Surgery Center of Oklahoma Blog

October 12, 2011

Ludwig von Mises and Prices

Filed under: Uncategorized — surgerycenterok @ 8:36 pm

Greetings from Washington, D.C.  What a strange place.  Like anywhere else there are folks here that are trying to do the right thing.  Then there’s almost everyone else.  I am here to discuss the connection between free market principles and health care, specifically, price transparency.  Having posted our surgical prices online makes our facility truly unique and has generated some interest at the national level.

I can’t help but think of the meaning of prices and how I owe my limited understanding of prices to the economists of what is referred to as the “Austrian School.”  The Godfather of this group was Ludwig von Mises, an intellectual giant, whose name few recognize.  My apologies for what follows if I butcher the material.  In a free market, prices indicate scarcity.  High prices generally mean that there’s not much of whatever commands the high price.  Low prices are an indication of an abundance of whatever is being sold.  The “right” price is referred to as the “market clearing price,” that price where the buyer and the seller both end up happy and still willing to make the voluntary exchange.

If I lowered my prices at the surgery center to “zero,” we would have more patients than we knew what to do with and would quickly run out of supplies and shortly thereafter, go out of business.  If I raised my prices to ten times what they are now, we would likely never see a patient.  We would have an abundance of supply and go broke.  In the former example, our artificially low prices would result in a shortage of the supply of care (we would be out of business!).  This intricate dance of the market is truly awesome, as both parties in any mutually beneficial exchange are actually better off (in terms of value) than they were prior to the transaction, otherwise, neither party would engage in the transaction (man acts in order to improve his current state or condition).

What’s the point?  The point is that Mises wrote a book called “Socialism.”  In it he makes the irrefutable case that without rational pricing, economic systems collapse.  If you don’t know what something costs, you don’t know whether to buy it or not.  You also lose the power of comparison, if no one tells you what stuff costs.  This is the case with health care.  Other than our facility, no one will tell you how much your hernia surgery will cost you.  How then, can you decide whether to do it?  Or how do you decide to have your surgery at one place or another?  The collapse of this “costless” health care system, is, I would argue, largely due to the lack of transparent pricing.  This is, in turn, due to market pricing distortions introduced by none other than our wonderful government bureaucrats who seem to think they know what stuff should cost.  When the bureaucrats get it wrong, and place artificially low prices on medical services, the demand outstrips supply and shortages result.  This pricing can be actual prices or price distortions caused by regulations.

What should be done?  Let the market set the prices.  Allow the price dance between the purchaser of health care and  those rendering the care to occur in an unfettered way.  Price wars between medical facilities would cause prices to crash and for the quality of the delivered product to soar.  Competition between businesses always benefits the consumer in this way.  I know of no businesses that avoid obeying this concept…health care is no different.

This is the message that I am delivering in Washington with Dr. Jane Orient, the backbone of AAPS (Association of American Physicians and Surgeons).  Cross your fingers with me that someone will hear us.

G. Keith Smith, M.D.

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1 Comment »

  1. That’s fantastic Keith. Let me know how it goes.

    Comment by Paul Harris — October 13, 2011 @ 12:28 pm

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