Price and Value
One of the key principles of entrepreneurship is that the cost of a venture must be lower than the price that you charge, which must be lower than the value received by the customer for the good or service you provide. In this system, the consumer is the one who decides what the end value of a product is and how much they are willing to pay for it. The entrepreneur then sets a price low enough to encourage people to buy it, but higher than their costs. This is the basic formula that all entrepreneurs and businesses must use, with costs being really the only thing that the entrepreneur is able to choose. If this is the case, then why is the healthcare industry able to turn this upside down and shatter the widely accepted model that all other entrepreneurs must use?
The Healthcare Scam
In 2019, Keith Smith was on an episode of "EconTalks" in which he discussed this healthcare fiasco. He was once an anesthesiologist for a hospital, but decided that the system in which he was a part of was unfair and unreasonable. He and a fellow anesthesiologist left their jobs and founded the Surgery Center of Oklahoma. Their center is unique for two reasons. They have all their prices online, and they don't take insurance. He explains that the system of insurance within the healthcare world was essentially a scam. Hospitals give crazy high bills to patient's insurance who then negotiate it down to a more reasonable level, but the hospitals get money from the government for settling for the lower price, and the insurance company gets the benefit of claiming to save their customers thousands of dollars. One big circle of inflating costs just because they can. In their system, the hospitals, medical providers, and insurance companies are the ones telling the consumer what the price will be instead of the other way around.
Why Do We Allow It?
According to the Value > Price > Cost model I mentioned earlier, consumers are the ones who are supposed to determine value, then the businesses are supposed to price their services or goods accordingly. However, in general most people probably think that healthcare costs are too expensive. But the businesses aren't taking any notes from the consumer. Despite how some of these medical costs are financially crippling individuals, medical service providers do not alter their prices. They simply tell the consumer the price, and then the consumer gets to decide if their health or even life is worth paying that much. Or worse they don't disclose the price until after the service, locking you into paying whatever number they decide. This aspect of the broken price value model is devastating society.
Society seems to try to make an effort to curb these devastating and expensive blows, but often it feels like we are already locked in and there is nothing that can be done about the high prices. Some people need expensive medical treatment but simply cannot afford to pay for it themselves. This is why insurance reigns supreme. A broken system that is almost impossible to dig out of. For the foreseeable future, society and the medical price value discrepancy will continue its intertwined dance. Large bills will be delivered to patients, insurance will step in and pretend to be the hero, and people who can't afford it will be locked in a battle to pay for their health or lives. But there is hope.
Hope
There are always people who are trying to make a difference. Keith Smith is one of them. This is why as a society it is so important to find different options and not stand for broken systems. The more business that society gives to correct systems like Keith's, insurance and the medical field will be forced to take note and listen.