Healthcare Needs Suggested Retail Prices

Andrew Sullivan —  Oct 23 2012 @ 4:46pm

Andy Grove makes a fascinating comparison between the healthcare industry and the early car industry:

In the early 1950s, it was nearly impossible to know the value of an automobile. They had prices, yes, but these would differ radically from dealer to dealer, the customer a pawn in the hands of the seller. This all changed in 1958, when US senator Mike Monroney of Oklahoma shepherded a bill through Congress requiring that official pricing information be glued to the window of every new automobile sold in the US. The “Monroney sticker,” as it came to be known, has been with us ever since. It became an effective means of disclosing the manufacturer’s suggested retail price, or MSRP, and a billboard for other data disclosures to the consumer: the car’s fuel economy, its environmental rating, and so on. In economic terms, the sticker turned a failed market flummoxed by information asymmetry into something resembling a functioning, price-driven marketplace.

Grove argues "if there is ever an industry in need of a Senator Monroney today, it is health care":

Consider a recent study of the costs of routine appendectomies performed throughout California. Though the procedures were largely identical, the charges varied more than 100-fold—from $1,529 at the cheapest to $182,955 at the most expensive.

What accounted for this bizarre spread? Good question—but efforts to discover the answer turned out to be futile. Although the research highlighted how large the bills for these hospitalizations were, various costs were declared to be trade secrets.