance. The government created programs like Medicare and Medicaid to help those without insurance. These programs spurred demand for health care services. That gave providers the ability to raise prices [that are hidden from consumers]. A study in Health Affairs co-authored by Princeton University health economist Uwe Reinhardt found that Americans use the same amount of health care as residents of other nations. They just pay more for them.  Amadeo: Rising cost of health care 2021    For example, U.S. hospital prices are 60% higher than those in Europe. Government efforts to reform health care and cut costs raised them instead.
• Second, Lifestyle changes: Americans exercise less and eat more junk food resulting in chronic illnesses, such as diabetes, obesity and heart disease. As of 2010, the health care costs of people with at least one chronic condition are responsible for more than 85% of health care spending. More than half of all American adults have at least one of chronic disease.  Ctrs Disease Contyrol: chronic disease costs 2020 Chronic diseases are expensive and difficult to treat. As a result, the sickest 5% of the population consumes 50% of total health care costs. The healthiest 50% only consume 3% of the nation's health care costs. Most of these patients are Medicare patients. The U.S. medical profession does a heroic job of saving lives. But it comes at a cost. Medicare spending for patients in the last year of life is more than six times greater than those that do not die that year. Care for these patients costs one-fourth of the Medicare budget.

Madaeo fails to mention the most important lifestyle change is poor food choices like Standard American Diet [SAD].

Over the past 12 months of 2021, the costs paid by a typical American family have surged by roughly $4,000 while their income has not, according to calculations by Jason Furman, a Harvard economist and former Obama White House aide. President Biden and his staff have been painting a rosy picture on the high cost of things. The consequences of the high cost of everything has resulted in uncontrollable inflation with rising health care costs.

A good example of high cost of medical goods are drugs. Politicians have made us aware over the past 30 years that they have been fighting a losing war with drug industry Czars in trying to lower the cost of medication drugs.  Article by Lawson: Drug industry profits no longer available.

There is more to inflation of goods and services than we have been led to believe! It also includes hidden deliberate manipulation of health care costs by providers.  Lazarus: Hospital markups costly 2021

Hospital costs have been deliberately orchestrated: causing high prices and inflation; and the government has been unable to stop hospital manipulation of costs or curb inflation: Newspaper reporter David Lazarus reported that a former operating-room nurse at Scripps Memorial Hospital in Encinitas [San Diego area] shared photos or screenshots of the facility’s electronic health record system. The screenshots show price hikes ranging from 575% to 675% being automatically generated by the hospital’s 'special' software.  Lazarus: Hospital markups costly 2021

Below is a copy of a screenshot from software used by Scripps Memorial Hospital in Encinitas. It shows a $117.97 charge for surgical equipment being automatically increased by 575% to $796.30.

source:  Lazarus: Hospital markups costly 2021

Another screenshot showed the pricing for an antimicrobial solution to clean the patient’s wound. Scripps’ cost per unit was $73.50. The billed amount was $496.13 — "$496.13 = $73.50 + ($73.50 x 575%)”.

And still another example was that of a Valley Village woman being billed $809 by a UCLA-affiliated clinic for a plastic boot for her broken foot. She found the exact same boot on Amazon for $80. Which is to say, she was being charged a nearly 1,000% markup.

Scripps uses software from a Wisconsin company called Epic. Epic’s healthcare systems include MyChart, the patient portal used by many hospitals, as well as a wide variety of applications intended for clinical settings. Epic’s clients include UCLA, UC San Diego, UC San Francisco, Stanford University, Johns Hopkins University and Yale University.  Lazarus: Hospital markups costly 2021

One common aspect of all U.S. hospitals is a desire to keep their pricing under wraps, to prevent patients from knowing how badly they and their insurers are being fleeced. Meanwhile, as the cost of health care goes up, so does inflation. Transparency is hidden.

 By Arnold Ventures: 12/2/2021; Health care is not a functioning market;  Length - 2.08 mns.

Source: Arnold Ventures

Fixing a broken Health Care System:  The Scripps Memorial Hospital deliberate markup is tip of the iceberg among hospitals raising their costs secretly. Politicians pout that US economy is a free market system; obviously that is a  lie!

Free market: USA health care system is not a free market system.  Goozner: Health care not free market 2014  Kelly: myth of free med market 2011   Komlos: KPBS What's wrong with US hea care sys 2017  Jasper: free market health system in Oklahoma 2019

The No. 1 reason why healthcare isn't a free market is: Nobody in the middle of a heart attack shouts, “Let's go shopping!”  Goozner: Health care not free market 2014

An issue related to the universal health care system is the assumption that the health care system is a free market. Many have been misinformed that health-medical care can be priced the same way as consumer and industrial products. As a country we tend to cling to the misguided belief that all markets are the same, always and everywhere necessarily efficient and that competition regulates cost. This is patently false, however, as the Nobel Prize-winning economist Joseph Stiglitz has pointed out: "In the case of the medical system, clinging to an outdated ideology is nothing less than a disaster. Why? Because the medical industry is unique, and we’ve known this for a very long time. "As the economist Kenneth Arrow, another Nobel Prize winner, argued as far back as 1963, free markets in health care are inefficient because of the “existence of uncertainty in the incidence of disease and in the efficacy of treatment.” Komlos: KPBS What's wrong with US hea care sys 2017 We need transparency price competition in a free market.

To be a free market system the individual must be able to know the price of treatment, the alternatives and finally must have some skin [or part] in the game. In other words, if a person is paying their own bill, then he, the consumer, has lots of incentive to shop around and negotiate. What we have in America is known as a Third Party Payer Healthcare System. The insured patient, as a consumer, doesn’t see the costs and most don’t care what the price is." Mise: USA health care not free market system 2017

Common constraints on the free market: All constraints on the free market use implicit or explicit threats of force. Common examples include: prohibition of specific exchanges, taxation, regulations, mandates on specific terms within an exchange, licensing requirements, fixed  exchange rates competition from publicly provided services,  price controls and quotas on production, purchases of goods, or employee hiring practices. 

Confusion between the price of medical health care goods and services versus hospital and drug cost: Price in the medical health care system refers to the actual price paid to a provider for service or product that is usually hidden from the consumer. Cost is the actual bill that is presented to the consumer by the hospital or other provider. The hospital and insurance total cost is marked up as a bill to the consumer and does not disclose the lower purchase price.

  Competition in a free market:    There have been arguments made that the existing mix of over 400 private medical care insurance companies are a free market system. Also that universal medical care is not a free market system and does not allow supply-demand system to work.

Market failure is at the root of the USA medical care system’s dysfunction.  Kelly: myth of free med market 2011  Krugman: markets can't cure healthcare 2009  The American Medical Association [AMA] and the federal government, with good intentions to improve the quality of medical care, created an unequal playing field for the medical market as early as 1910. Since 1910, the relationship between providers and consumers gradually drifted into a monopoly non-free medical market that today is manipulated by medical care corporations.

Markets work well for goods and services that can be comparison shopped, be easily packaged and sold, which is not the case for health care. Even under competitive conditions, markets may fail to produce socially optimal quantities of a commodity or service. Hence, in the face of these realities it is more appropriate to view medical care differently than a typical consumer product.   Karsten: private vs public good 1995  

"One illusion which exists is that "medical care" can be most efficiently provided by the competitive market. This is hardly the case. Providers of medical care services do not operate like firms in settings of free market structures resembling perfect or monopolistic competition."  Karsten: private vs public good 1995   Kelly: myth of free med market 2011

"Health care laws function differently than in other supply industries. Demand is relatively elastic in response to supply growth and, when patients are insured, is largely price-sensitive. Furthermore, scarcity of price information in the public domain, and information asymmetry with physicians make it difficult for patients to base decisions on value for money. On the supply side, providers of health care largely dictate the quality of services offered, and, given largely elastic and price-insensitive demand, suppliers tend to innovate at the high end of the market rather than introduce innovations that could lower cost."

In 1963, Kenneth Arrow, a Stanford University economist, later a Nobel laureate, decisively demonstrated in a groundbreaking paper that the usual rules of the market can never govern medical care.  Krugman: markets can't cure healthcare 2009 The subject is the medical-care industry, not health. The causal factors in health are many, and the provision of medical care is only one. Particularly at low levels of income, other commodities such as nutrition, shelter, clothing, and sanitation may be much more significant. Medical care today is the complex of services that center about the physician, private and group practice, hospitals, and public. Arrow argued that doctors and patients interact as highly atypical buyers and sellers; thus the price and extent of care provided to the sick should be determined according to standards intrinsic to medicine and lay public and not those of business. Since an individual’s health is so variable and largely unpredictable, it should follow that attempting to value and insure it as a commodity, like a car or a house, is antithetical to the practice of medical care and, therefore, is not an appropriate model.

Fixing the broken health care system:

Direct Primary Care:

An alternative to the traditional private insurers in the health care system is concierge medicine [primary care model] or Direct Primary care [DPC], that was created about 2011 by two medical doctors in Oklahoma. Anesthesiologists Dr. G. Keith Smith and Dr. Steven Lantier co-founded the Surgery Center of Oklahoma (SCO). It was one of the first surgery outpatient centers in the nation to voluntarily publish online their all-inclusive, bundled pricing for all procedures.  Surgery Center Oklahoma: Online pricing 101` The Center’s total package pricing includes fees for the surgeon, anesthesiologist, and the facility. Since the SCO is owned by physicians and does not accept government health programs, they are able to eliminate the middle men [many administrative positions and insurance carriers] and pass the savings on to their patients. SCO usually charges a fraction of the cost of what local hospitals charge for routine procedures and has much lower rates of infection than their competitors. This surgery center does what the US health care system does not .... they make surgical prices transparent by posting all prices on-line.  Jasper: free market health system in Oklahoma 2019 

The Surgery Center of Oklahoma (SCO) and Direct Primary Care [ DPC] have become modes for free market health care that are totally transparent in pricing, posting the full cost of surgeries (for surgeon, anesthesiologist, facility costs) online, so that consumers can compare prices and make fully-informed decisions that are going to dramatically impact their personal (or family, company) budgets. These may not a perfect free market medical system, but these are the best free market medical systems at this time.

Direct primary care is a financial arrangement made directly between a patient and healthcare provider. It cuts the insurance providers out of the process, erasing the need for patients and providers alike to file health insurance claims. Patients who use direct primary care don’t pay monthly health insurance premiums or copayments. Instead, they pay their healthcare provider a monthly fee. But because direct primary care providers don’t bill insurance companies, they don’t accept any form of insurance. That being said, most patients who use direct primary care are also enrolled in a high deductible health plan (HDHP).

Direct Primary Care (DPC). DPC physicians provide general primary care services to patients for a low monthly or quarterly membership fee. That means no insurance paperwork or copays for each visit. For one flat rate, patients have unlimited access to a full range of primary services, including laboratory tests and in-office procedures (some may charge a small additional fee for certain procedures or treatments).

Examples of free market heath care costs with traditional hospital prices: Finding such transparency on the internet is an exasperating chore. This author was able to find a limited number of cost values as data for both come from Surgery Center of Oklahoma (SCO). Although Surgery Center of Oklahoma boasts of posting procedural costs online, this is not totally transparent. National Direct Primary Care websites do display consumer fees but continue to hide their price-cost values. The research-author tired unsuccessfully to validate the identity of procedures with a medical code. The conclusion at this time is that transparency in the free market health care system is still a long way off. We do the best we can at this time.

Cost of various surgeries in the United States as of 2019 in U.S. dollars

Surgery prices at the Surgery Center of Oklahoma [ white numbers on left side of body part ] are notably cheaper than the national average [ on right green numbers ]. (Graphic: David Foster/Yahoo Finance)
SoSource Adriana Belmonte: MDs pactice less cost medicine 2019

SCO Pricing Disclaimer: Pricing for procedures include facility fee, surgeon's fee, anesthesiologist fees, initial consultation with surgeon, uncomplicated follow-up care.  Not included: in price of procedures are diagnostic studies prior to surgery like X-rays, MRI, physical therapy, rehabilitation, any hardware or implants. complications subsequent of surgery and discharge, lodging, travel expenses.

The number of DPC locations in United States has increased substantially over the past few years. Data from DPC Frontier, a pro-DPC organization, estimated there were 125 DPC practices in the United States in 2014. Three years later, that number increased to 620 practices, serving approximately 173,000 patients.

Source  Eskew: Map distribution of DPC in US 2021

Example of DPC practices in California:

Aimee Ostick, M.D. of Health & Healing Direct Primary Care in Woodland Hills, CA., is practicing unlimited patient-centered care in an appropriate setting – and all for a monthly fee that is less than the cost of most single PPO primary care visits. Listed Health & Healing’s fees to give reference for what you may typically see out in the marketplace: Pediatric with at least one adult membership $39/month; without adult membership $89/month;  Adult $89/month; Senior $99/month; Family $199/month – includes 2 adults, 2 children ($20/additional child) There is a one-time non-refundable $99 registration fee per household. After hours and home visits available within a 10-mile radius for a $99 per visit fee.  Corliss: Direct Primary Care in Los Angeles 2021

Santa Cruz Direct Primary Care fees online: Children $30/month With an adult membership; Adults ages 20-44 $69/month; Adults ages 45-64 $89/month; Adults ages 65+ $109/month. Santa Cruz Direct Primary Care

In the video below, “A New Way to Lower Healthcare Costs,” Dr. Keith Smith explains that the current crisis with sky-high costs and low quality in American healthcare is not the result of a failure of the free market (a common charge and popular misunderstanding), but just the opposite: a failure resulting from the absence of a free market in medicine. Big Government and Big Business have combined to create a cartel — a syndicate — in healthcare to limit patient options and keep prices high, and always climbing higher. One of the “revolutionary” innovations of the Surgery Center of Oklahoma (SCO) has been to be totally transparent in pricing, to post the full cost of surgeries (for surgeon, anesthesiologist, facility costs) online, so that consumers can compare prices and make fully-informed decisions that are going to dramatically impact their personal (or family, company) budgets.

Dr. Keith Smith; A new way to lower health care costs; Length = 6:37 mns.

Oklahoma Primary Care Movement Dr. Davenport; Length = 5:00 mns.

The Federal government hopes to display medical prices online: On July 9, 2021, President Biden signed an executive order, directing the Department of Health and Human Services (HHS) to continue enforcing the “price transparency initiatives for hospitals, other providers, and insurers” that were put in place by the Trump administration. The transparency rules aim to increase competition by allowing consumers to make an informed choice about their medical care. The order will be implemented in 2022 with limitations and will probably fall short of total online consumer transparency of medical prices and a free medical market system. This is a step toward transparency of pricing/cost but does not evolve a free health care market.

Summary: The current 2021 health care system is getting "a wake-up" competition from Oklahoma's Direct Primary Care model that also features Surgery Center of Oklahoma (SCO). The Oklahoma Direct Primary Care movement model has been implemented as a practice by medical doctors in many states [map above].

The dysfunctional health care system can also be fixed with universal health care that can economically make adjustments to become a free market system in which the prices for goods and services are self-regulated by buyers and sellers negotiated in an open market. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority, and from all forms of economic privilege, monopolies and artificial scarcities. In an idealized free-market economy, also called a liberal market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. This is not being done by third party insurance providers at this time.

Universal Health Care is not a totally free market system; as it would have the federal government intervening in regulating suppliers of medical goods and services. But such intervention can be worked out for an open health care market to the advantage of consumers.