Economists tell us that setting the price of a good or service depends on market forces that balance supply and demand in order to optimize output with minimal waste. This dynamic is one of the marvels of competitive markets, where, with almost magical agility, prices constantly readjust toward an ideal value as consumers gravitate toward purchasing decisions based on desire and ability to pay.
Unfortunately, when it comes to pricing healthcare, these fundamental economic principles just don’t work. There are lots of rational reasons for this market breakdown: third-party payments mask the true price of a service; consumer decision-making is stifled because of poor information; and there are too few substitutable goods to ensure competition. Worst of all, prices are, for the most part, hidden or unavailable. Instead of having an efficient mechanism that safeguards value and quality, price setting in the U.S. health system too often defers to the actions of dominant stakeholders who charge whatever a lopsided marketplace will bear.